How is this for a slow land/property accum process?

Just a quick one,

have a friend of a friend who has recently done this, and has turned out well with no intentions and it has quirked my interest, is this a good strategy, a fast one, or a slow one, a bad one, or worth pursuing...

So here it goes, a friend of a friend has done this,
- put a $500 deposit on a $100k block of land
- 3 months later, its apparently gone up by $30k to $130k, so $30k equity
- using this $30k equity is building a house on this block for $100k in total
- so $70k is all that is required

its in one of these outer suburbs common with new estates,

so could you theoreteically do this over and over again to get control of a large property folio???

am i missing something here?
 
Can it be done repeatedly: Yes.

Limitations:

1. in the above example, there is a need to be able to service 70k + 99.5k = $169.5k loan per property

2. works in rising market. Not good if the value stagnates or falls after locking in contract


Note:

Pretty much works the same for existing properties - in a rising market, buy IP, wait 3 months, get it revlued, putll out equity, use as deposit for next etc.

Cheers,

The Y-man
 
So here it goes, a friend of a friend has done this,
- put a $500 deposit on a $100k block of land
- 3 months later, its apparently gone up by $30k to $130k, so $30k equity
- using this $30k equity is building a house on this block for $100k in total
- so $70k is all that is required

so could you theoreteically do this over and over again to get control of a large property folio???

am i missing something here?
Hi PM.

The loans in total would still be over $170K, i,e $100K for initial purchase of land (less $500) and then the extra $70K for construction of house, so these loan repayments would still have to be met.

Also, not sure if banks will lend on equity on land value.

Regards
Marty
 
Can you really build a house in Vic for $100k? What do you get for the money? Sounds cheap to me.

Also, not sure if banks will lend on equity on land value.

Marty, they would still be able to release the equity after the house is completed to pay for the next deposit so it would all work out in the wash.
 
What lender are they using that will accept 500 as a deposit on a 100000 purchase? that is only half a percent deposit. 5000 maybe?
 
Without commenting on the numbers, the general strategy is a sound one.

I have friends that have done this for a number of years but where they came un-stuck was in a market downturn in a new estate in Ballarat. (lost $80K)

The strategy only works in a rising market - as Y-man said.
 
Hi PM.

The loans in total would still be over $170K, i,e $100K for initial purchase of land (less $500) and then the extra $70K for construction of house, so these loan repayments would still have to be met.

Also, not sure if banks will lend on equity on land value.

Regards
Marty

Have I got this wrong or did he get $30K from nowhere? $30K in equity doesn't mean they just give you $30K for nothing.

The land was $100K. The house to build is $100K. That's $200K total cost.

What is the total value once built? If building to rent what are the yields.

Sounds good in theory I guess.
 
Purchase cost is still $200k!.
Equity is not free money, to make it clear if cash were used, cash required may only be 100k + 70K but repayments in your friends case are on 200k since he is simply using his equity to increase the loan.
So your friend owes $200k (or less depending on deposit of course) on a property worth maybe 230k, I guess he has accumulated 30k but this doesn`t happen like magic every time you buy land.
I`ll bet landscaping/fencing pathways maybe even painting, carpets etc not included by the time he finishes the house including interest will it be a worthwhile exercise, maybe, maybe not.
Accessing equity is dangerous, don`t do it especially in a market which could go either way.
 
Oh yeah... Doh! :D The 30k equity still has to come out as a loan.

Cheers,

The Y-man
Doh for me as well.

In my calculations I mentioned 170K, but know only too well that any equity used will obviously have to be calculated in with loan repayments.

Regards
Marty
 
So here it goes, a friend of a friend has done this
so could you theoreteically do this over and over again to get control of a large property folio???
Imho,It would work and could work quite well ,depending on the time frame and holding costs, but to make it work you would have to buy ten blocks at a time too make it work,and then itb would depend on your personal startup setup..imho..wilair..
 
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