Hi everyone.
Im just out of high school and new to this web-site and the whole concept of investing in real estate and the like, soo go easy on me. But i have an idea i've been thinking about recently (nothing im going to pursue simply because im just out of high school and no money or job), and would like your thaughts on it, if im thinking in the right direction or just fantisizing a best case scenario.Here it goes…
There is this flat, long (approx 89m x 23m) vacant half acre property just locally, with zoning of R30, legally allowing 6 separate dwellings. The seller is asking $600k. And taking into account that our BIG 5×2 house cost $200k to build, I would imagine that you could build 6 2×1 units on that block (some buy bulk deal with the construction company) for $100k each. I would also allow $100k to site works.After looking on various real estate web-sites, I only found 1 similar property available for rent in the area asking $500 a week, and 1 similar for sale, asking $500k.
Rams are currently doing a 7.5% interest fixed-rate on a 95% of the property home mortgage, so the repayments would be $2000 a week and the rent received would be $3000 a week (provided that all the units are renting). So my question is… Would this be a good low-risk investment??? provided you had the $65k down payment. keeping in mind that all the numbers are approximate…
As stated before, this is only an idea, but it seems so simple and fool proof to me. Of course you would have to include the insurance, rates, and repairs, but even so…. To me, you would still make a profit.
I would love if someone could correct me on what the real cost for the above idea would be (any expenses i haven't included, the price of building 6 2×1 units…etc). Thanks in advance for all your comments and i hope it wasn't too long.
Ben.Hi Ben
Welcome to the forum mate and hope you enjoy your time with us.
Must say i love your enthusiasm but in the real world there are a few finance facts you need to be aware of.
Not a snows hope in hell any lender is going to give you more than 80% of the land purchase price and construction costs and even if they did for a 6 unit construction are going to expect you to be able to support the end loan without taking into consideration interest and then are probably going to want to see some good asset backing and previous development experience.
Anything above 80% is mortgage insured and is more likely to require Credit scoring. The higher the lvr the higher the credit score requirement and you wont find any lender do 95% of anything more than probably a duplex block of 2 units.
Whilst you might get 90% lvr with units on the same Title again you would expected to demonstrate good stability in income, savings and prior experience.
The Rams loan is like many other standard residential lenders product merely a marketing tool or statement and the fact as to whether they ever do such a lvr is a different matter.
Also bear in mind every time a lender makes an enquiry on the status of your Credit by an application, enquiry etc it goes against you and will effect your scoring.
As i say love the enthusiasm but start slowly and small read and learn as much as you can and then you can work upto the bigger deals once you have some runs on the board and some good equity backing behind you.
FInal observation in the development area there are hard and soft costs, some of which lenders will advance against others they wont and expect you to front up with these funds. You are also potentially liable for GST on the end sales price if you decide to sell any of the units and most lenders lend against net GST value.
There is a big difference.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks for the reply Richard.
I knew there was something i was missing
Thanks again for the reply and kind words…God Bless
BenHi Ben
I take my hat off to you! Bloody well done on tackling this little project. If you are starting this way Ben you will go a long way in property investing and you will be very successful.
Richard has pointed out some very valid facts, but put that little personal lending obstacle aside for the moment and see if you can work out if this project is still viable with the new facts.
Let's say you are not 16 with no job or credit history. Let's assume you have a reasonable credit history and can loan the finance, or someone you know can and re go over the calculations and due diligence again just to see if your 'hunch' is in fact a good investment. I think this exercise will be more valuable to you.
Recalculate the total costs of the project. ( purchase, closing costs & lending costs, holding costs over the time allocated for the project, construction costs, subdivision, plans, permits, council costs & fees, finishing costs ( landscaping, fencing, water, elec, phone, etc). Allocate what amount is required from a lender to see what cash you will need to put in.
Then work out your returns. If you rent, how much income after prop mge, interest, rates, insurance, utilities & maintenance will you be left with. If you want to sell, what is the sell price that you can attain today? ( less sales costs – agent & settlement fees).
All the best with the project.
Ian
http://www.theblockblog.com
Free Property Investment Info, Tool & Resources for Investors with a Sense of Humour.Ben by the way we have assumed that you are 18 or over as you cannot enter into a Contract to Buy land until such time as you over 18.
Good luck
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks for the idea Ian. I will have a deeper look into it purely for an educational exercise.
Richard, does that 18+ rule apply to built up real estate as well? Or is it only vacant land?
Thanks again for all the kind words and imput!
God Bless
BenHi Ben
Yes have to be 18+ to buy anything.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks Richard.
God Bless
Ben
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