This is my first post on this site. I am weeks away from obtaining my Low Rise Builders Licence in Qld. I am planning on selling the current family home to fund my first build which will be our PPoR. Plan will be to turn it over for profit and repeat the process, building equity each time. Has anyone got any advice or experience that they would be able to share with me. P.S. I am in Redland Shire and plan on staying in this area due to kids schooling.
Watch out for finance issues.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Ashley,
If it is not too much to ask do you intend to sell to investors and stay to rent your own house after sell each time or you sell with intention to move to rent elsewhere? Or any of the two depending on circumstances of PPoR sell?
Ashley,
I forgot to also ask. What kind of builder are you? Timber/steel frame carpenter builder or concrete or other types of blocks builder?
what kind of finance issues would there be for building a home from scratch?
Qualifying for finance may be an issue – you may be classed as an owner builder.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Cintaku wrote:Ashley,I forgot to also ask. What kind of builder are you? Timber/steel frame carpenter builder or concrete or other types of blocks builder?
Will probably stick with traditional lightweight construction – either timber or steel frame, and make sure the house suits the Qld climate, i.e. large alfresco area and open plan.
Cintaku wrote:Ashley,If it is not too much to ask do you intend to sell to investors and stay to rent your own house after sell each time or you sell with intention to move to rent elsewhere? Or any of the two depending on circumstances of PPoR sell?
Hadn’t thought of the first option, but would consider it. I would have thought the second option would generate a potentially higher ROI, although I would have to factor in holding costs while waiting to sell. I guess that is why I have placed this post – to see what other investors have done and would recommend.
Terryw wrote:Qualifying for finance may be an issue – you may be classed as an owner builder.Have a mate in finance who has advised that best strategy is to prepare a contract in company name to build for ourselves. The key point he has raised is to keep as much equity as possible to fund the build and use the banks money to purchase land using no more than 20% cash as deposit. He also advised that contract should be for retail value of the build because that is the figure the valuers will use for lending purposes. The difference in actual build cost and contract value can then be used as a down payment at settlement. Does this sound feasible?
You should really go and see a broker. Because if you own a company you will be considered self employed. If your company is contracting to build your house then they will probably see this as owner builder.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terryw wrote:You should really go and see a broker. Because if you own a company you will be considered self employed. If your company is contracting to build your house then they will probably see this as owner builder.Even if they do consider this to be an owner builder scenario, it should only affect the lending ratio. As we will have a significant amount of equity this shouldn’t really cause a problem. At least, that’s what I am led to believe.
Do you have another job? Or can you provide 2 years financials?
You may also want to get a LOC over the existing equity now. Then get 80% based on land value and just construct using the LOC – if enough.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terryw wrote:Do you have another job? Or can you provide 2 years financials?You may also want to get a LOC over the existing equity now. Then get 80% based on land value and just construct using the LOC – if enough.
Currently working full time in a job that will give me the flexibility to supervise the build. Plan is to keep working full time for a couple more years then consider building and investing as primary source of income.
Yes it is known as mortgage fraud
He also advised that contract should be for retail value of the build because that is the figure the valuers will use for lending purposes. The difference in actual build cost and contract value can then be used as a down payment at settlement. Does this sound feasible?
Not an ideal way to start you business unless you mate in finance wants to visit you on the inside.
God i love it when borrowers get this sort of advice.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Another option to consider to keep initial costs low and minimise finance borrowed against your family home is this.
Only buy / finance the block of land, get plans drafted and approved by council. Then sell based on the plan, i have heard that banks will lend up to 80% on the value of a signed contract ? (please let me know if this is accurate Richard)
That loan can sit in an offset account that you can draw on as the building progresses, should minimise the costs of borrowing.
well that's the basic theory, although if we have any experienced developers around they may have another angle on this.
Pat007 wrote:Another option to consider to keep initial costs low and minimise finance borrowed against your family home is this.Only buy / finance the block of land, get plans drafted and approved by council. Then sell based on the plan, i have heard that banks will lend up to 80% on the value of a signed contract ? (please let me know if this is accurate Richard)
That loan can sit in an offset account that you can draw on as the building progresses, should minimise the costs of borrowing.
well that's the basic theory, although if we have any experienced developers around they may have another angle on this.
Sign both sides of the contract? Builder and client?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terryw wrote:Pat007 wrote:Another option to consider to keep initial costs low and minimise finance borrowed against your family home is this.Only buy / finance the block of land, get plans drafted and approved by council. Then sell based on the plan, i have heard that banks will lend up to 80% on the value of a signed contract ? (please let me know if this is accurate Richard)
That loan can sit in an offset account that you can draw on as the building progresses, should minimise the costs of borrowing.
well that's the basic theory, although if we have any experienced developers around they may have another angle on this.
Sign both sides of the contract? Builder and client?
If i understand the question correctly, no im not advocating having his company buy the land then having him as a "client" buy "off the plan" then use the contract as leverage for a loan. Rather im suggesting that similar to flipping a property he get a signed contract from a buyer who is willing to buy from plan, then get a seperate loan against that contract before the settlement date, pay off his loan on the land (if he even needs a lon on the land.. depends on his finances) so it is clear for the settlement.
So complicated yes… easy.. not really … legal ? the theory says yes, but im not an industry expert, just a well read amature. thought i'd throw it out there for consideration / investigation
You can't really borrow of a contract for an apartment off the plan.
I thought you were meaning something like:
A buys the land and A signs a contract with B Pty Ltd to build but with the director and owner of B pty ltd being A. This would probably be treated as owner builder. Doesn't mean you cannot get finance but it will be a bit harder. This is because you are basically building your own house.If C was the director of B Pty Ltd then it may not be an issue.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Exactly as Terry stated.
I cant see why you wouldn't prepare the Construction contract for the actual amount and do the deal as an owner builder.
Might restrict your borrowing amount but at least you are not committing fraud by signing a contract at a higher figure with a view to increasing your loan amount.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
I can not help but join this convesation. In Australia you realy "need" master dagree or at least licence even for brooming. If builder like Ashley has a problem to keep building houses for himself one after another and improve quality of his/family life by living in better and better home than there is something fundamentaly wrong. There is nothing wrong with being a owner builder. My friend has a beautiful house at Raby Bay ($2.5mil worth took him 5 years to build it). He has built house himself. Before than (owner builder also) he has done house in Voctoria Point than he sold for $800k. Not bad for only 2 houses. Sorry 3 he had also one IP at West End (very old) that he sold as well.
Lets say Ashley's current house is worth $400k and it is fully paid off. Than I would buy IP and use Ashley as builder. I pay $550k for it. Say the cost to build is $500k. He makes $50K profit. Than I sell the property to Ashley for $650k (making $100k) who buys it as PPoR. He can sell old house if he likes or rent it but he would live now in better house. So if the house is worth $800k (costing $500k to build) the result is. He lives in better place each time making profit twice. Once as a builder ($50k), than as a buyer buying house that is valued $800k for $650k making $150k). I make $100k. It follows the rules. Everybody happy.
The only negative is Ashley makes less and has to share profit with me and also goverment gets money over each transaction.
So it is better to be owner builder.
Anybody knows how many properties owner builder can keep building on ongoing bases?
If Government would allow builders to do PPoR's on ongoing bases without limitations (with some smart rules like 6 months to live in min…or so on) the houses we would start see in the market would look better because they would have to live in them. Instead of them building basic quality because they never live in their own product…
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