Hi All,
Could anybody share with me their experiences with regards to building a new home on vacant land and then on selling the finished product, would you say it was worthwhile financially and what tips can you possibly offer?
Regards,
Alastair
the market has changed since i did my last one but you should still make a profit, I made $120,000 in 10 months, with a $250,000 outlay.
at the moment, if I did it again, it would cost me $310,000 and I would only make $80,000.
the profit is definately in it, but so are the headaches, with everybody, from the word go, the draftsman, the builder, the plumber, the electrician, everyone.
if you don't mind a constant headache the profit is definately there.
Just dont forget if the intention is to build for a profit, you are not entitled to the CGT reduction even if you hold the land for more than 12 months and you are also liable for GST as it is the sale of a new premises. So when you work out your profit margin, dont forget to factor this in. It was mentioned in one of the API magazines that it is possible not to make a profit on a new building but still have to pay GST. It should go without saying that you should check with your accountant to verify this.
I dont want to dissuade you, but I have witnessed another who made a decision without factoring this in – and it came back to bite him in the bum so to speak.
Mick
thank you for the feedback, Ruk, can you please elaborate on your checklist with regards to the purchase of the land ie. regional areas, new estates, established areas etc. and what type of dwelling you would generally construct?
Best regards,
Alastair
Now
land is $130,000
4 br rendered block house around 200m2 = $170,000
Legals + stamp duty $ 10,000
Sale price $ 400,000
Agent $ 10,000
all amounts are approx. but you get the idea.even if you only make $ 10,000, it's still better than nothing, and you get a #*%@ load of experience, so you will do better on the next one.
RUK
I've done this twice now and done pretty well. I have done both as PPoR and both times its taken about 24months from to find/build/move in/landscape/unload. I'm just about to unload my second and from recent sales in our immediate area for the same type of house we're looking at about tax free profit of over $100k. Its not great compared to some others and considering that its coming off an $660k investment the % return aint fantastic, but an extra $50kpa tax free is not to be sneezed at.
Land value increased by about $40k in the time we've had the current propertyIts pretty hard to find land in sydney for <$300k
I've already started looking for the next one……5 acres on the Hawkesbury River mmmm I can see it now.I've bought vacant land and built on it but have decided not to sell. I made about $70,000 equity in each case. Fortunately I bought the land just before the end of our current boom so can't guarantee that I'll be successful again. I'm currently building another house in Carseldine, Brisbane and am fairly confident but not positive that I'll be okay again.
As long as you can cope with the holding charges such as interest, rates, government charges then you should be able to manufacture wealth in this current environment. Most people are too lazy to build so why not do it yourself and reap the rewards?
My advice (as a builder) is to make sure your build costs are locked in first. Don't assume that just because the project home builders advertise in the papers for new homes from $700/m2 that you will be able to build for that price. Remember, they build 2000+ per year and are building the closest thing we know to mass production in this industry.
Rule of thumb, custom made one only buildings will be 40% – 60% more expensive per m2 than what you see in the newspapers for standard designs. What this means in reality is a build price of between $1100 – $1500 per m2 incl GST – depending on what level of finish you are after.
Hope that helps – investing is a numbers game and the numbers don't lie!
Hi all, I just found this old thread.
Can anyone tell me where the profit margin comes from in doing a new build and onselling it? What expenses are able to be removed that allows you to hire a builder and all other contractors and walk away with a profit? Are you just becoming the project manager and taking the equivalent of their salary component?
Thanks,
MattThe profit comes from purchasing the block. If you have paid too much for the land, then you stand a much reduced chance of profitability.
The money is in the first deal, not the onsell.
Thanks Scott.
Still unsure though, as we are talking about a newbuild rather than purchase and subdvide. If I could lock in an $80k profit at the start, from purchasing the land at less than market value, why bother building a house, just onsell the land at market value.
Surely there is more to building for a profit than that.
Cheers,
MattIt comes down to buying at the right price, then getting bang for your buck with typically a project home and achieving the best price in the market at the time of sale. If you can pull all those off simultaneously then you will think it is all too easy, if you stuff up on No. 1, then it becomes all too hard.
Thanks again Scott,
I am looking at a very well priced project home which works out at $750 per square meter (incl. GST) for a turnkey package with many luxury inclusions. $235k for a 306 sqm home including driveway, fencing, site costs, dishwasher, 900mm oven, stone benchtops, full landscaping, ducted heating and cooling, site costs etc.
They appear to be much better value than any other home builders. The only issue is that they advertise alot in the areas that I am looking to build in, so even if I build with them, anyone that I would later look to onsell to, could just have just built with them also.
Any thoughts on how to still lock in a profit on this? A great deal on land in the area would be about $140k for 500 sqm of land (working on a $20k discount from normal sale price). The total cost to me would work out at roughly:
House $235k
Land $140k
Stamp Duty $ 4k
LMI $ 4k
Early exit cost$ 1k
Legals $ 2k
Sell myself $ 1k
Interest during
construction $10kTotal cost $397k
I dont see much point in doing this unless you use it as your PPOR and then onsell later to avoid CGT.
The high level of incentives for new home builds and the stamp duty costs become a killer.
For me to lock in a 50k profit, my sale price would need to be $447k and the extra costs for the buyer compared to new with a builder would be around:
FHOG $10k+ less received by home buyer
Stamp duty $14k higher cost
This means the home buyer needs $24k more cash just to be able to buy off me and takes the effective cost up to $471kThe same home at normal construction costs from an average home builder and average land cost would work out for them at:
House $280k
Land $160k
Interest during construction $ 11kTotal cost $451k
Despite buying $20k better on the land and $45k less than normal construction cost, my price would still be $20k over an equivalent average deal for a new home and require more cash in hand from the buyer.
What am I missing here. I just don’t see a profit in this.
Thanks,
Matt
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