Developing in Perth

Hi all. We are hoping to do our first small development project towards the end of the year. We are thinking of buying a block of land in a high growth area in Perth and build a home, live in it for 6 months (to get the CGT exemption as our PPOP) and then rent it out, refinance and repeat the process. My husband is a builder so we are hoping to keep the costs down.

I was wondering if anyone had any suggestions where we should buy? I was looking at Stirling, Dianella, Karinyup and Como. We ideally want to spend no more than $800,000 for the land and construction.

Also, do we have to have lived in it for 6 months to nominate it as our PPOR?

Your thoughts would be greatly appreciated :)
 
You won't get full CGT exemption if you rent it out. The time it was rented as a percentage of the time you owned it, will be the same percentage of the value that you have to pay CGT on.

It's your PPOR as long as you are living in it.

The CGT reduction to 50% applies to rental properties that have been owned for 12 months or longer. If you sell within 12 months of it becoming a rental property you will be up for 100% CGT
 
Ok I just re-read your post and it sounds like you're not planning on selling, you only pay CGT when you sell. So when you do go to sell any of these properties you've built... see my last post re CGT :)

800k for house and land is pretty pricey to be doing over and over without selling. How do you plan on servicing the loans?
 
You only have to live in it 6 mins to say its your PPOR.:D
Long as all the services are in your name and its listed as your residential address, and the electrol roll says the same.
 
Young guns

From the way that I read your post you are only building one house?
I would do your sums very carefully as it is difficult to find vacant blocks for single developments which return a profit (I am not saying there arent any, but you will have to look very hard!). Even doing duplex's in Perth now have low returns (sub 5%) and normally arent worth the risk. Triplexes are probably out of your price range.

There are however many opportunities to add value to down trodden houses (renovations etc) which will have a smaller capital outlay and have better %returns. Also the turn around times are much better. You can also make the house you PPOR while you are doing the renovations. You dont need to physically live there just make it your PPOR. Send me a PM and I will give you some hints on how to do this.

The fact that your hubby is a builder actually scares me. Generally speaking tradesmen put their own work off, as it does not pay the bills now. While he may be able to do the job cheaper - chances are he will take longer. Unless you pay one of his mates to do it, I wouldnt recomend this strategy (only my 2c). In development terms - your interest bill is normally the largest unknown variable, and generally makes or breaks the development.

The areas you have selected I quite like (even though you have spead far and wide). Como is good. Karrinyup is expensive. Take a look also at areas like Yokine & Tuart Hill which are my favourite. :D

Gooram - My understanding of CGT is that you buy a PPOR, and then rent it out you have a 7year window where it is still CGT free. However, if you buy, rent it out, then make it you PPOR, then sell it, it moves to a % calculation. Im not an accountant so could be wrong (it happened once before:D).

Best of good things to you :)

Blacky
 
Hi all. We are hoping to do our first small development project towards the end of the year. We are thinking of buying a block of land in a high growth area in Perth and build a home, live in it for 6 months (to get the CGT exemption as our PPOP) and then rent it out, refinance and repeat the process. My husband is a builder so we are hoping to keep the costs down.

I was wondering if anyone had any suggestions where we should buy? I was looking at Stirling, Dianella, Karinyup and Como. We ideally want to spend no more than $800,000 for the land and construction.

Also, do we have to have lived in it for 6 months to nominate it as our PPOR?

Your thoughts would be greatly appreciated :)

I honestly don't mean to rain on your parade, but $800k land and build is just not going to happen.

A duplex lot in Karrinyup is $770k-ish, without houses.
A duplex lot in Dianella is $650k-ish.
A duplex lot in Como would be drug money.
And a duplex lot in Stirling is about the same as Dianella.

Then add construction.

3x2 DG 120sqm living about 210k each turn key to a sepcification to suit the area - high ceilings, stone tops etc.

then add things like civils, stamps, stat fees....

I think you should focus on smaller growth areas. Maybe try and pick up a duplex sized front strata lot in Westminster / Innaloo and subdivide.

Or Wembley.

Or Morley.

etc etc etc.
 
Gooram - My understanding of CGT is that you buy a PPOR, and then rent it out you have a 7year window where it is still CGT free. However, if you buy, rent it out, then make it you PPOR, then sell it, it moves to a % calculation. Im not an accountant so could be wrong (it happened once before:D).

Pretty sure that 7 year exemption only applies if you don't have another PPOR at the time it is being rented, i.e. you can leave the country for 7 years and rent it out, but you cannot buy another and move in there and still claim the CGT exemption on the rented property...
 
Gooram sounds on track with CGT, except I thought it was 6 years.

If you sell before one year after a development, you may be up for GST as well.

But I guess the OP didn't mention selling.

Which comes to Gooram's other point, how are you planning to rinse and repeat the process?
 
Pretty sure that 7 year exemption only applies if you don't have another PPOR at the time it is being rented, i.e. you can leave the country for 7 years and rent it out, but you cannot buy another and move in there and still claim the CGT exemption on the rented property...

Ok - I didnt know about that.
But in this case they are making the new purchase their PPOR so if they live there for 6 months, then rent it out, it will be CGT free (provided they dont purchase another PPOR).
 
There are however many opportunities to add value to down trodden houses (renovations etc) which will have a smaller capital outlay and have better %returns. Also the turn around times are much better.

Blacky what areas do you as good specifically for reno? may be looking for a new PPOR soon but never done the reno thing.
 
Ahh - million dollar question, and it depends a bit on your strategy.
If you are talking about a reno for your PPOR, i really cant help you. Mainly because the area you want to live in will determine what house you buy - not what house will get you the best returns.

What is your strategy?

If you have never done it before, start small - really small. The first flip I did was a nice enough house, but the garden was over grown to hell. So basically we just cleaned up the garden then paid about $13,000 for a landscaper to finish the garden off nicely. Even then, we blew our budget, it took longer than we imagined, it took longer to sell etc etc etc etc.

You will discover expenses you could never have dreamed of.

Are you planning on doing the work yourself - or paying someone else to? If you are doing it yourself - stick to your strengths. Are you a professional painter? if not, pay one (or do a coarse or something). Are you a tiler? if not, pay one. If you are not a tradesman (like me)you are pretty well limited to the destruction part of the flip :D(the fun easy bit) - then call in the pros. They will be able to do it better, faster cheaper than you will. Yes, you will have problems with tradies - but it will pale to insignificance in the long run.

But I havent really answered your question though, have I? Areas - I look for the older established areas which are growing. Areas like Tuart hill, Yokine, Wembley, Innaloo are all good - but often have higher capital outlay.
Hamilton hill, south lakes, south freo, freo, north freo, Melville, Bently - all have opportunities.
Again - depends on your strategy. If you are going to hold and rent - I like Bently because rents are high for what you pay. I used to like flipping in Rockingham/safety bay - but currently about about 1 in 3 houses are on the market and rents are dismal (I have a house on the market there if you want a newly renovated 2 story, big block, ocean views.... :D) sorry back on track.

Now days I cant even be bothered looking for houses, I pay a buyers agent to do that for me. So I have been breaking out of my comfort zone a bit recently. I cant recomend this method highly enough!!!

Hope this helps
Blacky
 
does help thanks. will be lookign for a new PPOR and thought i would take the opportunity to give this a bash and hopefully manufature a bit of free equity in the process. my usual style is just throw a house on a block but a reno could prove less cash hungry. i am pretty much useless so yeh restrit me to the demo
 
Hi all. We are hoping to do our first small development project towards the end of the year. We are thinking of buying a block of land in a high growth area in Perth and build a home, live in it for 6 months (to get the CGT exemption as our PPOP) and then rent it out, refinance and repeat the process. My husband is a builder so we are hoping to keep the costs down.

I was wondering if anyone had any suggestions where we should buy? I was looking at Stirling, Dianella, Karinyup and Como. We ideally want to spend no more than $800,000 for the land and construction.

Also, do we have to have lived in it for 6 months to nominate it as our PPOR?

Your thoughts would be greatly appreciated :)

mAYBE you should purchase something like this?

http://www.realestate.com.au/property-house-wa-bassendean-106574700
 
does help thanks. will be lookign for a new PPOR and thought i would take the opportunity to give this a bash and hopefully manufature a bit of free equity in the process. my usual style is just throw a house on a block but a reno could prove less cash hungry. i am pretty much useless so yeh restrit me to the demo

Here's a reno one for you Aus, the painting on the wall is by Rolf Harris, maybe that'll add a bit of value??

http://www.realestate.com.au/property-house-wa-ashfield-106581132
 
Hi Blacky and everyone else,

Thanks so much for the advice and I apologise for the for the late reply. Two sick kiddies and a sick husband at the moment!

I take on board everything people have said so far, particularly regarding repeating the process, our holding costs will get rather high. Our main strategy is to buy and hold, but we would consider a few quick flips to keep the cash flow coming in. When I say my husband is a builder, he has his builder's licence and plans to tender out the job and use some of his contacts for a few things like windows etc. He will not be doing it himself!

We have decided our next purchase really needs to be our new PPOR (we are growing out of our 3x1 in Kingsley rather fast and plan to turn this into a rental) and we would like to build and try and manufacture some equity to help with further investments. We are not sure how long we will stay hear for and it may well become another rental eventually but we don't know yet. So, we want to make sure we do buy in a high growth area still.

I love Wembley but it is really pricey and we would love to be somewhere along the coast like Trigg but again we would hope to do the whole project for less than a $mil. Our ultimate goal is to be down Nedlands way eventually. My hubby also likes Ocean Reef (new marina etc) and Mullaloo.Too many options I think.

We have considered using a buyers agent to assist. May I ask who you are using? Also, do you have any thoughts on where would be a good place for PPOR at the moment?

Thanks again :)
 
Hi Young Guns
I use Emma Everett at Momentum Wealth in East Perth as my buyers agent & development manager. In the future I will probably also use them as a finance broker and property agent.
I cant recomend Emma E highly enough. To a point now, where I will never buy a property without using her. Time for effort for value, cant beat it. As an example my last purchase I made while I was on a fishing holiday in the NW, and saved (after paying her fee) about $37k from market value. It was the most relaxing purhase I ever made. I didnt spend any weekends house hunting, speaking with agents (my pet hate is realestate agents) or negotiating - my role was limited to signing the documents and paying the $$. Too easy.

I strongly recomend giving her a call.
(ps - no I dont get any commission or added value for referrals - I just like getting good (and bad) reomendations myself).

As for where to buy a PPOR - I am biased. I have always lived in the western 'burbs, so am biased towards that area. However I also love Freo so would look to live there also.
My dream PPOR however is my block in Geraldton which I will build on once I have the $$ to do it properly. Less than 500m from the beach and 180d ocean views. Bring on retirement I say!

Cheers
Blacky
 
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