Build 2 x townhouses or buy another IP?

Hi folks,

I have a dilema. I have an IP in Doncaster and I am unsure as to whether I should demolish and build two townhouses on it or buy another IP for future Capital growth. It's a solid brick veneer 3 bedder. Cost of build will be about $750K. If I don't build, I'll spend that money(and maybe a little more) on my next IP, in a blue chip suburb.

I've tried to break it down a little to help me, but not sure it has helped that much!

Build 2 x townhouses:

- Advantages

* Better rents
* Better tenants
* Less maintenance
* Depreciation on new dwellings
* Will be positively geared from the start and will allow me to buy another property later anyway

- Disadvantages

* Dealing with a builder and the stress of it. But I am good with stress at least.
* Build time
* No income from the IP for say 1 year - no big deal

Buy another IP

- Advantages

* Good Capital growth (potentially)

- Disadvantages

* Low rental return in blue chip suburb
* Average tenants, as with $800k in blue chip, you won't get much of a house
* Maintenance will be pretty high, as it will be an older house
* My Land Tax bill will go up.

I keep thinking I should buy another IP, but I am sick and tired of maintaining properties and would rather just live the lifestyle I have created for myself. Lots and lots of fishing and 4WD'ing. Ie. I'd rather do this than to paint or change tap washes on the weekends! But at the same time, I want to do what's best for me financially.

Am I missing something obvious which determines which way I go?

Please advise. Thanks!

If it were me I would purchase more property and do this 2 x townhouse development later on.

It is the land that appreciates and you wont eliminate the opportunity you have now by purchasing another ip, you will just delay it.

However if land values keep climbing and you do the 2 x townhouse development you may not be able to buy an ip in area that you are currently budgeting for at the moment.


put it this way,

if you dont build now and do something else, the only way the price can go is up!

you can do it anytime you want,
however, if you buy somewhere else, you can take advantage of a relatively hot market, and then build later or have the option to
Let yourself be guided by the numbers, what do you think the end values for the townhouses will be and the profit based on current market value for the land?
Depends what your whole portfolio and financial situation is now.

Are you in a position where you can do nothing but fish and 4WD now and are comfortably well off financially and where you want to be?
If so...would you consider doing nothing now as you are where you want to be?
Stockpile the money for when you are bored with fishing and 4WD.

If not ... which action will take you to where you want to be quicker.
And which one will you enjoy the most?
No point being where you want to be if you aren't enjoying it.
That one is definitely avoidable! Don't restrict yourself to one state.

Absolutely my vote would be keep the existing property, purchase more interstate, when you are ready to take a break from buying you can spend a year doing the development. You can choose your entry cost and cashflow profile at will based on where the new IP's are based.
Thank you for the replies. I think most of you hit the nail on the head. It's the "opportunity cost" which I haven't factored in. Clear as day now.

I toyed with the idea of buying interstate, but agents and tradespeople often take you for a ride. I'd rather pay more Land Tax and know I am not being ripped off.

Back to changing washers and painting on weekends again I guess. :)

PS. I'm not in a position financially to do as I please, so I'm still needing to build up my wealth.

Thanks again folks - Better hit the "Where to buy" forum now!
One of the tax driven issues in the original post is the VERY high depreciation and cap allowance deductions will be available on the new build. (Discuss with BMT I recommend) Also possible scrapping of some of the existing building on demo.

These matters can vastly change the calcs and are ignored by most.