A Guide to Buying House and Land Packages

Transcription

1 A Guide to Buying House and Land Packages

2 Contents Letter from the CEO 2 What is a House and Land Package? 3 How to Choose a House and Land Package 5 Choosing the right House and Land Package is a Six Stage Process: 5 Advantages of Buying a House and Land Package 11 Disadvantages of Buying a House and Land Package 13 Conclusion 16 A Guide to Buying House and Land Packages / 01

3 Letter from Jason Paetow Dear Reader, We are delighted to provide you with a free copy of this guide to buying House and Land Packages. Investing in property is a wealth strategy open to everybody, not just the affluent. The benefits of doing so are immense and life changing wealth creates options, and with options comes a variety of choices which can ease the burden of everyday living, and help us to realise our dreams sooner. With many strategies and opinions out there, it can be confusing to tell the right from the wrong, and the high risk from the low risk this often leads to procrastination and sometimes poor investment choices. This guide will shed some light on the benefits of buying house and land properties, and why they are important to consider when building a successful property portfolio. Some may be a little reluctant early on to look at house and land purchases because it is a little more involved than buying off the plan apartments or established property. However, once you review the contents of this guide you will realise that as with all strategies, as long as you are aware of the risks you will be able to avoid certain house and land packages and focus on those that can deliver great advantages. After reading this report, you will have gained insightful knowledge that AllianceCorp can then build upon, in a bid to help you become a successful property investor. We have many great services to offer, which will help turn your visions of wealth into a reality. They include: Property Wealth Planning Buyer s advocacy services to target the best investment property Renovation services to add value Property management services Please enjoy this guide, and get in touch if you have any questions on Regards, Jason Paetow A Guide to Buying House and Land Packages / 02

4 What is a House and Land Package? When it comes to investing in property, there are plenty of options on the market which can add value to your investment portfolio. Investors usually have multiple property types in order to keep a well-balanced portfolio, which covers a variety of strategies. One of these strategies is the House and Land package. A House and Land package is, as the name suggests, an offering by a home developers to buy a packaged deal which includes a brand new home as well as the land on which it is built. House and Land packages can represent great value for investors, and as a result there are thousands of developers throughout Australia offering them. Investors and home buyers usually find these offerings enticing as they have the opportunity to have a brand new home built from scratch, as well as the land, which if purchased separately would cost a significant amount more. House and Land packages are not only convenient, they are also lucrative investments. Not all House and Land packages are equal; Australian developers offer a wide range with different features and options. There are two main types of House and Land packages: You select the block of land of your choice and then choose from a number of standard or customised home designs. These packages are sometimes called off the plan packages, and usually offer the purchaser the flexibility of choosing different fittings, fixtures and home layouts. You select a house and land package that already consists of a pre-built home and the land it is built on. No matter what package you choose, all finished homes must pass minimum quality standards as required by Federal, State and local authorities. However, the quality of materials and workmanship between different house and land packages varies considerably. This can be a major deciding factor for buyers who are advised to do their research on developers, with regards to their work history, projects, and finished products. A Guide to Buying House and Land Packages / 03

5 If possible, it s also best to speak to past clients of the builder to discover first hand the level of quality and workmanship they received. This way, buyers will be able to manage their expectations and avoid any surprises upon completion. Some packages are designed for first home buyers on a budget, while others cater to those with more money at their disposal, seeking luxury homes designed and built for a higher-end lifestyle. While established properties are still one of the most popular option on the market, House and Land packages are fast becoming a worthwhile option for investors as developers continue to spring up with great properties. As house prices soar across Australia, more and more people are forced to move further away from the central business districts and towards the outer suburbs. For this reason, developers often offer better House and Land deals the further away from the city you get. This is for two key reasons: 1. The demand for houses, apartments and House and Land packages falls the further away from the city you get. 2. The cost of acquiring land, developing and building homes is cheaper further away from the city. This is again due to lower demand and thus, lower prices which serve as a big incentive to property investors. Traditionally homebuyers opt for homes that are close to a central business district (CBD), as these properties are near work, infasturcture and entertainment and leisure options. In terms of an investment though, there are better options on the market for property investors to be found further out from the CBD. While purchasing a House and Land package further away from the city may not seem like an ideal place to live or rent out, over time these areas will increase in value as Australia s population continues to grow, and as more and more developments take place in and around those areas. Also, as more people migrate to Australia, the demand for housing in these areas will increase, property values will rise and rental returns will increase. For this reason, House and Land packages in the outer suburbs can offer great investment opportunities for those investors considering the long term advantages they can gain by investing today. A Guide to Buying House and Land Packages / 04

6 How to Choose a House and Land Package There are a lot of great House and Land packages on the market, offered by a wide range of developers, but with so many options to choose from, how do you decide which one is best for you? The first place to start is with the price. The base prices offered by developers usually offer their best deals, so it is best to narrow down the areas you would like to invest in, and begin researching the many different developers, their packages and project history. Once you have narrowed down your options, look into the developer s credentials. Most developers are reputable, but the only way to know for sure is to check their track record. Stay away from a developer who has a past record of frequent complaints, unfinished projects, poor quality finishes and timing delays. Some delays in the project s completion are to be expected, but excessive delays may represent poor project management and less professionalism than you should expect when investing in their vision. Once you have chosen a range of developments in your area, start with the one you want the most and work your way down the list. The one you prefer may not necessarily be the best investment option, so it s good to be flexible in your decisions, and evaluate all criteria objectively. With House and Land packages, like all investments, choose an investment with your head, not with your emotions. Contact the developer s sales representative or visit their on-site sales office to find out more information about the package, including prices, customisation, expected completion dates and expected rates of return. Choosing the right House and Land Package is a Six Stage Process: Outline Needs and Budget 1. Identify your required investment return Why is it that you are considering a House and Land package? Is it the rental return, future growth, tax incentives or low establishment costs? Be sure to prepare a property wealth plan and identify what your key requirements are for selecting a house and land package, and ensure the property can deliver on those requirements 2. Discuss preferences Many developers offer customised designs and layouts, and a range of options with degrees of flexibility. If you are lucky enough to be happy with the standard package you have seen, then the next stage can occur. If you still have reservations about what s on offer, speak up and discuss this with the property developer. They may be able to work something out for you as they seek to close the deal A Guide to Buying House and Land Packages / 05

7 3. Get into the details Once you have a clear idea of what you want, work out the details of the deal with the developers. It s critical that you understand exactly what you are getting, what to expect from the developers and the quality of the construction. Do not make assumptions, and don t be afraid to ask questions. The more informed you are, the better the decisions you will make about your investment. Find out whether landscaping is included in the package, the costs of potential extras such as patios and granite kitchen bench tops (if they aren t already included in the price), and other details important to the final purchase price. Once you have selected a developer, it s time to discuss financing. 5. Finance Undersanding your borrowing capacity is critical, so you need to ensure that your borrowing capacity will support your purchase and the release of a Master Facility and buffer required for contingencies. When purchasing a house and land package you will normally settle on the land first, then organize a construction loan of frequently drawn progress payments in line with the construction process. Most banks - depending on your financial position - will lend up to 95% of the value of the completed project. Be sure to speak with a local property manager to ensure that the property is going to have high rental demand. What properties are most popular to the rental market in the area? 4. Research and compare Before signing any contracts, it is advisable that you research the developer s project construction history and investigate the quality of the properties they build. Visit past projects and evaluate them for yourself. If possible, ask to speak to their past clients to seek their experiences, views and opinions on the investment you may undertake. Once you have finished researching and are satisfied with the developer, go out to several more developers and repeat this process. It s important to have something to compare your developer with, so you know whether or not you are getting the best deal. It may turn out that a comparable developer has a superior finish to their homes, even if they aren t located in your area of choice. As mentioned previously, purchasing an investment property should be done with your head, not your emotions. Personal location preferences should be secondary to the value of the home, the potential capital growth, the quality and expected rental returns. A Guide to Buying House and Land Packages / 06

8 6. Monitor the Development In order to ensure that everything is on track, you should monitor the property s development and speak to the developers regularly. Make sure that everything is going as planned and outlined in the contract. Remember, it s your money and your investment property, so you have the right to know what s going on with it at all times. Conclusion For most investors, the investment property is one of the biggest and most important investments they will ever make. It is a significant investment that should be made without emotions, and with all the facts on the table. Refrain from signing the contract until you have had all of your questions answered to your satisfaction. Be realistic about your budget, both now and into the future. If you take these basic precautions, you may find a house and land package that allows you to make extra income now, and a large capital gains later on. Important Things to Consider: As a quick guide, here is a run down of the most important things to consider before buying a House and Land package: How much experience does the developer have, and how long have they been developing properties for? How many house and land packages have they sold in this development? Can you speak to past clients and assess their level of satisfaction with the job? Are their concerns (if any) related to the developer, or are their complaintes related to their job personally, and thus do not apply to you? Make sure to check the builder s warranty and insurance cover To ensure you are not surprised with unexpected fees, check if the developer offers a fixed price building contract If a display home is available, make sure to visit and inspect it Pay close attention to the details, fittings and fixtures of the home, so you can get a good idea of what to expect from yours Check the quality of the painting, carpentry and tiling, which are some of the most important aesthetic components of a house which potential tenants will judge it on If the property look bad, look for another developer don t risk blowing your money on a bad job Ensure that all services, materials and features are listed in the contract you sign, including the driveway, clothes line, flooring and letterbox A Guide to Buying House and Land Packages / 07

9 Create Your Own Building Team to Get a Second Qualified Opinion On Your House and Land Package: A second opinion on an investment property is always important. It s in the best interests of the property developer s team to speak highly and positively about their finished projects; after all, they are competing with other developers to win your business. While developers are bound by legal obligations and a duty of care, it s always best to be cautious and seek your own advice. One of the best ways to do this is to have your own building team with you. Your building team should consist of: A Building Lawyer You will require a building lawyer to help you understand and negotiate the terms and conditions of the contract. A building lawyer is imperative in these instances, as the common investor is not a qualified lawyer and may overlook clauses in a contract which can come back to bite them later. Seeking independent legal advice is the best way to protect yourself and your money. A Building Surveyor A building surveyor will check that the developer s work is meeting the bare minimum standards of the building regulations. This is important, as any oversight could legally fall on you if something were to go wrong in the future. Sometimes the builder will try to appoint a building surveyor, but it s always best to source one yourself to ensure their objectivity to the project. Make Sure You Understand Pre-Building Contracts The developer s builders may ask you to sign a series of documents before signing off on the main contract. These contracts are often referred to as: Quote Order Preliminary agreement Preliminary contract estimate Provisional quote to buy land Contract request Authorised tender acceptance An Independent Building Consultant An independent building consultant is important, as they will be able to assess the quality of the developer s work during the construction phase. A consultant can also help your lawyer with the technical understanding of the project, and allow your lawyer to act on your behalf in accordance with the project s details. When choosing a building consultant, research their qualifications and experience, and make sure that they have worked on house and land packages similar to yours in the past. A Guide to Buying House and Land Packages / 08

10 Seek advice from your relevant Australian state before entering into any of these contracts. Preliminary documents may be used to get a soil report, but builders may also include costs for drawing up plans and specifications before the project commences. Large building companies which oversee House and Land packages, usually own the copyright to display home designs and plans. If you do happen to sign a preliminary document, and pay for a builder s plans, you cannot then use those plans to have the home built by another builder. The original plans are the intellectual property of the building team who drew them up, so having them used by another developer is not only copyright infringement, but is illegal, and may result in legal action. If you decide to not go ahead with the construction of the property, the builder may be legally entitled to keep some or all of your money. In the event that the preliminary agreement covers more than a soil report, you should seek advice and choose your builder, fittings and fixtures, and include all of these specifications in one major building contract. Make sure to include the details of your selections and choices (including colours, styles, makes and models) in your contract, and do not agree to make these selections at a later date, after the signing of the contract. Make Sure You Control Your Costs: Select all your fixtures and fittings before you sign the contract. Make sure the details of these items are outlined in the contract, and are not generally stated as contract ambiguity could work in the developer s advantage to giving you inferior quality products, or the fittings and fixtures you don t want. Delays can also occur if these items weren t specified in the contract, as you may need to wait for the items you want. If there are any changes made to the contract, make sure these are in writing, whether they are requested by you or the builder. It s important that your contract is always up to date, and reflects your most recent circumstances and situation. The builder may not be required by law to make changes to the contract, if they reasonably believe that the requested changes won t require a new permit, cause a delay in the property s construction, or add more than two percent to the original contract price. The builder should also have foundation information when they are giving you a quote for the construction, including fittings and fixtures. You shouldn t have to pay extra to deal with problems that weren t apparent in the foundation information to begin with. In property, the contract is gold. It should outline everything you want and expect, and be signed off on by both parties, which will legally bind the developers to building the property you have agreed on. A Guide to Buying House and Land Packages / 09

11 Paying for Progress: Under Victorian law, a purchaser is required to pay a specific amount for each completed step of the construction phase. Builders may invite you to make different payments, but these payments should only happen under unusual circumstances, such as having an architect assess the completed work s value for progress payments. Get legal advice before you engage in any payments which deviate from the normal, specified amounts. According to the law, a deposit for building a house shouldn t be more than five percent of the total contract price. Until you receive the domestic building insurance certificate of currency for you property, do not pay the deposit or any other money. Your construction company is responsible for coordinating and managing the entire building project. This includes finding suitable land, managing the builders and construction workers, and creating a loan program. Purchasing a House and Land package is usually more cost effective than buying an established property, as it will include all the features you need and want, meaning there won t be any need for renovation costs once you or your tenants move in. When paying for progress, you should keep in mind the many benefits you are receiving. Purchasing a House and Land package saves you both money and time in the long run as you do not need to wait for months on end for sales of land to go through, and for the construction to start. House and Land packages are convenient, cost effective and attractive options to property investors for this reason. A Guide to Buying House and Land Packages / 10

12 Advantages of Buying a House and Land Package There are many advantages associated with buying a House and Land package. Investors are attracted to these types of investments for the following reasons: They are ideal for investors: Many house and land packages are aimed at investors, due to the variety of discounts and benefits they receive. For this reason, property investors should feel more confident that what they are buying is generally geared towards what they are planning to use it for an investment for passive income and future capital growth. They come with everything a tenant needs: A house and land package generally comes with everything a tenant needs to move in and occupy the place. Notable items include air conditioning, heating, a kitchen, bathroom, driveways and a garden. There should be no reason to conduct post-construction renovations. The point of a House and Land package is that upon completion, it s ready to be occupied without any after thought. Pay less stamp duty: Saving on stamp duty is a huge consideration for property investors. Purchasing a House and Land package requires that buyers only pay stamp duty on the value of the undeveloped land, and not the amount that the property and finished home is valued at. This saves investors thousands of dollars. A Guide to Buying House and Land Packages / 11

13 It s convenient: Buying a House and Land package is convenient as it saves the time and hassle of hunting down the right land and builders yourself. Instead of waiting for sales to go through and construction to begin, you can purchase a ready-to-go construction project which will be built in a timely manner. Customisation: One of the great things about buying a House and Land package is that you have the option to choose floor layouts, fittings and fixtures, which adds a personal touch to the home, and allows you to fit it out not only the way you prefer, but the way you believe will be attractive to tenants. Purchasing a property for below-market value: When buying a House and Land package, it s possible to get a great deal on the property by locking in a pre-determined price. The price you pay for it today could be significantly less than what it s worth at market value in the future, meaning you get all the benefits of capital gains without paying extra. Any increase in property value during the period elapsed between the contract being signed to the completion and handover of the property, works in the buyer s favour, not the developer s. In a rising market, it s common to see properties begin settling with instant equity, which can be used by the investor for future purchases. The property is brand new: Investors and tenants alike love knowing that the property they own or are living in is brand new. Nothing has been used before, and therefore the maintenance costs are much lower than older established properties which generally require repairs. The new property comes with a builders warranty and low maintenance costs, meaning anything that goes wrong, or any fittings or fixtures which prove to be faulty will be covered and fixed by the warranty. House and Land packages are cash-flow conscious: House and Land packages are great for investors seeking cash flow, as they have an increased rental return, lower maintenance costs, the potential to appreciate in rising markets before completion, and the added advantage of tax savings in regards to the property s depreciation. A Guide to Buying House and Land Packages / 12

14 Disadvantages of Buying a House and Land Package As with any investment, for all the great advantages on offer, there are also potential disadvantages to consider. Property investors should be aware of the following: No income during the construction phase: During the construction phase of the property, investors will not receive any rental income. This is offset, however, by the fact that you need to attain a construction loan for the House and Land package. One of the biggest benefits of a construction loan is that you will only pay interest-only repayments while the house is being built. Solution Always ensure that when building a property portfolio you maintain a buffer in your Master Facility. This way you will never need to be concerned about limited cash flows. Equity may be slow, if it comes at all: There is no guarantee that the property you are having built will increase in value quickly. There is always the possibility that the property could depreciate, however based on Australian historical data for properties nation-wide, this is highly unlikely. It is still something to be considered however. Solution Treat your investment property as a long term investment. All properties from time to time will drop in value at some stage or another. Provided you view the performance of your property over approximately 7 10 years you should not be too concerned with downturns in the market. A Guide to Buying House and Land Packages / 13

15 Demand for your property: Although you might have bought your property for a low price, it s important to evaluate the rental demand in the area. If you are too far away from the central business district, public transport, schools and other amenities, how much demand can you expect from tenants to rent your home? And consequently, how will this affect the property s future value and current/future rental yield? With lower demand comes lower costs, meaning the rental yield you receive could in fact be significantly less than what you were expecting. When buying a House and Land package, it s important to consider not only the cost of the property, but also other economic and social conditions which may impact its livability, affordability, and investment potential as a lucrative investment option. Solution: Be sure to evaluate the area: check vacancy rates and speak with local property managers. Delays in construction: Some builders may be very busy which means your project could be delayed or there could be a shortage of supplies in the area. A delay in construction could lead to higher holding costs as you are paying the interest on the land and construction loan until the project is complete and rented. Other concerns Q. I have heard that house and land packages don t get much growth. A. As a general rule when considering the law of supply and demand and how it affects capital appreciation in property, House and Land packages - based on their geographical location - don t generally perform as well as properties located in the inner suburbs and major capital cities. The House and Land strategy isn t ususally used as a high growth strategy, but rather one that can deliver good growth. It s more focused on yield, low costs and high depreciation. In many instances, investors cannot afford to purchase a house and land package within the inner suburbs of a major capital city. Q. I have heard that when buying house and land packages, the price is inflated to cover fees paid to project marketing groups. A. The prices are not inflated per se, rather there are fees and charges that the builder pays to advertise and market their new development, and these fees are built into the total House and Land package price. All builders and developers need to advertise their development, thus all House and Land packages have what was paid for marketing and advertising incorporated into the total sum that you pay. Prices are not inflated, because devlopers take these costs into account. Solution: Ensure your building contract contains a clause stipulating a penalty fee if the project is not complete on time. Ensure this fee covers all your holding costs A Guide to Buying House and Land Packages / 14

16 Case study on buying House and Land Susan & Mike - They have 1 child Combined household income $100,000 Home value $600,000 Mortgage $470,000 Susan and Mike s borrowing capacity is not high, and they can only release $50,000 from their equity. Year 1 - Purchase 1 House and Land Package Home 600,000 Master Facility 50,000 Inv ,000 $23,000 buffer 95% LVR Mortgage 490,000 7,000 stamp duty & legal s 20,000 deposit Rental income and loan repayments After going through a few scenarios and based on their equity position it made sense to consider a House and Land for their first purchase for the following reasons: 1. Depreciation As the property was brand new it would offer the highest depreciation and improve cash flow. 2. As they could only release $50,000 from their home they required a low establishment cost property. A House and Land package - due to low stamp duty costs - would only require approximately $30,000, leaving a buffer of around $20, Susan and Mike were comfortable with a House and Land package as it was brand new with builder s warranties 4. Due to the low establishment costs, high depreciation and high rental yield the property was cash flow positive. A Guide to Buying House and Land Packages / 15

17 Conclusion Buying a House and Land package can be a great way for property investors to make money. There is a wide range of advantages which make investing in these property not only cost effective, but a long term strategy for accumulating wealth and achieving financial goals. As with any investment, it s important to look at the pros as well as the cons of the investment, so that you are better informed about the purchase process and investment potential. A House and Land package can be a great addition to any property investor s portfolio, which should be well-balanced between cash flow positive properties and capital appreciation. A House and Land package offers investors several distinct advantages that should not be ignored, including tax advantages (such as depreciation), large stamp duty savings, and the potential to purchase the property for below-market value (since you are buying a property at a predetermined price, and not at it s future market value once the construction has been completed). When buying a House and Land package, it is best to consult with a buyers agent who can offer their expertise and advice on all matters relating to the purchase. AllianceCorp is one of Australia s leading buyers agents who have helped countless property investors achieve their property goals. Get in touch with AllianceCorp today to discuss House and Land packages, as well as other lucrative investment options further. A Guide to Buying House and Land Packages / 16

18 Disclaimer This document contains information from 3rd party entities. These sources include the ABS, NSW & QLD state government, RP Data, SQM Research & APM. We do not control these sources and as such we do not warrant the accuracy, or currency of the information presented in this document. Past performance of any project, area or region discussed in the document is not indicative of future performance. Please seek your own independent advice before acting on any of the information presented. The information here within does not constitute financial advice, nor does it replace it. The information presented is for educational purposes only. A Guide to Buying House and Land Packages / 17