Im a young person just starting out investing in property. At the moment I own a block of land with 100k equity and my PPOR with 75k equity. Im not sure what would be the better move; to sell the block and put this money into an established property or to build on the block and either live in the new house and rent the other out or rent out the new house. I was just after some advice as to what to do and what are some of the advantages and disadvantages taxwise of building a new home. Thanks.
Hi Terry,
Currently in a similar position also. These are a few of the things we’ve considered.
If you sell the block of land with a house on it after 12 months of living in it, it’ll cut out the CGT.
You’ve already paid the Stamp Duty on the land, and there’s a big differnce between this value and that on an established property.
If you sell the land now -say you’ve had it for a year and a half- you’ll pay CGT on 50% of your profit.
If you build a house on the land for investment purposes, you should be able to depreciate it at 2.5% for 40 years.
Consider which one should experience the most capital growth in the next 12 months – 2 years, and think about keeping that property as you PPOR to minimise the CGT.
Having that amount of equity in your current PPOR may mean that you could receive a positive or neutral cashflow on it, with CGT calculated from the current value of the property.The growth we experienced in Darwin was partially due to the rise in land values as demand soared, but the rest was labour and raw material costs. If there is a slump in building in your neck of the woods, you should have a great opprotunity to negotiate and get the sweeteners thrown in. Hopeully when the market swings and these goodies go away and prices increase you’ll win.
FYI, I’m not a professional, but this is what I have learnt over the last year.Hopefully it’s correct and helps with the decision. [biggrin]
Regards,
Mark.
Hi, the land is non-performing thus robbing the owner of income rightfully deriving from 100K (even sitting in the bank @ 5% you should get a few hundred dollars every month)
After building, the property should be @ approx 50% LVR because you’ve paid for the land. It’ll be a self-funding propspect.
However, I do realise that I’m not aware of other variables so do get advice from others.
Alot of people, myself included, would give an arm and a leg to be in your position at a young age. Well done & good luck,
Kum YinThanks heaps for your replies. Building seems to be the best way to go. Ialready have equity in the land and once the house is built and rented out it would nearly be paying for itself. The only thing holding me back is the time it will take to build the house as the building industry is booming here and it could take 18months. Also I’m not sure exactly what to build from a resale point of view and a bit hesitant about renting out a brand new house as it could get trashed.
The block is making a capital but as far I know I can’t claim the interest on the loan for the block as a tax deduction because there is no income from the block so I’ts probably best just to sell the block and buy something else instead of waiting round for 18 months for a house to be built.
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