Cheaper way to grow a portfolio?

[hudbry]

Hi everyone.

I was just hoping to get your thoughts and ideas on a strategy a friend told me about years ago that worked for his family and wonder if it might work for me.

Here it is:

His parents inherited a small property on a piece of land in St Kilda, Melbourne.
They wanted to knock it down to build a larger house but the costs proved too expensive.
A builder approached them suggesting an idea. Subdivide the land, and he would build 2 properties free of charge on the land and as payment he would keep one of the properties whilst the parents kept the other.

I personally love the simplicity of this approach and wondered:

- How realistic it is in today's market?
- is it really that simple?
- how do you think a local builder would react to such a proposal?
- What are the tax implications if any?
- What are the legal implications?

It is a strategy that seems rather old school but is something that appeals to me and would love to hear if anyone has done something similar or has any knowledge or advice on the subject.

I would assume that the type of land you buy and the area you buy in are essential to attract a builder. The final houses/villas would need to be of a value that would cover the construction costs and more for the builder.

I'm quite aware that this might be a completely fanciful idea and it's likely to be shot down, but I'd still like to ask the questions and see the answers.

Thanks in advance for your time.

 

[pinkboy]

Inheriting property could be a matter of days or decades away. How long are you willing to wait?


pinkboy

 

[james start]

Inheriting property could be a matter of days or decades away. How long are you willing to wait?


pinkboy

I think he's talking about buying land and having house built for free some type of trade off

 

[pinkboy]

I think he's talking about buying land and having house built for free some type of trade off

Buying land and inheriting a property are miles apart in financial position. 'Buying' would either come from cash or equity, creating a large opportunity cost that 'inheriting' is free from.

Wildly different scenarios.

pinkboy

 

[james start]

Buying land and inheriting a property are miles apart in financial position. 'Buying' would either come from cash or equity, creating a large opportunity cost that 'inheriting' is free from.

Wildly different scenarios.

pinkboy

Oh ok, how knowledgable you are , but I think you'll find that the op still wants to "buy" some land and have some houses built for free .

 

[pinkboy]

Oh ok, how knowledgable you are , but I think you'll find that the op still wants to "buy" some land and have some houses built for free .

I know exactly what the OP is trying to achieve.


Scenario 1: OP inherits land. Builder comes along and agrees to subdivide and build 2x houses, keeping 1 for free as his contribution and subsequent profit in the deal. Cost OP $0 (ok, very little) and has a house.

Scenario 2: OP buys land for $500k using $100k cash and $400k loan from lender. Builder still comes along and subdivides the land, builds 2x houses, keeping 1 for free as his contribution and subsequent profit in the deal. Cost to OP = $100k opportunity cost, $400k loan which they will have to pay interest on, and has a piece of land half the size originally bought with a depreciating house on it = $500k cost (plus SD, soli etc).


Wildly different scenarios.


pinkboy

 

[hudbry]

Hi there James and Pinkboy.

I appreciate your comments. James is right, I'm looking to buy land rather than an inheritance.

I'm looking at land to a max of $200,000, closer to $150,000.
3-4 bed villas/houses selling for $380,000-$450,000
I have no idea of builders cost prices for a 4 bed villa.

Initial outlay is pretty small whilst theoretically generating my own capital gain for me of $100,000-$150,000. Rental yields are also good.

The figures sort of stack up on this basic model but I need someone to give me a reality check and give me summer advice. I know a builder would be the obvious first step but thought I'd ask you guys first.
My lack of knowledge of the process, of costings, the legal and taxation issues are my concern.

 

[SK Investments]

Why would a builder swap $250-300k worth of building for $100k worth of land? This is essentially the scenario here.

The subdivided land value needs to be more than the cost of the build to be a worthwhile trade for a builder imo.

 

[Big Will]

exactly builders are very much about the $$$..

Also if a builder did do it who would look after it how do you know the finish/quality he would do, look up off the plan stuff and the implications there is with that this is now off the drawing board stuff lol

He might screw you on your property to make his better.

It would be better to sell the land to the builder and buy when he has plans if you still like it or better find something else or buy once completed.

 

[DaveM]

From S$88k per unit, 10% guaranteed returns per year for 10 years

Let me guess, guaranteed by a private company with no assets and a $10 paid up share capital, aka worthless