New housing is better

[victory]

Hi to everyone, I'm new to this and I'm awfully nervous, because I might look like an idiot. But I want to join in this forum, so here goes. I'm of the opinion that putting a new house on a block of land is better than buying an established house. Because you only have to pay stamp duty on the land at settlement. Then if you immediately put a house on the block you can claim tax breaks if its an investment property
So what do you think?
Vic

 

[OneLife]

Feel Comfortable

Victory

In my opinion I don't believe there is such thing as a better property, only different ones. Success can come from buying almost any type of property, that's the beauty of it. Do what you feel most comfortable with, you will prosper either way.

James

 

[lizzie]

you also have to remember the number one rule - land appreciates, buildings depreciate. most new land is in new subdivisions in areas where they are making new subdivisions, so there is no scarcity value, whereas and established home (knock down or good) in an area where they cannot make any more land, ie inner city, will always have higher capital growth than the outer 'burbs.

but if you can put a new house on a scarce block of land - even better.

 

[alexlee]

Also if you buy a new house on land, more of your purchase price goes to the house. The house depreciates and the land appreciates. Whereas if you buy an established house (especially an older house) more of your purchase price is in the land, which goes up.

Not arguing whether new or old is better: each has its characteristics, and depends on your circumstances.
Alex

 

[Simon]

Welcome Vic and well done on your first post! Looks like you have got yourself plenty of food for thought there.

I am with the others. There is no point generalising as you are not buying the market as a whole. Your points are valid. You do pay less stamps and also can get a great depreciation schedule. However neither of these would be the sole reason you choose your investment.

Just identify which niche you wish to exploit. Get good at it then get wealthy at it.

 

[geoffw]

Gidday Vic, and welcome.

Don't be nervous- your point is very valid. The "idiot" is the one who does not ask the question.

If you buy a block, and you put the house on it yourself, you will probably save a fair amount in stamp duty. No question (though if you bought Off the Plan, in some states, you still pay the stamp duty).

If you developed and got it built yourself, you have the potential for also saving a lot of money- probably heaps more than the stamps you would save.

I'm not sure about buying a house and land package.

But always be careful that you are creating something for which there will be a demand.

If the land you are buying is in a new area, with lots of land available, for instance, there migyt not be any capital appreciation for some years. But if it's in an existing area, with lots of houses already, you'll get heaps of appreciation immediately.

You've identified one factor- one which many will have missed. Well done.

There are other factors which may affect your investment.

 

[Merovingian]

I think I would have to disagree with the idea that buying vacant land and putting a building on it, is better than buying an established property, (in general).

If you buy vacant land, you must go through designing a house, getting approval, building it, and so forth, and it would most probably cost more than what has been budgeted for, and almost certainly more than the saving of stamp duties and taxes in the first place.

Add to that that while it is being built, or approval is still pending, you can't rent it out to tenants because there's nowhere for them to live. You money is lost, in that regard.

Just my views on the topic, and your mileage may vary.

PS: Welcome to the forum! Geoff is right, it is better to be a fool for 5 minutes by asking the question, than to be a fool for life and never ask the question.

 

[joannep]

but if you can put a new house on a scarce block of land - even better.[/QUOTE]

Talking of new houses on scarce blocks has anyone in WA purchased in the 2 new estates along Karrinyup road(Priceton & Roselea). Fantastic buying. Sure to be huge CG in this area. Close to freeway, minutes from CBD, 10 mins to beach..........desperate to get my hands on one of the few blocks left. What was the saying "don't say I can't afford it but how can I afford it?"

 

[dodge]

Vic,
I am with Merovingian, I used to be fixated on the up front big depreciation schedules for new homes, but eventually they dry up. Thats when you hope the growth factor keeps you happy.

Roger

 

[BruceW]

Vic,

I think its a valid approach for Perth (in the current market) where things are definitely booming. I guess if you take this approach, you still have to be careful with WHERE you choose. Try to get in on the early releases of estates and I think you can't go wrong. Many of these are going so fast that sometimes settlement can be 6 months of, by that time you've probably made 10-20% on the land already. Lock in the build price ASAP, and with the building industry in the state its in, the extended build time works in your favour (IMO) as the cost to build is escalating every month. If it takes you 12 months to build, there's probably another 15-20% on your investment.

If you can get close to the coast then there's your scarcity factor built in too (although we do have a lot more sand than some states )

This is all assuming the property/building market keeps going gangbusters the way it has.


Take a look at the where to buy forum and see how well lots of the forum members have done out of this stategy (have a look at the Rockingham/Anchorage thread).

FWIW, I have a few buy&holds around Perth and I'm now looking at a couple of new builds to complement these. As I'm not in the 80%+ LVR category I'll probably approach this in a wait and see manner. That being I'll look at the market on completion and make my decision to sell or hold at that time.

Bruce (obviously not the first, but perhaps the second )

 

[desmovalve]

I think the key point with building new on a block of land is that it is usually possible to realise equity growth of 10%, once you have completed and have the keys ready for tenants. Bang - quick 10%, go for your next property.

 

[Gee Cee]

Land during boom

Whilst boom was on you could buy land from developer off the plan. Arrange house to be built and commense as soon as land registered. Usually 6 to 18 mths later. The capital growth was ALL in the land. A nice home to suit what the market wanted just added to Quick sale. Margins in that period of boom were good. However now NSW boom has gone you can pick up nearly new homes CHEAPER than what it would cost to buy & build. And that is not even considering the added expense of interest and holding costs prior to completion. For my money I would be purchasing a place that is only a couple of years old. But I would not be rushing in . Papers & TV seem to point to a lot more mortagee sales and people dumping places in the future. And a place only a couple of years old still get's a lot of depreciation benefit.

 

[redwing]

Are you buying to hold the property (rent it out) or sell it once built/close to built as a spec home?

I take it your talking WA as well?

Redwing

 

[Garry K]

Make sure your building contract is time framed, with penalties if not available for occupation (not just completion).
Because you will be drawing down your capital as it is built, your interest bill can mount up until you get the certificate of occupation from the council and put your tennant in.


GarryK

 

[Bricks & Mortar]

Welcome Vic

Hi to everyone, I'm new to this and I'm awfully nervous, because I might look like an idiot. But I want to join in this forum, so here goes. I'm of the opinion that putting a new house on a block of land is better than buying an established house. Because you only have to pay stamp duty on the land at settlement. Then if you immediately put a house on the block you can claim tax breaks if its an investment property
So what do you think?
Vic

Welcome Vic,
The only way anyone would be an idiot is if they refrained from asking a question.......As everyone has mentioned it all depends on circumstances
The land will eventually rise, but scarcity is always a good ingredient.
Yes you might save money in form of stamp duty, claim the holding interest cost if you build within a twelve month period, and also get full depreciation of the new house. But capital appreciation might not be as good.

But despite all the research, There's no sure answers, everyone has a different way of doing things, but you need to compare and include all factors.
That way you can make a unbiased decision based on all the information available not just 'one' saving component. It may well be that the acqusition price might be more favourable to commence your portfolio in a land & build area as cost will usually be a higher in high demand areas. But you need to factor in all the pro's & cons first.

If you want the answers .....Keep the questions coming!
Cheers Timm

 

[sue78]

I wouldn't say it's better but it's our strategy. That's all we do and that's how we've been able to build equity to purchase more properties. With every house & land we have purchased, there's instant equity on completion of building. We have sold for profit or kept the ones returning positive cashflow.

They're great for IP's too for the reasons you mentioned and in, additional; easier to rent out(so many ppl after new rental properties), command a rental premium.

The negative side is having to service the loan until the tenants move in.....which can be a very long time. Never building 2 story homes again.

Gee Cee....yeah, we got in on that too. Amazing.....with one block we sold it on the same day we settled on it...so we didn't even have to borrow any money and made 80% roi on a $1000 deposit. and we only had to pay tax on 50% of the profit coz we had signed the contract over a year ago! also got a $2000 landscaping voucher. I've read it in books how you can make money with no money but we actually did do it.

 

[asdf]

Talking of new houses on scarce blocks has anyone in WA purchased in the 2 new estates along Karrinyup road(Priceton & Roselea). Fantastic buying. Sure to be huge CG in this area. Close to freeway, minutes from CBD, 10 mins to beach..........desperate to get my hands on one of the few blocks left. What was the saying "don't say I can't afford it but how can I afford it?"

Hey Joanne, Which estate is this? Is it Clarkson? Blocks in there are going for over $360K. Thats manic! Don't think I want to be doing any house and lands anywhere in Oz except for Perth at the moment. Price rises on construction costs still rising at $3K a month and you can't get a decent block of dirt anywhere in Perth or SW for <$150K beachside of the highways.

 

[redwing]

ASDF

Roselea and Princeton are in the City of Stirling..not far from the council chambers and East side of the Freeway on Karrinyup Rd...Clarkson is definetly not 10 mins from the CBD, more like 35 mins..but is closer to Mindarie, the ocean and all thats happening there

 

[asdf]

ASDF

Roselea and Princeton are in the City of Stirling..not far from the council chambers and East side of the Freeway on Karrinyup Rd...Clarkson is definetly not 10 mins from the CBD, more like 35 mins..but is closer to Mindarie, the ocean and all thats happening there

Thanks Redwing. Certainly pricey blocks up there!

 

[Ausprop]

Hey Joanne, Which estate is this? Is it Clarkson? Blocks in there are going for over $360K. Thats manic! Don't think I want to be doing any house and lands anywhere in Oz except for Perth at the moment. Price rises on construction costs still rising at $3K a month and you can't get a decent block of dirt anywhere in Perth or SW for <$150K beachside of the highways.

asdf I think you are undervaluing the blocks of land that you already have... I think that should read <$190k