Building an IP against buying one

Wish for some ideas on which is better:

1. building and IP in an area where once finished i can get 10-20% greater valuation once all costs have been included (on current prices) over 10mth building period. Cost is about $340k for a 4 bed, 23 square house.

2. buying an IP and hope the valuation increases.

I have considered all lending, purchasing, interest, finishing, rates, etc costs in the cost of the built IP.
Anything missing?
 
Wish for some ideas on which is better:

1. building and IP in an area where once finished i can get 10-20% greater valuation once all costs have been included (on current prices) over 10mth building period. Cost is about $340k for a 4 bed, 23 square house.

2. buying an IP and hope the valuation increases.

I have considered all lending, purchasing, interest, finishing, rates, etc costs in the cost of the built IP.
Anything missing?

I haven't done number 1, And last time I checked, "hope" wasn't an investment strategy! :D

But, with number 2, if you buy in a location with the right fundamentals and good demand, then prices should increase. Hence, your valuation should increase. Or you could do a reno to potentially improve the value instead.

A lot of that will depend on your time frame. With 1, you can potentially see the increase in value on the day you get the keys; with number 2, it might take several months, (or at least the reno time) before you see growth.
 
I'm not quite sure this is the correct forum for your query.

It depends on a lot of things that can't be quantified. For example, the build and rent scenario relies on the assumption that there will be no surprises (eg builder going bankrupt or being deregistered by relevant building authorities, building material price increases, fun with council approvals) and that all budgeted figures end up being correct.

As a lazy and uninteresting investor, I've always favored the buy scenario. You miss out on the potential build profit that could be available, but there are fewer surprises and you don't have to play loan repayments with no income coming from the property during that time.

Proper research and criteria eliminates the need for hope as an investment strategy. Mostly.
 
Wish for some ideas on which is better:

1. building and IP in an area where once finished i can get 10-20% greater valuation once all costs have been included (on current prices) over 10mth building period. Cost is about $340k for a 4 bed, 23 square house.

2. buying an IP and hope the valuation increases.

I have considered all lending, purchasing, interest, finishing, rates, etc costs in the cost of the built IP.
Anything missing?

I would be interested in reading the responses to this as I have been looking at exactly the same scenarios right down to the price and size of the building option.

I am leaning towards the building option at the moment. :)
 
I'm not quite sure this is the correct forum for your query.

It depends on a lot of things that can't be quantified. For example, the build and rent scenario relies on the assumption that there will be no surprises (eg builder going bankrupt or being deregistered by relevant building authorities, building material price increases, fun with council approvals) and that all budgeted figures end up being correct.

As a lazy and uninteresting investor, I've always favored the buy scenario. You miss out on the potential build profit that could be available, but there are fewer surprises and you don't have to play loan repayments with no income coming from the property during that time.

Proper research and criteria eliminates the need for hope as an investment strategy. Mostly.

Any interest and costs associated with the building scenario are claimable against the rent for that year. Even if nobody is in it yet. There is a Public Ruling for it at the ATO. So all interest and costs to get it to the rentable state are claimable.
 
I'm not quite sure this is the correct forum for your query.

It depends on a lot of things that can't be quantified. For example, the build and rent scenario relies on the assumption that there will be no surprises (eg builder going bankrupt or being deregistered by relevant building authorities, building material price increases, fun with council approvals) and that all budgeted figures end up being correct.

As a lazy and uninteresting investor, I've always favored the buy scenario. You miss out on the potential build profit that could be available, but there are fewer surprises and you don't have to play loan repayments with no income coming from the property during that time.

Proper research and criteria eliminates the need for hope as an investment strategy. Mostly.

If you get a fixed price contract generally the builder pays all costs except phone connection and crossover driveways. So price blowouts are their expense.
 
We have chosen the build and rent path, we looked extensively at both options, but in the end the instant build profit you get (as long as you play it smart) won out.

We are just about to start building again, cost will be $320k to rentable state, similar houses selling for $380k. It's a nice little(big) bonus for going through the hassles of building.

Don't expect to squeeze that much equity out of it though when the bank does their valuations. From our experience with our PPOR they take build cost( which in our case was cheap as we did a lot of work ourselves, painting, tiling, driveway etc) and added about 5% which is WAY below market value, but that is to be expected I guess.

The place we are about to build now we are doing nothing ourselves apart from the grass, so it will be interesting to see what their valuation comes back at when it is finished.

+1 for build and rent.
 
Any interest and costs associated with the building scenario are claimable against the rent for that year. Even if nobody is in it yet. There is a Public Ruling for it at the ATO. So all interest and costs to get it to the rentable state are claimable.

Did I mention I wrote an article about that?
https://www.accounting.eknowhow.com..._view.asp?id=117&nav_cat_id=127&nav_top_id=55

Making something deductible still doesn't make it feasible.

In any event, this is not a tax or accounting question, its an investment strategy question.
 
Did I mention I wrote an article about that?
https://www.accounting.eknowhow.com..._view.asp?id=117&nav_cat_id=127&nav_top_id=55

Making something deductible still doesn't make it feasible.

In any event, this is not a tax or accounting question, its an investment strategy question.

This is an accounting question as I asked "is there anthing missing"

I.E. accounting wise can we claim more the first few years for a newly built house compared to an existing residence.. sorry i should have spealt it out better for you..
 
This is an accounting question as I asked "is there anthing missing"

I.E. accounting wise can we claim more the first few years for a newly built house compared to an existing residence.. sorry i should have spealt it out better for you..

You will likely get higher depreciation for the first few years...
 
I haven't done number 1, And last time I checked, "hope" wasn't an investment strategy! :D

But, with number 2, if you buy in a location with the right fundamentals and good demand, then prices should increase. Hence, your valuation should increase. Or you could do a reno to potentially improve the value instead.

A lot of that will depend on your time frame. With 1, you can potentially see the increase in value on the day you get the keys; with number 2, it might take several months, (or at least the reno time) before you see growth.

You will likely get higher depreciation for the first few years...

Is "likely" an Investment stategy? Sounds like "hope"ful thinking..lol
 
Is "likely" an Investment stategy? Sounds like "hope"ful thinking..lol

Touche! ;). [Excuse]The depreciation WILL be higher for the first few years compared to an established property, but the benefits will vary depending on an individual's tax position. [/excuse]
 
I am currently pondering this conundrum myself.... buy or build?

I have determined that:

Build =
1. higher risk as costs could blow out (ie. building delays etc...)
2. larger time commitment to see through until rented
3. potential for greater comaprable CG upon completion
4. good tax offset for high income year (ie. build Jan-Jun, no rent, all costs offset against other income)
Choose for greatest tax offset & potential up front CG


Buy =
1. lower cost risk
2. harder to generate quick CG (note: I said harder not impossible)
3. Lower time commitment to rent stage.
4. potentially lower depreciation offset if not a newly finished build (which it probably wouldn't be for me)
Choose for lower potential risk, quickest cashflow

That's about where I have got to in last couple of weeks; for what it's worth.
 
I am currently pondering this conundrum myself.... buy or build?

I have determined that:

Build =
1. higher risk as costs could blow out (ie. building delays etc...)
2. larger time commitment to see through until rented
3. potential for greater comaprable CG upon completion
4. good tax offset for high income year (ie. build Jan-Jun, no rent, all costs offset against other income)
Choose for greatest tax offset & potential up front CG


Buy =
1. lower cost risk
2. harder to generate quick CG (note: I said harder not impossible)
3. Lower time commitment to rent stage.
4. potentially lower depreciation offset if not a newly finished build (which it probably wouldn't be for me)
Choose for lower potential risk, quickest cashflow

That's about where I have got to in last couple of weeks; for what it's worth.

"1. higher risk as costs could blow out (ie. building delays etc...)"

Most builders offer fixed cost, set time contracts. Any blow out is their loss, and longer time to build they pay you a penalty equal to comparative rent for area. Typical HIA contracts do anyhow.
I cat see many +'s for buying straight up, who sells within 6mths if it goes bad anyhow?
 
"1. higher risk as costs could blow out (ie. building delays etc...)"

Most builders offer fixed cost, set time contracts. Any blow out is their loss, and longer time to build they pay you a penalty equal to comparative rent for area. Typical HIA contracts do anyhow.
I cat see many +'s for buying straight up, who sells within 6mths if it goes bad anyhow?

Legs, in reality the penalty is no where near typical rent. Any delay in the building time frame is costly to the developer.

Gools
 
Legs, in reality the penalty is no where near typical rent. Any delay in the building time frame is costly to the developer.

Gools

I dont understand how you think reality is not what the contract states? This is why we have contracts and you must assure that the specific section is represented by an appropriate figure. I.E. the figure represents what typically the developer would be at a loss if constrction were to be delayed.
Contract law is very interesting.
 
Interesting topic.

When you refer to builders, do you mean you go to one of the big building companies who have standard homes and display houses you can see and you choose a "house" for them to build? Or do you get your own architect to design a house an a smaller scale builder to build it etc......

Just curious as to what most of you do....

Cheers!
 
Interesting topic.

When you refer to builders, do you mean you go to one of the big building companies who have standard homes and display houses you can see and you choose a "house" for them to build? Or do you get your own architect to design a house an a smaller scale builder to build it etc......

Just curious as to what most of you do....

Cheers!

Depends on what you want. But either way if you get them to use a standard HIA contract, you're covered for unexpected delays.
Alot of the major builders let you make subtle chnages to their designs, an architect designed one will undoubtedly cost more.
 
If you have the time, money and inclination, you could consider maximising your building investment and "manufacturing" some equity by building two or more at once. It takes longer (if you have to do the planning, however, properties can be found where someone has already done planning) and it's inherently higher risk by virtue of increased exposure, but the rewards should also be commensurate with that risk.
The benefit is that you are establishing the "investment infrastructure" like loans, depreciation schedules and fesibility work for two or more properties at once. This saves time and money. The return should also be extrapolated over the number of properties.
 
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