Indecisive & confused newbie – needs HELP!!

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.

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

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 8 years, 3 months ago by  TheNewGuy.

ren wrote:

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?

Corey Batt wrote:

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.