To Build or Not

D

djones

Just continuing on my other thread about meeting various builders in Melbourne, it seems that the building prices are just way to high...For a house that i am looking to construct (35sqs double storey approx) i am looking at around 250K minimum to get it into a rentable situation...

As i have 2 block of adjoining land(with single dwelling covenant on each so cant subdivide) this has got me thinking again on whether it will be better to tie up my equity in taking loans worth 500K approx for construction of these 2 houses OR if instead i should leave them as it is and go for another IP or maybe even two. Buying another Ip will not be possible if i take up the construction loans atleast for next 2 years...

As its the land that appreciates then that indicates that i should probably leave the land as it is and go for another IP, however on the other side expenses on these blocks are non-tax deductible and also construction costs have been increasing and will probably do so in future as well....i intend on keeping these blocks for long term...

I will like to get the opinion of the forumites as to what will be better approach to take in this situation and the one which gives me a better go during the next boom...
 
Do they have to be double story? , that adds a huge amount onto building cost's.

Do you get anymore money from tennents for a 2 story house ?

Do you get any more money when you sell for a 2 story house ?

On the last project we did, fair enough not Melb., the answer was a big NO.

Everyone was , and still are chasing low set brick.

Boat Boy
 
Hi Bloss,

I was expecting these questions pretty much...so here goes my answers for them:

Remember these are based on my observations and opinions of the area and other might have a different view...

Do they have to be double story? , that adds a huge amount onto building cost's.
They do not have to be. However my reasoning for this is based on the fact that although a double storey adds to my costs approx 45k, they add much more to the capital value but admittedly bit less to the rental value. As i intend to keep them for a long time a want to big good size houses as in my opinion they will hold better capital value...

Another small point is that there is bit of view of parklands from the blocks which will be further enhanced by the double story then a single storey. As its reserve land there are little prospects of the view being spoilt at a later date.

Also there is approx 2-3 metres of slope on the land and building a single storey will involve a bit more of footprint and thus a bit more site costs ...

Do you get anymore money from tennents for a 2 story house ?
Yes i will but as i said before extra 45K will prbable add extra 40pw approx at the most.

Do you get any more money when you sell for a 2 story house ?
Yes, this is what i have observed that double storey have held a good capital value as pointed in my first answer.


Thanks-
 
djones-

you bring up a good point of whether to buy and hold just land or build on it...

from what i understand and as you have said "Its the land that appreciates" and buildings depreciate, so in case you can keep up with the holding costs (and yes it will not be tax deductible) then just holding the land might be a worthwhile consideration...

And do not forget managing the land is much more easier as well than managing two rental properties...

The only flip side that i can see if the building costs escalate significantly over the next few years in which you might be better of building now...

Hope that helps....
 
Thanks hkr and you have sort of reconfirmed my thoughts about this.

At the moment i am increasingly thinking of going in favour of NOT constructing and keeping the blocks of land as is. The holding costs of these come to around $1300p.a which i will need to absorb as these will not be tax deductible now...

However i have still not made up my final decision and will still like to hear other views of the people here...

I also had question about in case i decide not to construct then what happens to these expenses which i claimed in the previous years as i had a genuine intention to build? Do i amend my tax returns for those years?

Thanks to all-dj
 
Personally I would build single storey and shop around for builders as you should be able to build and finish for $150,000 each and at least have some income. What if you sit on the land and it takes a long time to appreciate? How much will the interest be costing you each month?

Sparky
 
Thanks Sparky.

The blocks of land are pretty much paid off. So the only associated costs taht i have are the annual water, council and land tax rates. Altogether for the 2 blocks all this comes to be around 1200p.a...

Thanks djones.
 
Just carrying on from my previous post...

The basic reason as to why i am reluctant to build is that instead of using the equity in the vacant blocks to fund their construction , i can alternatively use them to the fund the purchase of another IP or 2...

Again i can do this even when after i have constructed but then the banks might see me as over-leveraged and more risky proposition and the DSR might create issues as well...

djones
 
Sparky,

The income from the rentals will barely cover the cost of the loans...

I am assuming that the minimum build cost as per your figures is 150K + 20K site costs( due to the slope on the land) and the rental being 230pw...

thanks-
 
Hi dj

I was figuring on a base cost of around $98,000 for the house before site costs etc, I guess it depends on how bad the slope of the land is - did you consider a pole home? You could get the height for the views that way.

Sparky
 
Thanks Sparky...

At the moment i have contacted mostly the project builders in melbourne like burbank, formula homes, henley etc...and i am coming to an amount closer to 200K all up for a finished home for single storey and approx 245K for double...

i dont think these people have any pole home designs in there and not sure if council will allow that as the estate is almost fully built now except mine and i dont see any pole design houses in there and so council might have an issue to approve a house which is that different. However i might be wrong here...

The basic dilemma i have here is : whether its a good strategy to build a new house in the outer suburban areas when the land is almost paid off is better OR if its better to leave the land vacant and using this equity to buy more IPs with development potential...

What will be a better strategy 10 years from now as iam looking long term here...

thanks all- dj
 
To Build or Not to Build
That is the question
Whether it is nobler in the mind
to suffer the nails n hammers
of outrageous contractors
or take arms agains the sea of council inspectors
and by opposing end them
To paint, to plaster
perchance to glaze, Aye theres the glass
When we have auctioned off this constructed home
must give us pause, theres the respect
.....

Of an evening I have way too much time on my hands
 
Can you put a demountable (fancy word for "granny flat" I believe) on the land to generate at least some income instead of a full blown house? That way they can be taken away if someone wants to buy and build in the future...

Failing that, rent the land out to a shepherd or goat herder? :D

Cheers,

The Y-man
 
Hmmm....for the granny flat its got the covenant of of single dwelling not less then 14sqs...which i think will rule out most of the granny flats...

Anything bigger or of that size might not really justified as granny flat i think as it will end up in the region of >70K.
 
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