To Build or not to Build a house and rent it out

[Keen]

Hi all,

I'm toying with the idea of building a house on a block of land, but know little about building a house on vacant land.

Land Price: $48k
House Price: $85k (3 x 1)
Total: $133k

Houses built in pre 1990 are selling for $135k and renting for $155p/w.

Building means a high rent return and greater amount of depreciable items.

Has anyone done this?

Can anyone advise the pitfalls of doing this and the costs involved?

The property would be 2 and half hours drive from my PPOR.

My step brother who knows little of IP's - 2yrs ago got a company to do this for him - the usual they sort out finance, property management, depreciation schedule, look after the building arrangements etc. His IP on a weekly cost basis is cheaper than the IP I bought. They charged him $3k.

I've read a hell of lot on IP's perhaps it's stubborn pride but can't I do this without such a compnaies help? I feel I've got all bases cover except the knowledge about building new.

Regards

Keen

 

[Sunfish]

Go for it!

Building a new house is an experience everyone should try once. Many reckon once is enough though LOL

T

ps. Don't sweat about EVERY detail. I hadn't thought about colours much and let the painter have a go and it is great.

 

[suggo]

Where are you getting the $85k house from?
I'm in the same situation at the moment and am trying to come up with good builders, anyone know good ones in Qld?

 

[Lplate]

Where are you getting the $85k house from?
I'm in the same situation at the moment and am trying to come up with good builders, anyone know good ones in Qld?

Suggo
Can the building site be levelled off? If there is no more than 1m rise and fall across the block why don't you go with a project builder? Jennings or similar. There are some at the cheap end to avoid and they are absolute mongrels

Insist on the BSA contract - the ones drafted by the builders unions (ie Master Builders Assoc and the HIA) are framed THEIR way.

Anything else is a 'difficult site' and you need an independent builder. I have such a site and am waiting for the heat to come off building in order to get a builder with a good track record. I will pay more up-front for a good builder but it's cheaper come the end of the project (no need for the BSA etc etc.
Lplate

 

[Gee Cee]

Project home

I do this sort of thing all the time.

I spec build and re-sell but have also held a few in nnice locations as investments.

I don't know Perth or Qld markets but do southern Sydney , Wollongong, Sth Coast area.

Basically get yourself a block that is fairly flat. Check out what class of slab needs to go on it. As well as what piering for foundations is required.

Reason being if land is sloping then it is hard to put a slab onn it. You will end up with retaining walls everywhere annd heaps of extra expense.

If ground is full of fill or difficult soil piering and extra costs to beef up the slab can cost a small fortune.

Why don,t you check out what is required as far as rental property in your area. Eg 3 bedroom, double garage . 4b/rm ,double garage. Supply /demand etc.

Then visit the project builders that build in your area. Their designs, prices etc.

Cost up a few and see what the figures come in at.

Keep posting

Happy investing

 

[Sunstone]

Dear Keen,

Make sure you know what the $85k includes and DOESN'T include.

Hidden costs can greatly increase that price.

Cheers,

Sunstone.

 

[Kristine..]

Hi Keen

About 8 years ago I bought a block of land and was quite happy for it to sit there. Didn't need insurance, just mow it once a year, pay the rates, that's it.

Building in the court started quite quickly, and we were surprised to see all along the north side single storey houses were being built, but along the south it was all two storey houses. So my block was between two large, two storey houses.

We asked the bank and they said 'how much do you want' and Pioneer had a 'January Special' on a two storey house, so we built that.

Two storey, four bedroom, study, two bath, three WC, rumpus, double garage with entry to the house, third roller door to go through to the garden, Jetmaster fire place plus chimney, ducted heating, dishwasher, extra tiles through to the entry, more concrete apron for parking, and more!

The advertised price was $89,000, by the time the first tenants moved in (including brass light fittings, curtains, drapes and venetian blinds, basic landscaping) the bill was up to $129,000.

We have always had professional tenants. The property has always been cash flow positive because I owned the land outright. There has been minimal maintenance because it was built properly.

Over the seven years we have added ducted evap cooling a few extra outside lights, a roller door automatic motor, I have replaced the screen doors (got a bit tatty) with security doors. The current tenants want to put in an alarm system, another door motor and a garden shed (at their expense).

Because we built the house, we sited it to make the most of the setting (the land backs on to a reserve) and of privacy (we knew where the neighbours windows were and none overlook the yard) and had the garage set further back to provide extra parking space off the road at the front of the house.

Pioneer were fantastic. The job was done within budget, within time, and seven years later the house still looks like a 'new' house.

So the plan was standard, but I added a few internal doors such as to the rumpus room, and from the hallway to the kitchen, redesigned the guests WC and generally twiddled about a bit. If I was doing it again, I think I would just say 'let me know when it is ready'. Pioneer also built a bog standard bottom of the range three bedder single garage across the road along the single storey side, this is for rent at the moment for $350 per week, which is only $20 per week less than ours. Over time, cheaper construction v bells & whistles construction, tends to level out.

So Keen I would suggest doing the rounds of the display villages, pick a design which will fit on your land without modification, don't upgrade the design at all except to include a dishwasher, ducted heating and ducted evap cooling, sign the contract and forget it until it is time to measure for curtains.

Enjoy the process (from a distance) and make sure you do it again next year!

Cheers

Kristine

 

[willair]

Suggo,
have a look into the costs of a removal house to
refit on your property,if you watch sat courier
mail paper ,there has been several in the paper for free
you just pay for the removal,transport,and setup costs
on your property,this is just another way to place a rental
property on your block,where is the block of land?.
good luck
willair..

 

[Keen]

Thanks all for the responses, particularly Kristine.

As I said I know nothing about how this all works. So a few more questions that will show how much of a dummy I am on this one!

Kristine you say "The advertised price was $89,000, by the time the first tenants moved in (including brass light fittings, curtains, drapes and venetian blinds, basic landscaping) the bill was up to $129,000."
How does this happen? The advertised price was so different to the final bill.
Is this blow out that common?

Have I misunderstood this part of your post as you later say "Pioneer were fantastic. The job was done within budget, within time, and seven years later the house still looks like a 'new' house."

You also say "sign the contract and forget it until it is time to measure for curtains." Can it be that simple? Can I really just sign a contract and sit back until very late in the piece?

I here so often of people building PPOR about the drama's and stress of building. Does it have to be that way?

Gee Cee - "Then visit the project builders that build in your area. Their designs, prices etc.

Cost up a few and see what the figures come in at."

I see a home advertised 3 x 1 for example - basic house $85k more featured house $89k. What else do I need to pay (other than the land of course)? I assume some stamp duty to start with. What sort of things do I need to add to the cost of the price of the house and the land?

Forgive me but this really is my 1st enquiry on this sort of thing.

What is a "project builder"?

Can I simply say to a company - "I want to build this sort of house on this block of land." and in a couple of months they give me the keys and that's my sole involvement or am I showing how really naive I am?

What is the best way to finance this? Of heard of progressive draw downs. What if I'm the sort of 10% purchase price and costs on LOC Investor and 90% pruchase price on Fixed I/O when it comes to buying established IP's. Can I structure something similar? If I can't should I be investigating Rate Locks, so I can secure a fixed rate when all is built?

Should I hire someone to check out that the builders are doing what they should be?

Perhaps someone can walk me through the process from step one might be easier.


Thanks all. There is nothing like contacting those who have the practical experience. Your posts as always make a difference.

Regards and thanks


Keen

 

[Keen]

Before anyone responds I just checked out the HomeBuyer Centre's site which answered most of my questions. I'll ring them tomorrow as it appears I'm looking at a Home and Land package.

Still curious about Kristines $89k - $129k change. Could these guys do the same to me.

Unsure about the finance side. They offer a No deposit purchase. I was planning to use my LOC for this. What are the implications?

Their site www.homebuyers.com.au says 24 -26 Pre-construction turn around then another 24 weeks construction time.

48 - 50 weeks from walking in the door until getting the keys. Seems like a long time. Does this sound right? Can they change there prices / costs on me during that time?

Regards

Keen

 

[Kristine..]

Hi Keen

Remember: the house was a 'January Special' advertised at $89,000.

This price included the house, ducted heating, carpet and tiles, concrete floor in the garage, concrete driveway and parking apron, concrete walkway under the front verandah. And about 32 squares of brick and tile house on a concrete slab plus a large brick & tile double garage with concrete floor.

I added:

Within Building Contract -
Separate WC upstairs, hand basin & mirror (extra plumbing, wall, door, tiles, painting, sanitaryware, mirror etc)
Jazzed up the downstairs loo with fitted cabinets, mirrors, full size washbasin etc
Extra door to rumpus room (frame up, door, painting etc)
Extra door from front hall to meals area (etc)
Cavity sliding door from kitchen to dining room (etc)
Changed carpet to tiles in entry(more $ per square metre, higher labour costs)
Extra ducted heating points in 2 x bathrooms plus laundry
Overhead cupboards in laundry
More cupboards in kitchen
Dishwasher & plumbing
Better quality sink & mixer tap
Extra outside taps
Flyscreens to all windows and insect screen doors HOWEVER the Building Inspector decided Wonga Park, being in a CFA area was in a bushfire zone and therefore insisted on fire rated sarking, brass wire in all insect screens, brass wire in screen doors, brass wire in all weep holes (extra $3,000 for this alone and no arguing!)
Fall of the land - it looked flat to me but it wasn't
connections past a certain distance
Extra power points throughout
Extra lights outside external doors and at rear of building
Third roller door in garage, extra power in garage
and a few other bits & pieces.

All this was costed into a fixed price contract, except for prime cost items such as the slab. We actually got a refund off the contract price at key hand over (plus a bottle of Pioneer Plonk).

Extras needed before tenants could move in:

Clothes lines (2)
Rear fencing
Concrete parking apron extended (pioneer deducted the work they didn't do) and more garden paths and a patio area at rear
custom made drapes, terylene curtains to all street and side windows, venetians to service areas, ($8,500)
Brass light fittings in living areas & master bedroom
Light fittings on every other lamp plus outside floods (about $2,500)
Extra exhaust fans (I had forgotten them in the contract)
Telephone connection
Landscaping - bare block plus topsoil, bobcat, $500 plants, lawnseed, paving stones to clothes line, bluemetal under the fixed wall line
Carpet for under stair storage
Jetmaster fireplace (which required a brick, two storey high chimney to look good) plus internal brick fireplace and hearth and mantlepiece ($4,000)


So as you see, the advertised price of $89,000 was OK and the contract was comprehensive, but I couldn't have let the house with sheets on the windows, everything had to be done and complete.

Plus, a project house is usually basic. Adding the fireplace with proper brick surround really adds character to an otherwise bland living space.

Do keep in mind this is a big, exec house. This price was contracted 8 years ago.

Equally, take note of my comment regarding the very basic house on the other side of the court. It's very nice, probably cost $80,000 to build complete, they outfitted it along the way, and it's rent is within spittin' distance to mine.

Moral of the Story:

It doesn't have to be the best house in the street. I had to live up to the neighbours: A single storey between the two storey would have looked out of place.

Time is a great leveller: Build middle of the road now (yes, yes, no jokes at this point) but build a good floorplan with not-too-groovy street appeal (go for classic facade not fashionable) and it will never be empty.

Enjoy the display homes!

Kristine

 

[Lplate]

Keen
In essence, 'project' builders are mass builders. They offer a range of plans they build to and a certain standard of fittings and finish that can be upgraded. 'Finish' means the relative quality/expense of taps, laminates, baths etc Their basic range could have (say) plastic bath towel rails. However you could upgarde by specifying the chrome and gold Caroma range or whatever. Raising the finish can substantially increase price.

Be careful with display house to establish exactly what is included in the price quoted. Because almost all display homes have extra fittings and a higher standard of finish to that quoted on the sheets given to you. The brochures normally say this but it is easy to miss.

In Queensland the Govt's Building Services Authority (BSA) has all of the information needed for anyone contemplating building.

If there is no comparable authority for independent advice in WA (where you're building?) you could refer to the BSA site. It shows all of the stages and considerations - from the basics through to completion.

All contractual relationships have the risk of disagreement. It is better to have the right advice from the start.
Lplate

 

[Lplate]

Building Regulation WA

Keen
Could be the Builders Registration Board BRB
For info on the building stages etc Qld's BSA is useful bsa
Lplate

 

[Shirley]

Hi Keen - we have just signed a contract to build a house to rent out. We're going 50/50 with our son to give him a start with investing. It's a 3 bedroom, ensuite, walk in robes costing $215k in total and includes everything ready for the tenant to walk in. It includes curtains, air conditioning, security screens, fencing, turf, tiles to outside patios etc. to be built on the builder's block of land in North Qld. It's a fixed price contract and we pay 5% deposit. It will take approx. 20 weeks to finish.

We'll be up for stamp duty. Does anyone know whether there'll be a concession for our son's portion as it is his first house? Qld will abolish stamp duty for 1st home buyers from 1st May.

It would be interesting to keep in touch with your building project, Keen, as ours progresses.
Shirley

 

[Kristine..]

Shirley

You son will not be able to claim FHOG as he is buying with another party who already owns property.

Sorry to be the bearer of sad news!

Kristine

And - it's an investment property.

 

[Aceyducey]

Shirley there's a better way!

(sorry you've probably heard that one a thousand times)....

Why not have your son buy the property outright & use one of the new parent guarantor loans to guarantee part of the loan.

That way your son gets the FHOG, you still help him & your legal liability really isn't much different than it is under your current plan.

Cheers,

Aceyducey

 

[Gee Cee]

Not up with Latest

Sorry I cannot advise on comment by Acey. Not up with Latest.

(That is why I keep asking questions)

But can relate to Stamp duty.

In NSW if you can separate House From Land Contract the Stamp Duty saving is considerable.
(As only for land)

However be very careful of contracts that bind you to purchasing land through a Project Builder & also tie up to having to build a home through the builder.

It can be seen as a TOTAL project $. Thus Stamp Duty is payable on WHOLE COST of Project

Not just land.

(It is a fine line & some builders will not have a proper perspective or legal OPINION on this.)

So be as always.

Seek advise from Solicitor/ Accountant/ Tax dept

& don't get rushed or emotional

Gee Cee

Old Fart

 

[Gee Cee]

Available For Adoption

Hi Shirley.

Just want to let you know that I am available for adoption.

Please post if you can help me with any future loans etc

I will send you adoption papers this week for 45 year old male that requires loving family with helpful disposition

Catch Ya later

MUM

Luv Gee Cee

 

[Keen]

Thanks all for your replies todate.

Spoke to a guy at the Homebuyers Centre - he confirmed I could by house and land package (I assume 3 x 2) for $128k in the area I'm looking at. He states I'll have to pay nothing else and that the price is fixed. The stamp duty costs are also included in the $128k. He also said that their not restricted to estates. That if say I found a block of land nestled amoungst alot of established houses that their man would come out with me and check it out - and even advise on its potential. They would land and package it just as though I'd gone into an estate deal.

My reason for considering this is for cash flow. I could probably get $150 p/w (need a higher rent return that Perth Metro) for this place and have good on-paper deductions.

Two things currently concern me.

1) Funding the $172 p/w payments for the I/O loan with out rent assistance.
($128k at 7.0%)

2) Is this suburb just out of the Town centre not going to have the rent demand to be successful? (For their $128k deal). A sea of vacant blocks can't be appealing to a tennant either.

I could probably pick up a 3 x 1 built 2000 for $140k plus S.Duty. It still financial viable on these grounds to go the $128k deal?

Regards

Keen

 

[Patosan]

am waiting for the heat to come off building in order to get a builder with a good track record.
Lplate

Do you mean cost will drop with the cooling ?
Actually I'm curious about views on buiding costs in the near future.
I was once told that it "never" drops only levels, is this right ?

Time is a great leveller: Build middle of the road now (yes, yes, no jokes at this point) but build a good floorplan with not-too-groovy street appeal (go for classic facade not fashionable) and it will never be empty.

How about the case where you're in a good area; would spending extra for a classic period facade/roofline (expensive) produce an appropriate rent difference ?
Or would even a cheap facade give comparable results, now and LONG term ?