H&L investment experiences

[Green Grass]

Hi all,
The new versus established debate is a common subject here, given it is often particularly attractive to new investors (who do not wish to buy old and renovate).

Many experienced investors are often critical of buying H&L given the risks of paying a premium (due to the developer marketing above the market land price to cover their marketing costs) and also being exposed to build risk with contract variations etc hitting their pockets.

I have read here how buying H&L means over capitalising on a depreciating asset, I.e the new build cost. I would argue the depreciation benefits you are 'buying' on a new property might equate to the renovations costs of an old property, the increased maintenance costs and the hassle factor of project managing a reno or DIY.

So while I have read here a fair bit of negativity around H&L, and fully respect these views, I am particularly interested in hearing where investors have felt buying H&L worked well for them or did not. I have read here far more negative comments than positive so would like to hear some success stories too.

Please post where and when you bought H&L packages and whether you continue to have H&L as part of your investment strategy or regret having done so.

Thanks
GG

 

[j_p]

H&L package isn't a term I like. A builder is just putting one of their houses on a block of land you could buy yourself separately, they don't actually own the land, in most cases anyway.

Depreciation benefits are not a good reason to buy an investment property, if this is the thing that makes your investment viable you should look elsewhere. Depreciation is just icing.

Most areas that offer H&L packages are new estates with plenty of supply and competition. Think about what drives any market, supply and demand. You are moving into an area with lots of supply (new land) able to soak up the demand.

Amenities in these new areas often aren't constructed at completion. People will likely want to be in an area with supermarkets, schools, jobs, etc etc.

Having said all that I'm about to finish a build in a new area that will hopefully do well over the next 10 years even if the first few are a bit slow. From what I can tell I should be able to revalue and get some equity out to go again shortly after completion. I'll probably put this towards an establish property in an established area.

 

[jpcashflow]

Hi

Hi,

House and land packages are great for people who are looking at getting into a new area with a new home.

But from an investment point of view there are many risks or limited gain:
1) Oversupply of housing - that really do not differ from each other
2) I am seeing allot of investors buy h and L packages because of so called tax perks only to find that the rent returns that where promised are not occurring.
3) Limited scope in terms of what you can do with house.

My opinion great to live in but not to invest in...

 

[ej89]

Hi all,
The new versus established debate is a common subject here, given it is often particularly attractive to new investors (who do not wish to buy old and renovate).

Many experienced investors are often critical of buying H&L given the risks of paying a premium (due to the developer marketing above the market land price to cover their marketing costs) and also being exposed to build risk with contract variations etc hitting their pockets.

I have read here how buying H&L means over capitalising on a depreciating asset, I.e the new build cost. I would argue the depreciation benefits you are 'buying' on a new property might equate to the renovations costs of an old property, the increased maintenance costs and the hassle factor of project managing a reno or DIY.

So while I have read here a fair bit of negativity around H&L, and fully respect these views, I am particularly interested in hearing where investors have felt buying H&L worked well for them or did not. I have read here far more negative comments than positive so would like to hear some success stories too.

Please post where and when you bought H&L packages and whether you continue to have H&L as part of your investment strategy or regret having done so.

Thanks
GG

If it helps you feel better.. my mates bought a H&L package in Elizabeth Hills for 615k 1.5 yrs ago.. that house is worth 850k now..

My other mate bought a H&L in Carnes Hill for 575 6 months ago.. Now they're 650k.. This doesn't mean everyone will do the same though..

I guess it all depends on your financial situation.. You may not be able to get a construction loan and pay progress payments, and may have to put 5-10% down and the rest on settlement of house in 1.5 yrs so that may be beneficial to you.. Kinda like off the plan stuff.. You obviously have to be careful where you buy H&L though.. Call up each estate and ask em how quick they sell their land and how quick they sell their houses.. Look at the western part of Melbourne. Point Cook has had the same prices for H&L for the last 1.5 yrs cos there's an oversupply...

 

[jpcashflow]

ej89 makes a great point about point cook....

Other areas like Truganina have been struggling too.

 

[Biz]

If it helps you feel better.. my mates bought a H&L package in Elizabeth Hills for 615k 1.5 yrs ago.. that house is worth 850k now..

My other mate bought a H&L in Carnes Hill for 575 6 months ago.. Now they're 650k.. This doesn't mean everyone will do the same though..

That is only because of the boom right across Sydney at the moment. Rising tide lifts all ships.

Once the boom dies off these area will stagnate for years and years while the landlocked areas closer into town will creep along at 3-5% growth. Elizabeth Hill and Carnes Hill are pretty much land locked now as all the new developments are further out. It's the stuff in Oran park, gregory hills etc that I would be very wary of.

It's not just the supply of land that holds the prices back but also the developers margins in the land itself that adds 80-100k to the price of a block. You need 10 years for this to depreciate from the price.

 

[ej89]

That is only because of the boom right across Sydney at the moment. Rising tide lifts all ships.

Once the boom dies off these area will stagnate for years and years while the landlocked areas closer into town will creep along at 3-5% growth. Elizabeth Hill and Carnes Hill are pretty much land locked now as all the new developments are further out. It's the stuff in Oran park, gregory hills etc that I would be very wary of.

It's not just the supply of land that holds the prices back but also the developers margins in the land itself that adds 80-100k to the price of a block. You need 10 years for this to depreciate from the price.

My question would be though what difference is it while waiting for it to depreciate from the price? If I buy land that is 300sqm now for 300k but the next person buys it for 340k in the next release what happens there?

Do you think when the boom is over there will be a decrease in land price? The expensive land prices all over the west don't seem to have an effect with bank valuations..

How do you feel about Schofields, Riverstone, Marsden Park? There's a lot of land there but it's bloody expensive..

People are buying H & L packages for 650-700k in SWS atm whereas I believe I can get a similar house complete if I picked my builder for 550k.. That in my opinion is the only way to make instant equity with new homes.. My mate is building a complete project home in Jordan Springs for 470k.. The house and land packages for the same type of house and same land are 600k at the moment.. At the time he bought his land the packages were 540k.

I've seen it not just in Sydney but a few places in Qld..Brightwater estate in Sunshine Coast got ridiculously more expensive as well with the more releases they did in the last 1.5 yrs. Same as Caloundra..

 

[jippa3000]

ej89 is on the money here.

If you do the figures on the H&L and they work out then what's so bad about them?

We don't do H&L as such but I packaged up a block and turn key house for a client last week and I am seriously considering buying the block 2 doors down and doing the same because it worked out to be such a good deal.

 

[Biz]

My question would be though what difference is it while waiting for it to depreciate from the price? If I buy land that is 300sqm now for 300k but the next person buys it for 340k in the next release what happens there?

Not sure I understand that

Do you think when the boom is over there will be a decrease in land price? The expensive land prices all over the west don't seem to have an effect with bank valuations..

They don't so much decrease, they just don't increase like established stuff. There isn't big discounting generally because developers like Australand, Bovis etc are fat enough to absorb prices and they release in stages to avoid over supplying the market

How do you feel about Schofields, Riverstone, Marsden Park? There's a lot of land there but it's bloody expensive..

Yep, avoid

People are buying H & L packages for 650-700k in SWS atm whereas I believe I can get a similar house complete if I picked my builder for 550k.. That in my opinion is the only way to make instant equity with new homes.. My mate is building a complete project home in Jordan Springs for 470k.. The house and land packages for the same type of house and same land are 600k at the moment.. At the time he bought his land the packages were 540k.

For sure you want to be picking your own builder rather than being locked into someone. You might come out ahead if you did that but it is the market increasing making you're margin rather than the exercise of building. You could buy a dump in Lurnea today and probably flick it for a profit in 6 months doing basically nothing

I've seen it not just in Sydney but a few places in Qld..Brightwater estate in Sunshine Coast got ridiculously more expensive as well with the more releases they did in the last 1.5 yrs. Same as Caloundra..


The releases only increase in price if the market is there to support it.

answers in red

 

[Biz]

ej89 is on the money here.

If you do the figures on the H&L and they work out then what's so bad about them?

We don't do H&L as such but I packaged up a block and turn key house for a client last week and I am seriously considering buying the block 2 doors down and doing the same because it worked out to be such a good deal.

I assumed the original question was about buying the property as an investment - buy and hold type situation.

If we are talking about developing spec homes on subdivision blocks that is a different question. As I said aboive though you could make money doing pretty much nothing at the moment.

 

[ej89]

answers in red

Why avoid Northwest growth centre? Let's say you get land for 320k and build for 250k.. You have a whole package there for 570k..It'd be a small 4 bedroom house but still decent when the house and land packages are starting at 680k now for the same thing.. Tough thing is that it's almost impossible to buy land in NW growth centre now.

 

[Biz]

Why avoid Northwest growth centre? Let's say you get land for 320k and build for 250k.. You have a whole package there for 570k..It'd be a small 4 bedroom house but still decent when the house and land packages are starting at 680k now for the same thing.. Tough thing is that it's almost impossible to buy land in NW growth centre now.

Can you provide some examples?

It's been 6 or 7 years since i have looked at h&l properly but back then there wasnt much difference between buying a package or bringing your own land. 10k perhaps and some more negotiating power. Over 100k sounds extreme.

 

[ej89]

Can you provide some examples?

It's been 6 or 7 years since i have looked at h&l properly but back then there wasnt much difference between buying a package or bringing your own land. 10k perhaps and some more negotiating power. Over 100k sounds extreme.

I'll pm you the examples.

 

[kamchatsky]

Why avoid Northwest growth centre? Let's say you get land for 320k and build for 250k.. You have a whole package there for 570k..It'd be a small 4 bedroom house but still decent when the house and land packages are starting at 680k now for the same thing.. Tough thing is that it's almost impossible to buy land in NW growth centre now.

What do you mean almost impossible to buy land at NW? I looked at the realestate.com.au and noticed that there are plenty of land and H&L packages on sale on NW suburbs.

 

[wombat777]

If you carefully select a builder, good pricing is achievable. I saved about 15% on typical project home costs for a comparable mid-high quality fitout similar to the mainstream builders. My initial contact with them was a consequence of a word-of-mouth referral.

Look for smaller builders that have reasonable volume but not the profile of the bigger companies. Be very careful with your due diligence on them though. Check out their build times and try and visit homes almost at completion.

 

[Green Grass]

Depreciation benefits are not a good reason to buy an investment property, if this is the thing that makes your investment viable you should look elsewhere. Depreciation is just icing.

Thanks to all who have posted on this today. I am looking for a long term hold rather to flip post construction. H&L has appealed for me because the holding costs appear lower than for established. Yields for established are sub 5% in most metro areas (at least in inner and middle rings) and therefore achieving neutral cash flow prior to tax benefits which was my focus has been challenging. As a high rate tax payer, these benefits can be substantial.

Responses here appear to indicate that in most or all cases, these increased tax benefits may be at the expense of capital growth during the first 3-5 years.

I have been looking at Greenvale in Victoria and did not think over supply would be a major issue. There are a few developers there but with seemingly limited stock remaining. Much of the land in West Greenvale is not zoned for residential (I have been told) and there does not appear to be much development activity between it and the to the city. Plenty of course 5km north at Craigieburn. Greenvale is 20/25km from the City which appeared much more attractive than Casey. Strong population growth is forecast for Hume - +60% by 2031.

My budget is max $600k, preferable closer to $550k. This is my first IP and I want to get it right first time of course! Looking at Melbourne and Brisbane actively and have spent great deal of time weighing up H&L versus established. I have not seen many established properties in my budget within 15km of capital cities that do not need renovating prior to tenancy. Given my first IP will be interstate, I do not want to be renovating immediately post purchase as this will be difficult to manage.

Thanks.GG

 

[ej89]

What do you mean almost impossible to buy land at NW? I looked at the realestate.com.au and noticed that there are plenty of land and H&L packages on sale on NW suburbs.

H&L packages are different to actual land by itself..

 

[ej89]

Thanks to all who have posted on this today. I am looking for a long term hold rather to flip post construction. H&L has appealed for me because the holding costs appear lower than for established. Yields for established are sub 5% in most metro areas (at least in inner and middle rings) and therefore achieving neutral cash flow prior to tax benefits which was my focus has been challenging. As a high rate tax payer, these benefits can be substantial.

Responses here appear to indicate that in most or all cases, these increased tax benefits may be at the expense of capital growth during the first 3-5 years.

I have been looking at Greenvale in Victoria and did not think over supply would be a major issue. There are a few developers there but with seemingly limited stock remaining. Much of the land in West Greenvale is not zoned for residential (I have been told) and there does not appear to be much development activity between it and the to the city. Plenty of course 5km north at Craigieburn. Greenvale is 20/25km from the City which appeared much more attractive than Casey. Strong population growth is forecast for Hume - +60% by 2031.

My budget is max $600k, preferable closer to $550k. This is my first IP and I want to get it right first time of course! Looking at Melbourne and Brisbane actively and have spent great deal of time weighing up H&L versus established. I have not seen many established properties in my budget within 15km of capital cities that do not need renovating prior to tenancy. Given my first IP will be interstate, I do not want to be renovating immediately post purchase as this will be difficult to manage.

Thanks.GG

600k within 15km of a cbd? you can find that in every city except Sydney..

 

[cheekykoon]

Anyone heard of Slab Heave in Hume?

 

[kamchatsky]

H&L packages are different to actual land by itself..

I can see quite a number of land sales ads in Schofields and Riverstone at Realestate.com.au.