What should I do - advice sought

[TheAnalyst]

Dear All,

I am in the process of selecting a house plan for my new property. After considerable investigation, I have come to the last two options: A - an expensive house ($185k building), B - a cheap house ($165k).

I have some concerns about the location. It is a nice traditional block (18 x 30), but it is next to a HOMEwest block. All are in a new development area. I rang the government what they are going to do. They told me that they would build it and rent to their tenants. I have seen or heard a lot of stories about those homewest tenants (I am not against them. Some are very good). They take advantage of government housing. Do not look after the property and running around like wild. I am not sure whether I am likely or not to have nice homewest tenants.

Obviously, if the homewest tenants are not good, it will significantly affect my house value. In theory, I should go the cheap version, but I do like the expensive version because of the things I wanted.

Any advice / experience please!!!

 

[tonyd]

Hi TheAnalyst,

I am in the process of selecting a house plan for my new property. After considerable investigation, I have come to the last two options: A - an expensive house ($185k building), B - a cheap house ($165k).

Is this an IP or PPOR? Assuming it is an IP....

Why the difference in price? One less bedroom? Different building companies?

$20k isn't a huge difference but when you come to pre-start you will find the cost will go up further. Extra powerpoints, better taps, dishwasher, etc.
Does the price include flooring for non-wet areas (where you would have carpets/floorboards/tiles)? Curtains included? Landscaping allowance?

All these costs could make your mind up for you if your budget is tight, ie you can only afford the cheaper option anyway.
Is there additional fencing/retaining required. That's more money.

Is the expensive house+land cost higher than the estimated value of nearby new homes? You would want it to be less.

How does the potential house quality match nearby homes?
Do tenants expect a certain quality?

I have some concerns about the location. It is a nice traditional block (18 x 30), but it is next to a HOMEwest block. All are in a new development area. I rang the government what they are going to do. They told me that they would build it and rent to their tenants. I have seen or heard a lot of stories about those homewest tenants (I am not against them. Some are very good). They take advantage of government housing. Do not look after the property and running around like wild. I am not sure whether I am likely or not to have nice homewest tenants.

Some HW tenants are fine, some aren't. But you can say that about most segments of the population. If the location is desirable then, at worst, you may have to discount the rent. That probably leans you toward the cheaper option.

I'm nearing completion on an inner-city IP with an adjacent vacant HW block. I didn't know it at the time of purchase (lack of DD?) and when I found out I kinda panicked. But the location is good so tenants should not be a concern.
And now the entire street is under construction at the moment with expensive new homes (and values) going up. So a more expensive home was the right choice for me, else I would have been under-capitalised.

Hope this helps.

cheers, Tony

 

[rj]

Do you have doubts? In my opinion - doubt means no.

RJ

 

[Tizzy]

My feeling is you should be okay. I've written many advocacy letters on behalf of prospective tenants and I know Homeswest don't want their new housing trashed any more than you want problem neighbours. Only a small portion of tenants cause a problem. HW usually know who the problem tenants are and they don't generally tend to give those people the new houses. There are too many deserving people on their lists. There's a bit of a myth that Homewest has to put up with tenants no matter what they are like but that isn't really the case. There are many that can't rent with Homeswest because of damage they've done and not paid for or anti social behaviour. Those tenants actually end up renting in the private sector. By the way, a house usually gets a family as occupants too. Singles with children often get offered units. Problem families can crop up anywhere and you'd need to be really unlucky to have one move next door. So long as your proposed house is not over capitalised for the area, then go for it and enjoy!!

 

[TheAnalyst]

Hi, Tony

Thank you for your kind experience and advice.

The plan I picked does not include floor covering/window treatment/etc. The developer provides landscaping package as long as I finish the house in time.

Two plans I selected are from two builders, of course, one is a large house with widen garage, high ceilings, etc; another is not. But both meet my requirement, 4x2 , study, alfresco, good resale value. The block is worth $220k now. If I select $180k (assume $30k to finish off). The value of the house would be $430k. If I sell it, the house has to be around $500k mark. However it is next to a homewest house. IF the tenant does not look after the homewest house, it could significantly affect my property value (resale).

It is in a new development. The house has been going very well. The small cottage house has reached to $360k months ago. If it is not the homewest site, I believe I should select the expensive plan as you said I should not undercapitaise the land given its potential.


For your kind advice

 

[TheAnalyst]

Hi, Tizzy,

Thank you for your advice on the tenants on government actions. I had a house before which was in front of a homewest house in Clarkson. I do not know why the tenants are also the owners of the property. That was why I rang the goverment whether they build it or sell cheap to the homewest people. That homewest owner actually sold their property.

I agree with you on the tenancy. In my experience from private renting, 50% of people look after property, another 50% do not. I guess this also applies to the homewest. Maybe the percentage could be higher given they are renting government house. It is much easier for private to evict those tenants than the public sector given its potential bad publicities.

For your kind advice

 

[tonyd]

Hi TA,

Aren't there HomesWest houses in Subi Centro?
Those building next door wouldn't go for the cheaper option. They build with a quality to match the other neighbours.

The numbers seem to stack up fine.
And I assume the expected rental is reasonable.

If the extra $20k can make your house stand out for tenants (high ceilings) amongst other new homes - and to future buyers too - without breaking the bank, then I'd be tempted to do it.

But hey, I just spent $10k on a ducted reverse-cycle airconditioner , and most investors here would probably think I was crazy spending that much. So read my thoughts with that in mind.

Good luck!

Tony

 

[TheAnalyst]

Tony, I am inclined to your point of view.

 

[TheAnalyst]

Thank you all for comments. I have decided to go for cheap cost option.