Hi again….another question looking for some thoughts. I am thinking for our first IP that we will look for a house and land package to maximise depreciation etc. Anyone know or used someone reputable/decent in this respect that they can recommend?
Also have previously had some dealings with Custodian Wealth Builders and would be interested on peoples take on these sorts of investment group companies.
Have a great day
Hi Kate and Tony
The biggest issue with new properties is that you generally pay a premium and you can't add value through renovations.
I'm not sure how the company you've mentioned operates but if their profiting from the sale of the property then you'll need to work out whether that's at your expense.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi kate and Tony,
I agree with Jamie.
I work in the building industry and know that you will get a better value property (trying to be tactful) if you don’t go through this type of company.If you educate yourself and negotiate well and do your due diligence.
you could go to the area that they are selling in and deal directly with the land developer and a builder yourself, go to a few builders as they are pretty competitive at the moment.also be careful about how many lots in the one sub division they have purchased, I know of one development where they have purchased a lot of the blocks, this means you have a heck of a lot of rentals coming on the market at the same time.
There was one company not the one discussed in the previous post, emailed every builder in Sydney asking for packages with large commissions built into the price. Then emailed their list, saying they had researched the market and found the best deals in the best areas for them. needles t say I did not deal with this company.
you will pay the price of education in some way better it be not buying a not so good investment property.
cheers
MichelleThanks Michelle,
I have pretty much decided that I will not be going through an investment company such as Custodian but rather deal with a builder myself. I have found one here in Brisbane who seems ok and he pretty much said the same things you are saying. I think the only reason I was looking at Custodian was because I wasn't educated enough but as I learn more I feel confident to do it myself
I would argue unless you can build the property at cost price why go through the pain when you can buy a new property already completed or something a year or 2 old. Depreciation / Capital Allowance levels are still nice and high.
Just financed a couple of excellent properties in Morningside that are new but never occupied and Depreciation was excellent.
Have to say to yourself though "why are we buying" is it for long term cash flow or short term Tax breaks.
There is a big difference when it comes to the purchase price in the eyes of a marketeer.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Kate and Tony,
No property should be bought because it 'maximises depreciation' – it should be bought becuase it meets your end goal of providing capital growth and/or cashflow depending upon your aims.
Depreciation is the icing on the cake and not the cake itself.
I mean if your goal really is to maximise depreciation – buy a unit where depreciation, as a percentage of purchase price, is greater.
Thanks everyone for your comments. Our goal is to eventually acquire a portfolio of properties to build wealth for the long term thus capital growth is important. However don't want to harm our present cash flow too much that is we dont want a property that is going to have a significant shortfall each week that we will have to make up.
Sorry Richard when I say dealing with a builder we were looking at some properties that we would buy new on completion thus taking the whole construction phase out. I think that's the way we are leaning. I guess we could also look on real estate.com? for newish properties as well?
Remember that only way to access capital growth is to either borrow against the equity which will not be tax deductible if it is for personal reasons or to sell the property.
When you sell the property everything you have claimed by way of a Capital Allowance is taken off the initial purchase price thus increasing the Capital Gains Tax payable.
ATO attitude is you can't have it both ways forever.
As Derek mentioned CA & Dep is the icing. The cake should be able to support itself either now or in the future.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks Richard. But accumulating a set of investment properties for wealth is surely a good strategy is it not? I guess my wife and I would like to have choices when we retire.
In regards to your second sentence are you saying that even though you get all the tax benefits and deductions now the ATO take back a share when you sell through capital gains (i.e the cant have your cake and eat it as well!)
My opinion on house and land packages offered by developers and Property Marketing Comanies (PMC) is that I don't believe that they always offer the benefits promised and that there are better ways you can search for a good performing property yourself. Here's some hints.
Overall these properties are being sold by PMC who, as others have pointed out, are often inflated in terms of price to hide the excessive commissions that these companies are charging the developers to sell the properties to their client data bases. Of course the property marketing companies deny this, but rest assured the scenario posted above by Michelle is far more common than most would expect. Secondly there are the myraid of problems that can be experienced by the house and land buyers both during the build, and in the first couple of years afterwards. This is the period when any defects come to light and you don't want to the one in the drivers seat trying to sort the mess out! Rest assured, at this point the PMC won't want to know you. By then they have secured their commission and are busy looking for other suckers. They will blame the market , the GFC, the Floods, or anything else they can think of, for your woes.
Anyway, it all comes back to what the market is prepared to pay at any given time and this is why I believe the investment bargains can often be found found in those properties that were first sold to naive investors by PMC as say house and land packages, or off the plan unit developments, that have come back on the market within 2 or 3 years. At this point there are several factors in your favor as an investor buyer.
1) In most cases if there are any problems with the build (or perhaps the excavation of the site etc) it will more often than not come to the surface in the first couple of years. The second buyer can avoid all the dramas and legal battles associated with any problems. One way or other the first buyer will have to fix them.
2) Many of the sellers at this point have discovered that the property marketing company they dealt with has led them in a very highly leveraged financial position. Many are desperate to get out of their financial ,mess. They become very motivated sellers. Many take a big hit as they discover they can't get anything like what they paid for the property 3 – 5 years earlier. Despite all the excuses they get from the PMC about this, they end up the losers unless they can afford to hold for the long term. Many can't and are forced to sell. If you are the buyer you can often secure the property for it's true market value or in some cases (mortgagee sales) significantly under market value.
3) By the time a few years have passed, you can far more easily see the effects that the rapid building of properties in the particular area has had on the actual rental returns and property values. The property hot spot that the marketing company was spruiking so much about at point of sale, has rapidly turned into a property freeze spot! I have seen many cases where the projected rental returns and capital gains for these properties have been way over estimated by these marketing companies at point of sale, just to secure them a commission. They will fall back on all sorts of disclaimers and quickly deny responsibility when the returns don't meet expectations. All those promises of continued customer support quickly evaporate.
So my advice is don't be lazy and use a marketing company for the convenience of what they offer, unless you don't mind feeding their cleverly disguised machines.
KateandTony wrote:Thanks Michelle,I have pretty much decided that I will not be going through an investment company such as Custodian but rather deal with a builder myself. I have found one here in Brisbane who seems ok and he pretty much said the same things you are saying. I think the only reason I was looking at Custodian was because I wasn't educated enough but as I learn more I feel confident to do it myself
A wise move KateandTony
Great advice from a number of people in this thread – The world of house and land packages has certainly changed over the last 20 years that I have been involved in the industry and I am aware that commissions of $25,000 to $40,000 are being loaded into packages being offered by the property marketing companies, Spruikers and Buyers groups out there.
ALWAYS do your homework and its pretty simple to check out the price of land in the area and get a couple of quotes from local builders. The thing is some of the PMC's and buyers groups are now getting smart and doing deals directly with Builders and developers by "Taking out" a portion of an estate off the plan in prepurchase agreements and then onselling them to investors at full retail price that they set. In doing so it helps the builder/developers justify higher prices themselves. And so the increasing cost spiral continues.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
