How much should I spend on an investment property?

I'm looking to build and investment property south of Perth city and whilst the land seems reasonable and has a good rate of growth the options of builders is never ending and varying, my instincts tell me to go with a well know reputable builder who is slightly more expensive (Dale Alcock) rather than a cheaper builder to maximise my profit.

Everyone who finds out that I am building an investment property has told me that the house I'm planning to build is too expensive $175k (plus land 165k) and I should pick the cheapest house possible - I have seen similar plans to the type I am building (4x2, double garage, alfresco, theatre room, air con) and they are 10,20,30 even 40k cheaper but is cheap really best when investing?

I'm not looking to build a portfolio of investment properties this is the first and it is just to get myself on the property ladder, I will sell it in 2 years and buy my own home.

Any advice?
 
My main corncer in regards to price is:

a) can I afford it?
b) what is it likely to be valued at?
c) what is it likely to rent for?

It certainly isn't worth paying more then you need to.
 
... my instincts tell me to go with a well know reputable builder who is slightly more expensive (Dale Alcock) rather than a cheaper builder to maximise my profit.
So you are going to spend more money to maximise profit? :confused: Mmmmmm.

Everyone who finds out that I am building an investment property has told me that the house I'm planning to build is too expensive $175k (plus land 165k)
AND, potential purchasers are saying that the house IS too expensive? And still 'your instincts' (finely honed from years of investment and building) are telling you to spend more? :rolleyes:

- I have seen similar plans to the type I am building (4x2, double garage, alfresco, theatre room, air con) and they are 10,20,30 even 40k cheaper but is cheap really best when investing?
A valuer will value on comparable sales of other 4x2's. The builder won't come into the equation.

I'm not looking to build a portfolio of investment properties this is the first and it is just to get myself on the property ladder, I will sell it in 2 years and buy my own home.

2 years is too short a time frame to be guaranteed a profit from a build & sell. If there is a profit there - fine. Better IMO to refinance some cash out of it to use as a deposit on the next one.

You should be, IMO, seeking to have a property, at the end of the build period, to be worth around, or slightly below, the median price for the suburb you are building in.
 
I am kind of heading down the same path. I will build a 4x2 but it will be at the cheaper end of the scale. No point paying $50,000 or more to fancy it up if the price increase isnt reflected in the rent i will achieve. That being said i will not build a shoe box either as it has to be attractive to rent and i want the valuation to come in at a good price. Surrounding houses are guiding my choice also.
 
Everyone who finds out that I am building an investment property....(4x2, double garage, alfresco, theatre room, air con) ?

So you're going to rent it out for 2 years? Well, unless the cost is in some structural design that is going to show up in 2 years, finish etc won't matter that much, because your teants will do an accelerated wear and tear for you, so you *may* need to repaint, recarpet, relandscape anyway when you come to sell....

Cheers,

The Y-man
 
If you are thinking of selling in 2 years I'd be looking at what the demand is for the area.
What do buyers demand at the moment (cheaper housing or willing to pay for the extras)?
I assume you have looked at the figures.

Your purchase costs (price + legals + duties) + holding costs for 2 years (interest etc) + selling costs = the price you need to sell for in 2 years time to break even. Any profit will attract CGT.

What is the median selling price at the moment (not just new houses)? Remember when you sell you are not selling a new house.

If all the figures add up then do it. But I wouldn't bother if the margin between what you pay and the selling price is small (unless you expect the price to jump significantly in 2 years).
 
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