IP portfolio that performs regardless of market movements!

[JWR]

Good to know. If you have a contract in place for a set price, how can the developers charge you more?

 

[Corey Batt]

The building contract will generally have allocated costings such as "$10,000" set for footings (slab related cost). If the footings cost $20,000 however, you'll be up for a further $10,000. Essentially unless the builder offers you an assurance to foot the costs of any blow outs (I think Rossdale Homes does this at a premium), you will have to wait for soil tests etc. for the finalised cost to be established. Builders always cover their own back.

 

[weg]

JWR, to build a basic home like this

http://www.sterlinghomes.com.au/home-designs/villa-and-courtyard/thorngate108/

but as a single carport on a 300sqm block, with very basic landscaping, no verandah, and no extra in footings (CJP is correct about the area being reactive), for 210K to 215K you'd have to find a block for 70K or less.

The only way to get that there is by doing some sort of deal - but then you could probably do that any where really.

This is why I thought Barossa.

 

[JWR]

Would it be cheaper to buy the land and then engage in a builder. Or buy the cheapest house with around 600sqm (so sub-dividable - around 150k after negotiation) and then build another house?

http://www.realestate.com.au/property-house-sa-elizabeth+north-107889951

That's 175k - do you think you could get the builders to build a house for 100k on your land instead of the land you are buying for them?

Total cost in my arrangement is 150k (+ purchasing costs of 5k) + 100k + subdivision costs = 2 houses (and you've probably made 50k in the process)

This seems a better option than buying 1 house for 210-220 (although the 2 houses are basic)

 

[weg]

Would it be cheaper to buy the land and then engage in a builder. Or buy the cheapest house with around 600sqm (so sub-dividable - around 150k after negotiation) and then build another house?

http://www.realestate.com.au/property-house-sa-elizabeth+north-107889951

That's 175k - do you think you could get the builders to build a house for 100k on your land instead of the land you are buying for them?

Total cost in my arrangement is 150k (+ purchasing costs of 5k) + 100k + subdivision costs = 2 houses (and you've probably made 50k in the process)

This seems a better option than buying 1 house for 210-220 (although the 2 houses are basic)

That breakdown isn't a well thought out or accurate breakdown/costing .

Oh, and don't forget to add the interest for the land purchase as well as the building costs during construction .

 

[JWR]

Since in the example above I am buying a house with land - the land would cost $0 to hold (since the initial purchase would be neutrally geared).

And since it costs 100k for houses to be built from the ad I put up, it should cost the same amount for this one too (assuming there are no cost blowouts of course).

Am I missing something here?

 

[weg]

Since in the example above I am buying a house with land - the land would cost $0 to hold (since the initial purchase would be neutrally geared).

And since it costs 100k for houses to be built from the ad I put up, it should cost the same amount for this one too (assuming there are no cost blowouts of course).

Am I missing something here?

Always assume blowout costs .

Once you knock down the house it won't be neutrally geared.

There's interest on 150K + 10K (purchase costs) = 160K - 12K to 15K
Knocking down and dumping - 15K
Subdivision costs - 20K
Houses x 2 - 200K
Interest on houses - 10K
Extra footings?
Landscaping?
Fencing?
Flooring?
Window treatments?
Variation extras on building?
Letter box, clothes line, Air con, etc.?

It really does add up.

Not trying to put you off, but it's really important you price things correctly to avoid costly mistakes.

 

[sash]

Ditto.....

I looked at the cost of a knockdown and rebuild...and you do need deep pockets....the bigest issues are:

1. Knokcing down and dumping - if there is asbestos it goes through the roof

2. Councils can be really slow in establised suburbs ....so your holding costs goes up

3. If you hit snags like preservation of trees or easement issues....it gets complicated

4. When developers hold blocks they usually have done most of the ground work....and in times like this can make it conditional to them meeting a certain price point. I take the view ...put a refundable deposit of $1k for the land..for say 3 months. Agree with the developer for $1500 they will provide a firm costing. Will not work in a boom but certainly finding that they are wiling to look at it now.

Always assume blowout costs .

Once you knock down the house it won't be neutrally geared.

There's interest on 150K + 10K (purchase costs) = 160K - 12K to 15K
Knocking down and dumping - 15K
Subdivision costs - 20K
Houses x 2 - 200K
Interest on houses - 10K
Extra footings?
Landscaping?
Fencing?
Flooring?
Window treatments?
Variation extras on building?
Letter box, clothes line, Air con, etc.?

It really does add up.

Not trying to put you off, but it's really important you price things correctly to avoid costly mistakes.

 

[JWR]

Ok thanks. I'm just new to this game so will make mistakes.

I would only be building one house though - and would be keeping and renting one (as there would be no need to knock it down in the first place.)

So more or less (without the blowouts) I would have no holding costs (as the rent would cover the mortgage for the first house) and be able to subdivide and build a new house for 100k + subdivision + blowouts + extras.

 

[Deltaberry]

I don't really agree with the strategy of buying (small) properties in many different states just to save a bit of land tax.

Agreed

You can invest in say one $10m+ commercial buildings with even higher yields than 7% with potential to capitalize and value add another $5-10m eg by developing or subdividing etc and reselling for say $30m. That's our preferred strategy. As long as it's prime site in good locations like Swanston Or George you'll always have plenty of demand and plenty of potential. If you want you just bring a big developer like Grocon in in return for a small stake and build say 30 stories

 

[sash]

Yep no worries....sounds like a great idea for the spare $3.5m sitting in my pocket.

Agreed

You can invest in say one $10m+ commercial buildings with even higher yields than 7% with potential to capitalize and value add another $5-10m eg by developing or subdividing etc and reselling for say $30m. That's our preferred strategy. As long as it's prime site in good locations like Swanston Or George you'll always have plenty of demand and plenty of potential. If you want you just bring a big developer like Grocon in in return for a small stake and build say 30 stories

 

[JWR]

I'll take one too!

 

[Risky Business]

Great stuff Sash. I, along with 99% of the population am envious of your position.

If you have the time to answer. In hindsight, what would you have done differently? Did you make any errors or miss any opportunities? What advice would you give the average punter?

 

[sash]

Thanks RB for the kind words.

Would I have done things differently in hindsight...absolutely...but hey you can't drive a car looking solely at the rear view mirror...you have to look thorugh the windscreen!

Some of the mistakes I have made:

1. Selling 2 properties just before and after the GFC. They would be worth 80-100k more!

2. I was too fearful in the 90s and though I looked at properties..waited till I paid my first unit in 1997. Should have kept buying

3. Time will cover all mistakes...you just need to be able to hold.

The advice I would offer to the average punter is:

1. Take action today!

2. Research, attend, seminars, and talk to people about property to gain as much knowledge as you can

3. Start small and build up....initially concerntrate on CF. This will be instrumental in building your portfolio. If you get this wrong...it will be a long time before you can borrow again. Try to buy in a metro area with a 7%+ yield. These still exist!

4. Don't listen to the BS...about location, location, location...it is more like cash flow, infrastructure, and location.

Great stuff Sash. I, along with 99% of the population am envious of your position.

If you have the time to answer. In hindsight, what would you have done differently? Did you make any errors or miss any opportunities? What advice would you give the average punter?

 

[Risky Business]

Thanks for your advice Sash. It's advice point no.1 that slows me and alot of others down.

One day I'll pull my finger out and have a good go at this game.

 

[Aaron_C]

4. Don't listen to the BS...about location, location, location...it is more like cash flow, infrastructure, and location.

I don't agree with this. It is always about location, location, location. Always has been, always will be.

 

[sash]

Great...care to share your success.....

I'll make you a deal....tell me your successes ..if they are good I will be a convert an make the change.

Hmmm....I think I asked this question of you before??

I don't agree with this. It is always about location, location, location. Always has been, always will be.

 

[knightm]

Thankyou so much Sash I am greatly encouraged by your story.

 

[Benne05]

Just after some help. Buying my first investment property in either andrews farm or Evanston gardens. The Andrews farm is a 2 bedroom app for about 240k new with rent between 200 and 220. Or building a house and land package in Evanston gardens for 275k and rent it for 280 to 300 a week. With the andrews farm one it's the government nras scheme where ya get 9500 tax credit per year for 10 years. Any advice or help would be great as I am a first time investor

 

[RedPanda]

Well done, Sash! And thanks for sharing. This will inspire many budding property investors. And make many more jealous (including me). Good to see someone breaking the mould and thinking differently.