Will this strategy work?

[Bloss]

Finally got my loan approved for my first speky, and was wondering if this strategy would work and what pitfalls to look out for ?

We have 6 ip's that have gone up quite well in value and are bringing in just cash flow positive returns because of the amount we've racked them up to buy more ip's. These are all in my wifes name as the money earner amongst us.

Our ppor has $60k owing on it.

I have just got a low doc loan to build a specy, bloody amazing as I haven't worked a paying job in 10 years, using $120k of the ppor money to sweeten the deal, and it would seem we will get an easy 25% return on our $$$ when the house is completed and sold [consevative numbers]

This should pay out the loan and get pretty close to if not totally paying out our ppor, and if all goes well would plan on doing a few more until a better oportunity comes along.

We don't feel overly comfortable doing spekys and would prefer to move older houses and build 2 or 3 newies in their place, but these deals are harder to find now and need more $$$ than we realistically can get.

Is this building spekys something I could keep doing to pay down some debt?
and what traps should we be made aware of?

Bloss'es Boat Boy

 

[Rolf Latham]

Hiya


CGT and trade and entry costs are the biggest hurdle.

With 6 Ips there are other ways to recycle that non deductible debt, and hold what you have built, IF thats what you want to do

ta
rolf

 

[Bloss]

I'm sure there will be a few cost's involved, but we reckon even a few $$$ would be better than a poke in the eye.

Just something to do instead of doing nothing, an in-betweener so to speak.

Boat Boy

 

[lizzie]

we've done one spec home (knock down and rebuilt) and the sale of such was supposed to finance building my 3 townhouses. well we all know what happened to those townhouses ...

but i digress. the problem is that between the time we bought, got plans thru council, knocked down and rebuilt - the market had tightened even further. we put it on the market at (what i thought) was a reasonable price but had not one offer. everyone at open homes commented to the agent on how they loved the house and location (one block back from major eat street and near great public transport), but not a single offer in six weeks despite a price drop after the 2nd week.

after 6 weeks we took it off the market and rented it for what, in our area, is a large rental amount - but still doesn't bring it positive, but at least it's bringing in something.

unfortunately that means we can't realistically look at selling it again until after the lease expires in another 6 months.

so, i guess i'm saying that you always run the risk that you can't sell - so you have to have enough funds to carry it until the market comes good again, whether that be 6 months or 2 years.

 

[kph]

Its a good question regarding doing spec homes for resale and profit.

We used to do duplex and triplex subdivide/build but encountered the same hassles/delays Lizzie described, not to mention neighbour issues to do with fences, setbacks, etc.
Switched to building spec homes on new subdivision land and the return has proven to be as good or better than the subdivide option. Quicker too with less holding costs.
But that is because of the market in question.
So I would guess ite depends on how much demand there is for new houses in new subdivisions ( if demand is greater than the supply you're on a winner)

We now do a mix of build n hold and build n sell and its been a very good year.
Not sure if I can say te same for next year though..


You can try and mitigate the risk by pre selling off the plan before you start if that helps.
kp

 

[Bloss]

We looked into it pretty hard and property prices in Rocky are still going up fairly well for new stuff. Not like Mackay, but it's cheaper to get into, so we feel that more people will consider Rocky an affordable option.
There is no land left until the next lot gets scrapped and released, so we feel pretty confident we'll have a result in this new estate.

The builder reckons he could have it sold before completion, and we know of quite a few that have been sold before bricks got on the wall, but we'll believe it when it happens.

Boat Boy

 

[Leandro]

There is no land left until the next lot gets scrapped and released, so we feel pretty confident we'll have a result in this new estate.

Are you saying that there is no land left in Rocky? Or simply no new lots in estates?

 

[Bloss]

Are you saying that there is no land left in Rocky? Or simply no new lots in estates?

Hi,Leandro,

Theres a fair bit of stuff up there that has issues, eg sloping block's, odd shaped blocks.
But your flat out finding someone to do the cut on the sloping ones , and to get a builder to be a bit creative buiding on a slope you'd almost have to get someone from out of town in, and then the dollars might not stack up on sale.

Easy building block's are snapped up while in the concept stage in the few new estates, and creating land by moving old houses and rebuilding is not as viable as it was.

Bloss

 

[Ronulas]

These are all in my wifes name as the money earner amongst us.Bloss'es Boat Boy

Hi Bloss,

Just a quick question.

Why have the houses in your wifes name as the money earner? If the houses are positive as you said then you are paying tax on the profit. Would it not make more sense to have them in the lower earners name or are you both on the same tax bracket so it makes no difference either way?

Or..

Do you do it this way because all the deductables are better off coming from your wifes tax bill as the larger earner?

Secondly..... Where can I get a wife that earns more than me ....just joking.

I know these questions have nothing to do with your question, just trying to increase my understanding.

Thanks

 

[Bloss]

Hi Bloss,

Or..

Do you do it this way because all the deductables are better off coming from your wifes tax bill as the larger earner?

Secondly..... Where can I get a wife that earns more than me ....just joking.

Thanks

Hi, There's you answer to why in her name,
and I found her at the pub.

And she is the only bread winner, I get to build our catamaran in the backyard.

Boat Boy

 

[hkr]

Apologies for asking this basic question but can somebody please tell what they mean by a 'Spec' home and if its different from constructing a home with one of the project builders???

 

[Bloss]

My understanding, and what I am refering to as a "specy" is a speculator home. One that is built with the intention of being sold for a quick earn.

It is still built with normal builder, although we have found with the big guys like A.V Jennings and Devine, that there is no profit margin, as they are selling house and land packages at our buy and build price.

Hope this fill you in.

Boat boy

 

[hkr]

Thanks for filling me in on that Bloss...

So then how do you end up making a profit???

- Do you build in area where they do not build and offer House and Land packages or,
- Do you build with a builder in a way that the house stands out in some way and hence you can get a higher price... or
- Do you build with a builder which costs less? or
- Or some other strategy...

Thanks

 

[nomadic]

My understanding, and what I am refering to as a "specy" is a speculator home. One that is built with the intention of being sold for a quick earn.Boat boy

I think it's a 'speculative' home, not a 'spectacular' home if it's one that "is built with the intention of being sold for a quick earn"?

 

[Bloss]

So then how do you end up making a profit???

- Do you build in area where they do not build and offer House and Land packages or,
- Do you build with a builder in a way that the house stands out in some way and hence you can get a higher price... or
- Do you build with a builder which costs less? or
- Or some other strategy...

Thanks

To answer your question - all of the above.
- No house and land packages being offered in this particular estate,
- yes, we're trying to make it stand out from the rest and we plan on saving a fair bit by sourcing our own fixtures,
- yes, our builder isn't the cheapest, but is a long way from the dearest.

Hope this helps

Bloss

 

[Leandro]

Hi,Leandro,

Theres a fair bit of stuff up there that has issues, eg sloping block's, odd shaped blocks.
But your flat out finding someone to do the cut on the sloping ones , and to get a builder to be a bit creative buiding on a slope you'd almost have to get someone from out of town in, and then the dollars might not stack up on sale.

Easy building block's are snapped up while in the concept stage in the few new estates, and creating land by moving old houses and rebuilding is not as viable as it was.

Bloss

My wife's parents live in Rockview, i believe the name of their estate is park ridge? Anyways, next to them when i went up a few weeks ago there was a new estate with flat blocks. I believe they were for sale, are you saying these go really quickly?

 

[Bloss]

My wife's parents live in Rockview, i believe the name of their estate is park ridge? Anyways, next to them when i went up a few weeks ago there was a new estate with flat blocks. I believe they were for sale, are you saying these go really quickly?

I would'nt say that for a second Leandro, but it seems to me that Rockyview is not Rockhampton.

A lot of the locals in Rockhampton think that if your not a 2 minute drive to the shops you're at the end of the world, and if land is available in a new estate 2 mins from the major shopping centre, why would you buy at Rockyview.

But it would seem that if there putting in new subbies out there, there must be a shortage of land close in.

You have always been able to buy land at the Olive Estate, which is in the same area, and cheap for a 1 acre plus block, but seem to take ages to sell, and a lot of the tradies aren't happy about the 15 minute drive to do work on 1 house when closer to town or down the beach they may have a few houses to work on.

But times are changing.

Boat Boy

 

[Leandro]

I would'nt say that for a second Leandro, but it seems to me that Rockyview is not Rockhampton.

A lot of the locals in Rockhampton think that if your not a 2 minute drive to the shops you're at the end of the world, and if land is available in a new estate 2 mins from the major shopping centre, why would you buy at Rockyview.

But it would seem that if there putting in new subbies out there, there must be a shortage of land close in.

You have always been able to buy land at the Olive Estate, which is in the same area, and cheap for a 1 acre plus block, but seem to take ages to sell, and a lot of the tradies aren't happy about the 15 minute drive to do work on 1 house when closer to town or down the beach they may have a few houses to work on.

But times are changing.

Boat Boy

That's interesting. Coming from Sydney, when i see a lot of the older run down queenslander homes closer to the centre of Rockhampton i feel like i am in 1850s. However, when you drive out 15-20 mins to these new estates like Rockyview you see really nice homes (many new) on large, very well cared for blocks, shopping centres not being too far away either. For me the decision would be easy, especially if you have a car which everyone and their dog seems to have in Rocky anyway.

But then again i am not a local, i will have to run your comments past my wife to see what she says.

Cheers.

 

[Bloss]

.

But then again i am not a local, i will have to run your comments past my wife to see what she says.

Cheers.

Ask the Real Estate Agents in Rocky and see what they say.

Probably like most places, map 1 is the prefered place, if you can get a flat, easy block, which is why they are moving further out.

But there are new estates being scraped closer in than Rockyview. My choice will be for one of them.

BB