House and Land, and Off the Plan
Most of our clients invest in property via House and Land packages and I thought I’d use this months newsletter to go over the pro’s and con’s of investing this way. I’ll also chat about “Off the Plan” purchases which are very different to house and land, and cover one of the major pitfalls of this type of investment.
Like everything in life there’s pro’s and con’s to just about everything we do. The same applies for buying house and land v’s the purchase of an existing property and it may not suit all clients to do it one way or the other. Here’s a list of the Pro’s and Con’s to buying a house and land package:
– Pay stamp duty on the land purchase only, which can save about $12k depending on purchase price.
– Rents out extremely well, as new assets are sort after.
– Comes with warranties on all appliances and also on construction.
– Is highly tax effective in the first 5 years of building a new home.
– Clients can design and build a home well suited to renting.
– There are holding costs whilst building (although these are still less than the stamp duty costs). Need to budget for this extra cash flow.
– Very difficult to get this type of asset close to inner city areas due to the lack of land. Some clients prefer inner city locations.
– Can be stressful going through the build although that’s what we handle for our clients to make it stress free.
Even though there’s a lot more work for an organisation like ours to get a house and land package for clients, I feel it’s a much better result for the investor. We do have clients buy existing homes but have had issues in the past with pest and building inspections etc. This is why you’ll see a lot of investment companies setup in this fashion.
The other topic that comes up a bit is an “Off the Plan” purchase. These are very different from House and Land packages and have one major risk with them that doesn’t sit well with me. The issue is around finance and the finance clause in the contract. Lets assume you buy an Off the Plan unit today that is due to be built and settle in about 2yrs time. It’s a requirement of the contract that you get finance approval within 28 days of signing the contract so the purchase can go unconditional. So lets assume you get finance approval and then the contract goes unconditional. The issue is that finance is only valid for 3 mths from approval, up to 6 mths with some lenders, and finance will then lapse but you have an unconditional contract you’ve signed. So when the unit is ready to settle you’ll need to apply for finance again and there’s a chance you may not get approval if you’ve changed jobs or income levels etc. It may also be possible that the bank has changed their lending policies in that time as well so you may then be sued for not settling on the unit you signed up to purchase.
So as you can see there’s some significant financial risks with doing an “Off the Plan” purchase. These are still very much an option but I just want my clients to completely understand the risks involved.