Buy land to build in stages

Hi all
I have a scenario that i want to run buy and see if anyone has done it before and what they think about it.

At the moment in the east of Melbourne land purchases are at a stand still. qtr acre blocks in ringwood, croydon , and warranwood, that would sell a year or two ago for 750k are now in the high 5s low 6s.

My idea would be to buy this land and look to put a granny flat or small build on it whilst i build a bigger houses in stages.

Has anyone done this and has any tips ? or suggestions to where i can source this cheap flat or unit whilst i build?

My field is architecture/Construction management so i understand what is required from a build and design standpoint, Just understanding from a finance standpoint, i also have friends and family that also are in this field.

I understand that a stage build will be more expensive due to things like cladding and other external factors.

The aim would be to buy a piece of land, live in a prefab flat or cheap cabin on site, and stage the build so i create exit strategies along the way, Which look like this

1. Resell land in a year or 2 if i cant move forward (100k increase in land value)
2. Build 2 bed 1 bath (Sell or live)
3. Extend to a 3 bed 2 bath (Live, Look to sub divide the back or continue)
4. Extend to 4 bed two bath (Live, Sub divide back or decide on large house on block)
5. Continue with choice (Sell back land to fund front, or continue to build big house, or second house at back)


Obviously the permits would have to be staged to allow this, so would create a couple of masterplans and see what council prefer.

Obviously finance would be an issue but the minimum would be to step 3 which i could afford.
At the end though you would either have two 4 bedders on 750m2 blocks with a value of 900 each, Or one house on a 1500m2 block which would be 1.2-1.3 (Have checked with real estate agents and family who specialize in real estate)

You would be in for about 900-1m on the single house with 300k equity or two houses in at 1.4m with 400k equity.

Thoughts ?

 

What would a normal buyer be building on these blocks? Prob bigger houses.

 

Its varying in ringwood, With retail, hotels and apartments coming up in the area townhouses are becoming more desirable, With townhouses in the area selling for 900k+

Thats why i find this so appealing because theres many ways you can move on this options.

The key is you have the land so you dont need to do anything to make money

 

Cost of financing the land though.

 

Well true the in peak 2018 and 2017 blocks in the same street sold for 900k and 840k. So there is money to be made regardless.

Do same finance rules apply to buying an established house to buying land ?

 

Depends on lender, some don't like more than 80% for vacant land but a few go to 90-95% and some require a build to be completed in x amount of years once purchased.
Also funding the granny flat before the build of a larger home I've never seen, may be do-able but I've just not seen it done that way before.
I think you would need to find out what you can achieve in regards to finance before making a decision on which option is best for you.

 

Thank you for that, Definitely worth investigating further which i will begin to do now.

Yeah i know its a strange way to do it, Just for us, i think we spend around the same amount renting as we would putting a granny flat down, Also would come from savings so wouldnt be affecting your purchasing power as its not an ongoing cost when it comes to further finance. Would also looking at putting it in a place that you could potentially keep it as a studio or retreat if you go down the single house idea.

 

Ok well if paying the small flat to live in first from savings then lending for it not an issue obviously. However using a large chunk of savings to build a flat that might not add much value to the property at all could mean you'll get stuck and can't move forward eg. if you don't have enough funds to subdivide the block or complete the build later on.
Again really comes down to what you can/can't afford to do but very important to get it right because how you use your cash savings initially will affect the outcome greatly.

 

The flat will be a small modscapes or garage/rumpus that will then be utilized as a guest house or a rumpus. so it would be in the final design anyways to add some value. Might even be a apart of the final house depending on how the design goes. It really just depends on the cost of it. DOnt really want to spend more than 100k on the intial livable area. So depends what i can fit in that budget.

Yeah i will be doing some feasibility and costings over the weekend to see what i am looking at.