First IP ... Land-House Package vs Buy Land, build

Hello All,

My partner and I intend to buy an IP and are tossing over the idea of whether buy a land and build a house on it OR go for a Land and house package.

With the former option, yes there is a bit of running around and may turn out to be cheaper (Stamp duty less as only on Land) but can be stressful. With the later option, yes it may be stress free but you will be slugged with higher stamp duty (Stamp duty on the entire sum).

Any ideas and/or adivse would be greatly appreciated.

Thx !!
 
Hiya

from a finance perspective in most markets for those with low to moderate equity, I prefer a h+L deal.

I have had too many deals where the land has settled and 90 to 180 days later was worth much less once a house was on it, and the comparable recent sales dragged the end product down so far that the borrowers could not complete

ta
rolf
 
Hi Aviena,

I know it's not what you asked, but how did you come to the decision to build new as opposed to buying existing property that's already in place in an established suburb?

Is it something that was considered and didn't fit for some reason?
 
Hi Aviena,

I know it's not what you asked, but how did you come to the decision to build new as opposed to buying existing property that's already in place in an established suburb?

Is it something that was considered and didn't fit for some reason?

Hi Danwatto,

My PPOR was built (bought a land first and then built on it). The advantage of this approach was:
- Got the house built as per my liking, had my own customized floor plan
- was able to negotiate better with builders and saved heaps upfront
- stamp duty was less (only on the land component) and not on house component.
- the downside was there was quite a bit of running around

I could have gone for an off the plan house or a already build new house. With this approach
- couldn't have negotiated as much as to my liking
- couldn't have much say in terms of changing the floor plans
- had to pay more stamp duty (that is on land + house combined value)

Hope it helps.

thx.
 
Any ideas and/or adivse would be greatly appreciated.

Aviena, what and where to buy is dependent upon your chosen investment strategy.

You see property is merely the vehicle. Your strategy is how you intend driving that vehicle.

Unfortunately the mistake I see newbies and sometimes not so newbies is that they are property focused instead of strategy focused which is like putting the cart before the horse.

Property investing is not about property rather about the strategy and the way you intend to use the vehicle to get to where you are wanting to go. No good buying a small shopping car if you intend driving interstate on a family holiday.

What strategy/s are best for you is determined by where you are wanting to go, the time frame you want to get there in and how hands on along the way you want to be - all based around your personal risk profile.

I hope this provides some food for thought.

What is your chosen investment strategy?
 
Thanks Rixter.

My investment strategy is not any different to what most of the new investors have when they initially set out in this path. That is to have a positive cash flow after 50's and not having to slug it hard for it (passive income).

That's at a high level and will evolve as I get more familiar with the IP strategies and techniques. I've started to read magazines and articles on IP and how to build a portfolio to get a better handle on the Process and how to chart out a investment plan.

Please feel free to suggest some investment strategies that you may have successfully employed thus far or any experiences or lesson learnt good or bad.

Thx.
 
I would humbly suggest land and house package. Building can only contribute to delays and in the meantime you are still paying interest on your construction loan.

We looked at doing that in Epping Vic with buying a block then building a house on it for approx. 400k, had a builder approved. All signed up to buy the land from the government (they owned the land) - Vicurban. They conveniently forgot to tell us about a major easement at the back of the block which would restrict the size of the house. needless to say we had good grounds to get out of the contract in the cooling off period and get our deposit back.
 
Please feel free to suggest some investment strategies that you may have successfully employed thus far or any experiences or lesson learnt good or bad.

Aviena, this is a post that describes my chosen Investment Strategy that involves Villas & Townhouses. It maybe of interest to you as it suits what you are wanting to achieve..

The capital growth averaging (CGA) strategy I employ utilises a regular purchasing cycle similar to what Dollar Cost Averaging is to the sharemarket. The major underlying principle to its success is it relies on your "time in" the market, NOT "timing" the market, and never never sell. So in other words it does not matter whether you buy at the top of a boom or at the bottom, just so long as you purchase good quality, well located property in high density areas ( metro area capital cities), at or below fair market value, on a regular basis.

We've basically been purchasing an IP per year and to date we've built a multi $million property portfolio spread across Australia.

We've been purchasing new or near new property over older style property for several reasons, the main ones being (in no particular order) -

1/ To maximise my Non-Cash deductions
2/ To minimise my maintenance & repair costs
3/ More modern & Attractive to tenants - thereby minimising potential vacancy rates
4/ Ask a higher rent - thereby Maximising yields

Without getting into the "which is better debate, houses or Units??", I prefer to purchase Townhouses & Villas with courtyards of 30% or greater land area thereby eliminating multi story units / high rise apartments with balcony's, for several reasons. The mains ones being (in no particular order) -

1/ lower maintenance & upkeep for the tenant
2/ lower purchase or entry level into a Higher capital growth suburb area
3/ rapidly growing marketplace (starting both now & into the future) wanting these type properties. This is due the largest group of people to ever be born (being the Baby boomers and Empty nesters) starting to come into their retirement years. They will be wanting to downsize for the following main reasons - lifestyle & economic.
4/ greater tax advantages & effectiveness thus maximises cash flow.
5/ able to hold more individual properties spread across your portfolio - thereby minimising area over exposure risks by not holding all your eggs in only a few baskets, so to speak

I look to buy in areas with a historic Cap growth of 7%pa and/or are under gentrification. I look to where the Govt, Commercial, Retail, private sectors are injecting money. This ultimately beautifies the area and people like the looks so move in creating demand.

I have found this works well if you are looking for short to medium term capital growth so as to leverage against and build your portfolio faster.

Getting back to CGA, as the name suggests it averages out the capital growth achieved on individual properties with your portfolio throughout an entire property cycle, taking into account that property doubles in value every 7 - 10 years. Thats 7%pa compounding.

The easiest way to explain what Im meaning by this is to provide a basic example taking into account that all your portfolio cash flow will be serviced via Wages in the acquisition stage, Rental income, the Tax man, an LOC and/or Cashbond structure, and any other forms of income you have available.

For ease of calculation lets say we buy a property for $250k, so in 10 years its now worth $500k. Now lets say we do that each year for the next 7-10 years. Now you can quit the rat race.

So in year 11 ( 10 years since your 1st Ip) you have 250K equity in IP1 you can draw out (up to 80%) Tax free to fund your lifestyle or invest with. In year 12 you do exactly the same but instead of drawing it from IP1 you draw it from IP2. In year 13 you do the same to IP3, in year 14 to IP4, etc etc etc. You systematically go right through your portfolio year by year until you have redrawn from each property up to year 20.

So what do you do after you get year 20 I hear you say ?? hmmm..well thats where it all falls into a deep hole - You have to go get a JOB - nope only joking!

You simply go back to that first IP you purchased as its been 10 years since you drew upon it first time around and its now doubled in value ($1M) yet again - so you complete the entire cycle once again. In fact chances are you never drew each property up 80% lvr max , so not only have you got entire property cycle of growth to spend you still have what you left in it first time round that compounded big time. Now you wealth is compounding faster than you can spend it! What a problem to have

Getting back to what I said in my opening paragraph about it does not matter where you buy within a property cycle just so long as you do buy, This is because you will not be wanting to draw upon it until 10 years later after its achieved a complete cycle of growth.

Well that?s the Basic Big Picture of CGA. Once set up & structured correctly it?s a self perpetuating source of tax free income indexed for life!

For further information please follow the links to these "We've Done it" and "We've Done it Again" threads I started some time back.

If you require any clarifications just ask.
 
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Hello All,

My partner and I intend to buy an IP and are tossing over the idea of whether buy a land and build a house on it OR go for a Land and house package.

With the former option, yes there is a bit of running around and may turn out to be cheaper (Stamp duty less as only on Land) but can be stressful. With the later option, yes it may be stress free but you will be slugged with higher stamp duty (Stamp duty on the entire sum).

Any ideas and/or adivse would be greatly appreciated.

Thx !!

Is there any advantage with house & land packages on cost to outweigh the other option (buy land, organise builder yourself)?
 
depends on the area sometimes in new developments if there is a lot of houses / townhouses just completed and for sale then the price can be cheaper the buying the land then building.
 
For ease of calculation lets say we buy a property for $250k, so in 10 years its now worth $500k. Now lets say we do that each year for the next 7-10 years. Now you can quit the rat race.
.

Thanks Rixter for the explanation.

I understand the strategy and with you on that, but what I find hard to work out is the execution of it. So say if I do buy 1st IP in year 2015, then as per plan, I would require to buy 2nd IP in 2016 and so on. In order to buy the 2nd IP, I will need to fork out an initial deposit (20%) or would require to pay the LMI. So I can either rely on the 1st IP equity (hoping it has appreciated in value) or have dip into my savings (which may not be much as most of it were directed as a deposit for 1st IP).
What are your thoughts here? Any ways out (I must be missing sth here) :confused:
 
Thanks Rixter for the explanation.

I understand the strategy and with you on that, but what I find hard to work out is the execution of it. So say if I do buy 1st IP in year 2015, then as per plan, I would require to buy 2nd IP in 2016 and so on. In order to buy the 2nd IP, I will need to fork out an initial deposit (20%) or would require to pay the LMI. So I can either rely on the 1st IP equity (hoping it has appreciated in value) or have dip into my savings (which may not be much as most of it were directed as a deposit for 1st IP).
What are your thoughts here? Any ways out (I must be missing sth here) :confused:

Good points.... you need to fund deposits for purchases. Options on this you may have: PPOR equity (either own or some one else's), equity in current IP or elsewhere, savings, joint venture, etc. In my situation I tapped PPOR & IP's.
 
Good points.... you need to fund deposits for purchases. Options on this you may have: PPOR equity (either own or some one else's), equity in current IP or elsewhere, savings, joint venture, etc. In my situation I tapped PPOR & IP's.

Is this the secret to success?
 
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