All Topics / Help Needed! / To sell land or build?

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  • Profile photo of chillerchiller
    Participant
    @chiller
    Join Date: 2010
    Post Count: 11

    Hi, I am new to this forum and from Melbourne.

    I purchased a piece of land early this year and settled a few weeks ago.  The agent I bought it off was going to flip it for me before settlement but it never eventuated.  I was going to sell it but have now decided I might want to build and rent it out.  I don't know if I should do that right now or borrow to buy a house to rent out.  I'm also undecided as to whether I should buy a new house which comes with lots of tax savings or an existing house?  My investment loan also has a condition that I need to sell or build within 12 months. Please help!

    Profile photo of LHLH
    Participant
    @lh
    Join Date: 2010
    Post Count: 97

    Hi chiller.

    You have a few options available to you and it depends on your long term goals.
    Where abouts is the land? I'm taking a stab but I'd guess in the outer western (Tarneit, Truganina) or northern (Sth Morang, Mernda) regions? If so there are a raft of properties you could select to develop.

    The new house will get you some Stamp Duty savings and depreciation benefits, but will obviously take time to build, and you might find the long term capital appreciation in those areas not as strong as the inner suburban areas where the same amount of money may only be able to purchase an apartment (either brand new or existing although I have a personal preference for existing apartments in small developments – say maximum of 16 in the block).
    Do you have your own home? If not then you have the option of living in this for 6 months and claiming the First Home Owners Grant ($7K for established or $20K if you are going to build).

    A problem with selling and buying again is you will have capital gains tax, or possibly might even sell at a loss, selling costs from the agent and then purchasing costs for the new property and exit fees from your current loan (depending on the lender these fees could be small or very high).

    You can also investigate refinancing the loan on the land to buy you time although you will pay the same fess to exit this loan and in the long term may not be the best option.

    I'd sugegst that you think about what long term goals you have and whether this property is going to deliver those goals for you.
    Weigh up capital appreciation vs yield vs any potential tax savings as this will help deliver you to the right outcome.

    Profile photo of chillerchiller
    Participant
    @chiller
    Join Date: 2010
    Post Count: 11

    Thanks LH for your comments, much appreciated!

    To answer your questions – the land is in Pakenham and yes I have my own home.  Yes, the reason why I decided not to sell the land straight away is because of the CGT and because I won't be making much from it if I sell so soon.  However, since it is not providing me with an income by way of rent, I am undecided as to whether I should borrow money to build or to invest in another property I can rent out.  What would you do?

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