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From: Mike .


Building new homes/units
From: Bricklayer
Date: 12 Jan 2001
Time: 20:08:00

Being my 1st post on this forum and only recently finding it after reading Jans books, i'd like to say what an interesting and informative place to learn from experienced investors and non experienced alike. Keep up the good work all.

Being a bricklayer obviously with contacts in the trade i'm sure i can build new homes or units relatively cheap compared to buying recently built new dwellings. Also some garden brickwork and rolling out the lawn etc should save me some dollars and add value immediately.

Now the question: would i be better setting up principal loan compared to fixed because original loan will be covered so easily, eg i expect to buy land 30k 2 units cost 60k each total 150k. Property to be valued at conservatively 220k total=70k equity. Rent $175 each=$1400 month. Fortunately its quick equity and i'm just wondering what u guys and girls out there think would be my best options considering i'm able to take advantage of my trade.

I'm 32 and currently own 1 home 200k and another owing 80k with a value of 160k. Look forward to your responses.
 
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Gee Cee

Reply: 1
From: Mike .


Re: Building new homes/units
From: Gee Cee
Date: 16 Jan 2001
Time: 13:57:20

Great to hear from someone in the building trade.

I am not actually a builder but more a developer. As well I hold a number of longer term investments. Eg blocks of units/houses / townhouses.

At present I can make a nice return by having projects built, landscaped and set up as a turnkey property for a investor or home owner.

I only build in progressive growth areas and watch closely the supply/demand for any area I am building in.

If I were you I would be building then selling and putting the profit back into another project again.

If you do come to a situation where you cannot sell - hold the property as an investment.

Just don't get too big too quick.

Regards, Gee Cee
 
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Michael Croft

Reply: 1.1
From: Mike .


Re: Building new homes/units
From: Michael Croft
Date: 13 Jan 2001
Time: 06:29:52

G'day Bricky, As you're in the trade the temptation is to think new, but consider a hybrid. That is buy an older property in a good/upcoming area with a decent block of land. Buy, renovate and hold the first then build on the other half of the block. You get better cashflow, better yields 10-14%, usually closer to the CBD and hence better cap gains.

Yes it does require more research, not as easy a buying a vacant block in the sticks, but the returns are definitely worth the effort. Anyway you're on the right track, good luck. Michael
 
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Mike

Reply: 1.1.1
From: Mike .


Re: Building new homes/units
From: Mike
Date: 12 Jan 2001
Time: 22:41:16

Hi Bricklayer,

Good to hear from a builder. The property game has many facets to it and building is obviously an important one so we look forward to hearing from you more often as your strategy develops. Can I make an educated guess and say that you are not from Sydney since there is not much vacant land here to build on.

Before answering your question can I ask you to re-evaluate the rent ($175pw) versus the retail value of the property ($220,000). If you multiply the rent by 52 and then calculate the perannum rent as a percentage of the property value, you determine the rental yield which is usually between 5% to 7% in the capital cities and up to 10% to 12% in the country regions. However, the rental yield on your figures is a skinny 4.14%. So you have either overvalued the property or underestimated the rent. If we take 5% as the minimum, then the property would be worth $182,000 at a rent of $175pw or if the property sells for $220,000 then the investor would be expecting about $212pw.

These are apparently minor matters since you will have made a quick gain. It sounds like your strategy is to build and hold rather than build and sell. If holding, Interest Only is the way to go since your cashflow situation is much better because your repayments are less than a Principal & Interest loan. If you find that you are building up too much surplus cash between projects then I would have at least one P&I loan with an Offset account that saves interest and can be used to either reduce the Principal in lump sums or as a source of "at call" funds to pay for some building expenses etc. if and when needed.

Anyway, in the future let us have a look at some of your handiwork and we may buy something off you. Good luck.

Regards, Mike
 
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Michael Croft

Reply: 1.1.1.1
From: Mike .


Re: Building new homes/units
From: Michael Croft
Date: 13 Jan 2001
Time: 06:33:20

Hi Mike, Great name you've got! A minor error in your calcs. He is talking two units at $175 pw which doubles the yield. Michael
 
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Mike

Reply: 1.1.1.1.1
From: Mike .


Oops! Yield is 8.3%. Thanks, Michael
From: Mike
Date: 13 Jan 2001
Time: 21:50:43
 
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