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Invest in a land and build or buy a already built house

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Kasun | 19 Nov 2013, 04:27 PM Agree 0
Hi, I am looking forward to my first investment property. My question is ; is it best to buy an already built house ( nearly new) or to go far a land and build a house and rent it. I understand that if you go for an already built house you can get a rental income straight away but one property brocker adviced me , the stamp duty you save from building is much more than buying a house. The package he outlined to me is 395k for land and house package and garanteed to finish in 6 months. Any further delays would be compensated by builder. I am palnning to buy in Epping in Victoria and go for a 95% morgage. Appreciate your advise.
  • Mark Coburn | 22 Nov 2013, 03:39 PM Agree 0
    To have the greatest chance at success in property investing, you need to buy the right 1st property. A lack of a Strategic Plan causes 74% of investors to stop at one and 93% of investors to stop at two*. * according to the ATO

    A Buyer's Agent can help you buy the property, and a Property Investment Advisor will create a plan as well.

    Start by creating the plan around the four major steps you need carry out before you start building a property portfolio. Note: purchasing a property is the last item on the list!

    Step One: Planning

    • Strategic Plan: Where do you want to be financially and when?
    • Structure Plan: How are you going to hold your assets?
    • Risk Management Plan: What are the risks and how do you plan to manage them?
    • Finance Plan: How are you going to structure your finance, what levels of debt do plan to carry, and when do you plan to start paying down the debt?

    Step Two: Finance

    • Individual 1, 3, 10, 20-year cash flow analysis for each property you have on your plan
    • Depreciation schedules for each property
    • Portfolio Loan to Value Ratio and Individual Loan to Value Ratio Management
    • Portfolio serviceability management

    Step Three: Property Selection

    Property research is broken up into 2 categories: statistical and fundamental.

    Searching across 15,000 suburbs in Australia, pinpoint the 5 suburbs that have the largest demand/supply imbalance. These will be areas have the best chance of increasing in value well above the national & state averages.

    Rate each suburb on a scale 1 to 500, where 250 indicates a suburb is balanced. The higher the rating the higher the probability the increased demand will put upward pressure on prices in the near term.

    Statistical Indicators

    Number of Days on the market – The lower the better, we also watch out for areas that are deceasing
    % of vendor discounting – The lower the better, less choice and less ability to negotiate.
    Auction Clearance Rate – The higher the better, indicating higher demand
    Rental Yield – The higher the better, indicating a higher demand and potential rental growth
    % of Stock on Market – The lower the better, more demand creates a premium in pricing
    Online Search Interest – The higher the better
    Rental Vacancy Rate – The lower the better, this % the better it is for investors
    Proportion of Renters to Owners – The lower the better, creates better suburb perception
    If these metrics combined give us a rating that indicates the demand is exceeding supply (market is imbalanced), then we move onto the fundamental searches to validate the statistical data.

    Fundamental Indicators

    Proximity to Water/Ocean/Beach
    Views of Water/Mountains/District
    Transport Infrastructure – Recently announced, in progress or to be shortly started that reduce commute times, increasing demand for a suburb
    The ripple effect of close suburb neighbours. If suburbs within close proximity have grown substantially recently, the chances are that the subject suburb will grow quickly in order to maintain a pricing balance between the growth suburb and the subject suburb
    Project Booms – Are there any large projects nearby that will create a spike in demand (Transport links, Business Parks, Urban renewal projects)
    Ugly Ducklings – Has the suburb been branded rough or ugly in the past and the only problem with the suburb is its reputation? Are private owners updating their properties in the area? Are developers buying up new land and building new apartments? Are businesses and trendy cafes entering the area now?
    Government Works – Has the government put forward a proposal to improve the appeal of an area (waterfront, parks, malls, entertainment, shopping precincts)
    Lifestyle Features – Are there any lifestyle amenities nearby like golf courses, large entertainment precincts, tourist attractions
    If statistical and fundamental searching reveal the suburb is a potential hotspot, we drill down to find the best streets in the suburb, and then developments within close proximity to give the best chance of the best capital gains & yeilds.

    Step Four: Purchase

    Now you are ready to buy (Plan), you know exactly what to buy (Product), and you now know where to buy (location). A well documented property investment plan lets you sleep at night knowing you have managed your risks.

  • Goodo | 26 Nov 2013, 02:04 PM Agree 0

    The stamp duty you pay is on the land value for a house & land package but on the total purchase price for an established property. As well as this you should consider that many lenders will now only allow you to borrow 95% for an investment property but will max out at 90%.
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