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Viewing 11 posts - 1 through 11 (of 11 total)
  • Profile photo of renren
    Participant
    @ren16
    Join Date: 2015
    Post Count: 3

    Im a ‘property investor wannabe newbie novice’! with limited funds (am only able to get a loan for $280,000.00) – and l am in need of advice/HELP!!
    My original plan was to ‘renovate for profit’ – Cherie Barber-esque & on-sell quickly (flip).
    As my funds are limited l would use this method to ‘leap-frog’ into a follow up purchase (that phrase stolen from Corey!!)
    but now have reservations regarding the big stamp duty tax slug – this would possibly negate any profit since lm at the lower end of the market…?
    Sooo….I am now thinking toward buying land and building (kit home) and on selling……less tax = more profit…..??? but of course this method still has its pitfalls….

    I am also a bit unsure as to which loan structure would be best for me – as l have had conflicting advice. l realise it is dependant on which way l decide to go :reno or build – but what would the best option for each?

    I am ready & very willing to proceed (lm not a ‘lurker’!) – lm just not quite confident of the best/ most suitable direction for my situation – and so l need some pointers/education.

    Any & all information, suggestions and advice from those of you in the know would be GREATLY APPRECIATED!

    Ren

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539

    Hi Ren

    With building, you’re usually stuck on a variable interest rate with the bank till the build is complete.

    With a house & land package, the bank would pay the builders in incremental stages.

    You are correct that stamp duty is lower if the dwelling is either not on the land or is incomplete. However keep in mind that most house & land packages are built in large clusters of other house & land packages. There won’t be anything different or special about your house because everything in the area looks similar. So tread carefully if you are assuming your house will magically go up in value by settlement and turn you a profit. You really want to do your homework on whether such a phenomenon has happened with other house & land packages in the area, and also be prepared to execute “Plan B” if the value rise you hoped for doesn’t happen. Plan B will almost certainly be “Hold onto it and rent it out”.

    Folks with limited funds have historically opted for the first 5 years of the loan to be interest only (after which it lapses into Principle & Interest unless you do something to revert it to Interest Only). However many lenders now charge a higher interest rate for interest only loans which can nullify the purpose of having gone down this path in the first place.

    Another thing worth doing is working out how much more you can save within say 6-12mths and what budget range that would place you in, should you choose to sit on your hands. That might get you into a slightly better suburb that may increase possibility that a reno could turn a small profit.

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
    Email Me | Phone Me

    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of renren
    Participant
    @ren16
    Join Date: 2015
    Post Count: 3

    Thanks Jacquie for your words of wisdom – much appreciated.
    There is obviously a lot for me to consider,
    and much for me to learn!
    So…..onwards and upwards!

    Does anyone else have any thoughts on: ‘to reno or not to reno’ ?? – ‘to build or not to build’??

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,366

    Hi Ren,
    Although I have never done it personally, I believe that building a property has more restrictions re lending (e.g. lower LVR? Loans issued as work progresses – but what happens if you strike a snag? Will you have the spare funds to address any such issues?). With limited funds, I don’t think your situation could handle that kind of situation too well, thus I would suggest the other option.

    Instead, I see the benefits of buying to reno in already settled areas. Though still restricted, any Bank Loan would be immediate and complete (not 10%, then 40%, etc) and you could get on and spend the right $$ to give the right result (a whole book or more in THAT subject!!) This might end up being a buy/reno/hold (like Westnblue below) rather than a buy/reno/sell – can that work for you? I don’t know, but read these and see….

    Re how, you might pull some ideas from one of these threads :-
    https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/#post-4697977

    https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/page/2/#post-5012680

    While in there, do read back and forward re other useful info (“Finding Cashflow Positive IPs”, Offset Accounts, “Which suburb to buy in?”, etc) – there is a wealth of information to be gleaned by clicking each link. Some of these posts give you a huge leg-up in the realm of “ideas”. Enjoy !!

    Benny

    Profile photo of BuyersAgentBuyersAgent
    Participant
    @knightm
    Join Date: 2005
    Post Count: 317

    Hi @ren16 – great set of questions. I have done the reno thing and the build thing. My thoughts below:
    1 – You can leap frog a reno without selling. Correct you pay more stamp duty at the front but no cg tax if you just refinance the equity out. It is how I bought my first 3 in a smidge over a yr.
    2 – Building is great – but you NEED to have extra money. It is super stressful and takes long time and extra costs have a habit of arising. The first build I did I have over 100k deposit and spare funds and I spent the lot. No way would I suggest it for newby with only a small deposit unless in building game or with generous family who can help along in emergencies.
    3 – If build and sell you will pay MORE tax as GST is applicable to new dwellings. ATO will also target you as a developer if you repeat a few times and want income tax not 50% reduced cgt.

    Personally the cheap buy reno hold model is the preferred for starting with minimal funds. I agree with @benny‘s post above and Corey had a good one recently too.

    BuyersAgent | Precium
    http://www.precium.com.au
    Email Me | Phone Me

    South Coast NSW Independent Buyers Agent - Wollongong to Batemans Bay and Regional NSW. DOWNLOAD OUR FREE 14 POINT PROPERTY BUYER'S CHEATSHEET to avoid painful mistakes at precium.com.au

    Profile photo of TheNewGuyTheNewGuy
    Participant
    @thenewguy
    Join Date: 2014
    Post Count: 151

    In general I’d say ‘buy the problem, sell the solution’. If you reno that’s what you’re doing, if you buy a house and land package you’re buying someone else’s solution. So, as well as the issues mentioned above I’d go the reno option, especially since you can draw down the equity if you need it without selling (serviceability might be an issue).

    • This reply was modified 3 years, 8 months ago by Profile photo of TheNewGuy TheNewGuy.
    Profile photo of renren
    Participant
    @ren16
    Join Date: 2015
    Post Count: 3

    Thanks so much for all the advice guys & gals!

    If l do the cheap buy/reno/hold option – which seems the best option for me -thanks to your considered opinions –
    how soon am l able to access the ‘equity’ for refinancing – to be able to move onto my next project?

    Profile photo of BuyersAgentBuyersAgent
    Participant
    @knightm
    Join Date: 2005
    Post Count: 317

    Thanks so much for all the advice guys & gals!
    If l do the cheap buy/reno/hold option – which seems the best option for me -thanks to your considered opinions –how soon am l able to access the ‘equity’ for refinancing – to be able to move onto my next project?

    It varies from bank to bank, I have had good response when allowing 6 months in between purchase and refinance 12 months even better. Any less than this it is tricky to convince a bank’s valuer of any real growth unless your reno is much more substantial. I have also had blanket policy of no refinance in less than 6 on occasion, despite the reno. It helps if you bought the cheapest house in the street and you have some higher resales during the window. Some of the brokers can advise if 6 month refinancing is still currently working with lenders in today’s market. @jamie-m? @cjaysa?

    BuyersAgent | Precium
    http://www.precium.com.au
    Email Me | Phone Me

    South Coast NSW Independent Buyers Agent - Wollongong to Batemans Bay and Regional NSW. DOWNLOAD OUR FREE 14 POINT PROPERTY BUYER'S CHEATSHEET to avoid painful mistakes at precium.com.au

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    If you do substantial enough renovations, it can be as soon as 1 month – however this would mean needing to replace kitchens, bathrooms and full cosmetic reno.

    In reality the valuer will note nominal increases after 3 months, but the biggest bang for buck will be achieved by waiting 6 months where the recent sale will fall off the radar and the value will 100% be based on the recent sales in the area.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of BuyersAgentBuyersAgent
    Participant
    @knightm
    Join Date: 2005
    Post Count: 317

    If you do substantial enough renovations, it can be as soon as 1 month – however this would mean needing to replace kitchens, bathrooms and full cosmetic reno.
    In reality the valuer will note nominal increases after 3 months, but the biggest bang for buck will be achieved by waiting 6 months where the recent sale will fall off the radar and the value will 100% be based on the recent sales in the area.

    Yeah nice thanks for confirming @cjaysa – 6 months seems to fit a nice sweet spot, with banks being happy, new comparables arriving to support a better price maxing the potential equity pull, and even human limits, for some folk anyway where one has a rush of energy to research and buy, then reno, then u need a break for a few months. Then a month to refinance, then regroup, then go again. It can mean 2 good ip’s a year, without destroying yourself, and without needing huge funds as the deposit is recycling. Some go faster but its good to avoid silly risks or burnout too.

    BuyersAgent | Precium
    http://www.precium.com.au
    Email Me | Phone Me

    South Coast NSW Independent Buyers Agent - Wollongong to Batemans Bay and Regional NSW. DOWNLOAD OUR FREE 14 POINT PROPERTY BUYER'S CHEATSHEET to avoid painful mistakes at precium.com.au

    Profile photo of LisaLisa
    Participant
    @lporter
    Join Date: 2017
    Post Count: 4

    Hi Ren,

    I have a property portfolio of six properties and apply the strategy of buying established (dated properties) which require a basic cosmetic renovation and hold. I think you really need to understand the pros and cons for each strategy before you make a decision. I worked for a finance company who dealt with house and land packages and for me the numbers still didn’t stack up plus valuers are getting stricter with their valuations on such projects and you will need to come of with the difference if the valuation is under.

    I now work for Cherie Barber and her cosmetic renovation course is of a extreme value education wise. I have undertaken many renovations and project managed the build on my own home yet I have learnt so much from the course. Cherie’s goes into so much detail (no stone is left unturned) and gives you the practical tools and you will feel confident with applying the strategy (yourself). There are checklists, feasibility calculators (for all States of Australia), legal documents, the list goes on and on. Cherie also provides a style guide which goes through every item / product / supplier that you will ever need for every part of your renovation. Because of her profile and the amount of students she has, her trade discount card is of extreme value. You will save $$$ at major suppliers – Bunnings, Online Appliances, Wattyl paint etc. Plus you have access to her coaching staff who can hold your hand throughout the who process, end to end from buying to negotiating on a property as well as the actual renovation process etc.

    If you have any questions then please do not hesitate to contact me on 9555 5010 or email me on [email protected]

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