Hi There,
My husband and me bought a property with the intention of building a duplex. This was purchased about a year and a half ago. The fibro cottage needed some work and we did a little bit of work in order to rent and getting quite a reasonable rent. However, since there is no depreciation for old houses we have quite a significant holding cost. (about $18,000 a year after what we get from ATO). If we build a duplex now we will be borrowing another $450-$500k. However, when we rent out both properties and with depreciation on two brand new properties, our holding cost will be aroung $5ooo for both properties. So the most sensible thing is to go ahead and build. My only worry is since we will be holding a debt of nearly $1million, should there be a property crash, would we be left holding the baby?
In the last two years since our purchase, properties in the are has gone up around 7%pa. It is located in an area that is about 15km to the sydney cbd and with good transport. By the way, we will be torens titling the two, so they would have their individual titles. Please advise.Thanks, Opportunity
It depends on your attitude to risk. It is expensive to build and the costs are increasing. Values may decrease a little. You may end up with negative equity. However, if you've done your numbers properly, you will be in front. Building projects have a habit of blowing out. There will be unexpected costs, delays and frustrations with subdivion. These problems will drain your cashflow. It seems the return for your risk is pretty low. I would sit on it over the next 6 months and just get a bit more of an idea where the market is heading.
Thank you Chis for your opinion. Did u realise the holding cost at present is over $18000 pa and if we build it is going to reduce to around $5000 pa. On that basis, we assumed it might be a good idea to build since we are saving around 13k-15k a year.
I am very interested to see more opinions.Cheers,
Opportunity
If your numbers are right, that is the case. As I mentioned, building costs have a bad habit of blowing out. Your return may not be as good as you are hoping as the debts may end up being more. It's your call. Nobody makes it without taking some risks. Consider that the houses may be worth less than it costs you to build them. What if you have to sell them? If you can cover the repayments, why not do it? If you are in a position to hang onto them and will be able to afford the repayments, it's a winner. The numbers give you the answer you seek. How accurate are your calculations?
Hi Oppertunity
I think your main concern is the near 1 million debt. I also think you are basing your desision on saving on the holding costs too much. You want to build in order to reduce your holding costs. ie Borrow another 5ook in order to save 13,000 pa on holding costs. My question is before you brought this place did you realise the true holding costs (18000) ? Also consider the impact on your current life style paying off an extra 500K. How old will you be before you have any equity in the place? If and I say If propery prices fall what will be the situation. I feel your holding cost are very expencive and you now realise this going in bebt to 1 mill. in the current economic climate may be somthing you may regreat. Just some food for thourght. All the best with your desishion.
Cheers
T…………
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