New housing is better
- Thread starter victory
- Start date
I recently sticky beaked at a townhouse for sale down the road. They were asking 480+ and the REA said they expected high 400s/low 500's. 450sqm block, courtyard style garden (aka tiny), 9yrs old with neat but basic interior, 3 small beadrooms + largish master.
Direcetly across the street was a new subdivision of townhouses. Pretty similar but brandnew and priced in high 500's
Our house is also high 400's/low 500's. Its 25 yrs old, fully renovated inside with above average fittings. All rooms are bigger except master. Outside it looks its age. Garden is large (1000sqm+ block) but nothing flash.
Rental wise people pay just as much for our older 4brm house as for the 9yr old 4brm townhouse. They'd pay a bit more or the brand new house but after its been lived in a few years ther gap will drop alot.
I presume the original poster is asking what is better is an IP. To my mind, if the yields are the same I'd get as much land as possible. If the choice is between an older vs brand new (but otherwise very similar) property, the yield seems better on the older property.
At least thats how it works in my suburb.
As far as depreciation on newer properties goes, yes it may help with cash flow but tax breaks (aka losses) are not a reason to invest. Choose the best investment than look at tax IMHO. Stamp duty savings..........hmmm ............ do they really offset the big drop in building value after the first tennant moves in?
Direcetly across the street was a new subdivision of townhouses. Pretty similar but brandnew and priced in high 500's
Our house is also high 400's/low 500's. Its 25 yrs old, fully renovated inside with above average fittings. All rooms are bigger except master. Outside it looks its age. Garden is large (1000sqm+ block) but nothing flash.
Rental wise people pay just as much for our older 4brm house as for the 9yr old 4brm townhouse. They'd pay a bit more or the brand new house but after its been lived in a few years ther gap will drop alot.
I presume the original poster is asking what is better is an IP. To my mind, if the yields are the same I'd get as much land as possible. If the choice is between an older vs brand new (but otherwise very similar) property, the yield seems better on the older property.
At least thats how it works in my suburb.
As far as depreciation on newer properties goes, yes it may help with cash flow but tax breaks (aka losses) are not a reason to invest. Choose the best investment than look at tax IMHO. Stamp duty savings..........hmmm ............ do they really offset the big drop in building value after the first tennant moves in?
Another factor to be aware of when building, which I am currently experiencing.
Home is built, loooks great, all approvals etc held and tennant moves in.
12 months later some leakage in the ceiling.
Investigation reveals roof tiles not properly sealed by the builder. Not usually a big issue, however........builder is in liquidation now
.
Now we have to wait for assessment by BSA Qld who manage builders insurance and hopefully they will eventually fix it....but when?
In the mean time, I'm praying for a drought in SEQ.
GarryK
Home is built, loooks great, all approvals etc held and tennant moves in.
12 months later some leakage in the ceiling.
Investigation reveals roof tiles not properly sealed by the builder. Not usually a big issue, however........builder is in liquidation now
.Now we have to wait for assessment by BSA Qld who manage builders insurance and hopefully they will eventually fix it....but when?
In the mean time, I'm praying for a drought in SEQ.
GarryK
Initially you can figure out the instant equity you should have in a brand new home by comparing the construction cost+land cost total with comparable homes in the same suburb.
As construction costs in Perth rise, this margin is getting smaller.
The effect of supply and demand should be considered too.
If that looks good, then you also have
Interest only cost (land purchase + incremental construction payments over 12 mths or more?) + stamp duty on land
Depreciation on the new IP is a bonus.
I've almost completed construction of #2 house using well-known building companies.
The first one (3bdr, completed 2002) gave us instant equity of ~$60k.
The second one (4bdr, Jun 06) should have instant equity >$100k.
In both cases, the interest cost was negligible (so long as you can service it).
cheers, Tony
As construction costs in Perth rise, this margin is getting smaller.
The effect of supply and demand should be considered too.
If that looks good, then you also have
Interest only cost (land purchase + incremental construction payments over 12 mths or more?) + stamp duty on land
Depreciation on the new IP is a bonus.
I've almost completed construction of #2 house using well-known building companies.
The first one (3bdr, completed 2002) gave us instant equity of ~$60k.
The second one (4bdr, Jun 06) should have instant equity >$100k.
In both cases, the interest cost was negligible (so long as you can service it).
cheers, Tony
We build and onsell new homes (so obviously i'm biased ), but at least with the new home you have insurance to claim on. Buy an old house with a leaky roof & you will be footing the bill yourself!
As to the original poster, yes you save some stamps, but you have to pay interest on the land whilst you build so they probably cross each other out.
One way to save money on new speculative type homes is to approach the vendor directly. As you can imagine a fair amount has to be put aside to cover agents fee's, marketing costs & negotiation money.
Using a Buyers agent can save you money in this respect if they have good contacts with developers. You pay them, not the seller.
), but at least with the new home you have insurance to claim on. Buy an old house with a leaky roof & you will be footing the bill yourself!As to the original poster, yes you save some stamps, but you have to pay interest on the land whilst you build so they probably cross each other out.
One way to save money on new speculative type homes is to approach the vendor directly. As you can imagine a fair amount has to be put aside to cover agents fee's, marketing costs & negotiation money.
Using a Buyers agent can save you money in this respect if they have good contacts with developers. You pay them, not the seller.
Is there some kind of calculator when looking at 'holding' and associated staged payment costs and interest incurred when acquiring House and Land packages..considering some of these places are now taking 12-16 Months + in some WA areas??
Then, consider that with the current market you can buy an existing property and rent it to bring in an immediate income??
Is it a case of New is Better 'if' you can afford the holding costs?
Sorry..just throwing some thoughts out there..
Then, consider that with the current market you can buy an existing property and rent it to bring in an immediate income??
Is it a case of New is Better 'if' you can afford the holding costs?
Sorry..just throwing some thoughts out there..
redwing - I would be interested in a calculator like that. We are shocking at records keeping, I wouldn't be able to tell you exactly what we spent on the houses including all costs.
Another advantage with buying house & land and one of the main reasons why we choose this method of investment is because new houses demand a rental premium....and therefore this is how we get approval for the loan in the first place!
For example, an existing house with the same specs in the same area cost $380k and rents $280p.w
Compare it to a new house & land $290k and rents at $340 p.w That extra $60 makes a world of difference in terms of borrowing power and/or loan repayments.
We actually would not get finance approval for the existing house.
That is the scenario in this area and so we decided to build. By adding an extra bedroom making it 5 brs, we will be able to collect rental of about $390 p.w For an interest only loan, it breaks even.
There will also be immediate equity of about $80k. I am happy with that plus it's a brand new house.
Another advantage with buying house & land and one of the main reasons why we choose this method of investment is because new houses demand a rental premium....and therefore this is how we get approval for the loan in the first place!
For example, an existing house with the same specs in the same area cost $380k and rents $280p.w
Compare it to a new house & land $290k and rents at $340 p.w That extra $60 makes a world of difference in terms of borrowing power and/or loan repayments.
We actually would not get finance approval for the existing house.
That is the scenario in this area and so we decided to build. By adding an extra bedroom making it 5 brs, we will be able to collect rental of about $390 p.w For an interest only loan, it breaks even.
There will also be immediate equity of about $80k. I am happy with that plus it's a brand new house.
redwing said:
Thanks for your responses, and I thought I would respond to one. I would be buying to hold and then rent out at completion. I would make sure that the suburbs I bought land and house packages would meet certain criteria. Including less than 7% renters, lots of parks and facilities for families, close to public transport and schools, specifically private if possible. Also where the average median wage is at least 3x the cost of the rent on my property. And finally that the other houses in my suburb are going up in price even as I'm settling the land and then building. I'm banking on the fact that this will ensure that I get quality tenants and decent rental returns.
Maybe I'm naive, but my limited knowledge of the suburbs where house and land packages are available are definitely not ones close to public transport or private schools. In fact they generally have very poor infrastructure as they tend to be on the urban fringe. Residents of those suburbs also generally have a lower average income than those in established suburbs.victory said:
sue78 said:
I built one new house in a new estate on the outskirts of Melbourne and it was a similar story for me. I paid $225k to build a house that established ones were selling for $250-260k at the time. Seemed like a pretty easy decision for me. Depreciation is great too, I'm just enjoying it's first full year and it's around $7.5k worth. No maintenance, unlike my 15yo place where I've already had to do a water heater and some leaking pipes.
At the time it suited me well. It was my second place and therefore cashflow was very important to me.
The obvious negative is the fact that the land isn't truely desirable - i.e. it lacks the scaricity factors that drive true growth. I caught the tail end of the boom and got two years of good growth (place is now around the $290-300k mark) however I don't anticpate much for the next few years. Yes, the depreciation benefits will wear off but that is some time yet. Here is how it will look over the next 10 years:
7.5k 2005
6.7k 2006
6.1k 2007
5.9k 2008
5.5k 2009
5.2k 2010
5.3k 2011
5.1k 2012
4.9k 2013
...
4.5k in 2023
In summary, if the market timing is OK (you don't need a crystal ball, if the city starts going up then it does take a little while for the 'wave' to get to the outer burbs) and if you're after some instant equity and good cashflow then I say go for it. If you can fund a bit of negative cashflow for a while and are after strong growth, then I'd say established in the inner suburbs. This is what my next move will be.
Cheers,
David.
mdk92 said:
Yes, there is some truth to your point that there is poor infrastructure in some suburbs. But the trick is to find and move into suburbs where the infastructure is happening at the same time as you are buying or buy just beforehand. For example the suburb of Selville Grove - Armadale Perth is a good example where the government is pouring monies into a world class rowing facilities, new connecting major roads and redevelopment of Armadale central. Also named in Australian Propery Investment as an very affordable suburb, and with prices set to rise rapidly with the funds being allocated, one can only see great capital gains.
