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Overcapitalising on new build?

Discussion in 'Development' started by MissMarple, 28th Jun, 2015.

  1. MissMarple

    MissMarple New Member

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    Hi,

    Hoping to hear some opinions about our situation. The house we're talking about below will be our home, it's not an investment property.

    We have a rear block in Palmyra that is 413sqm buildable (plus the driveway) and paid $455k for it. We've spoken to a few builders since owning the block and and have opted for a custom home design rather than using a project builder. Essentially it's a high specification 3x2 we're after and the build estimates are coming in around $500k.

    Just looking for some opinions as to whether people think this is an overcapitalisation ie just throwing money at something we want rather than what's financially sound. Should we just get someone like Dale Alcock to build us something instead?

    Cheers, MM.
     
  2. Bran

    Bran Well-Known Member

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    So, which is it? ;)

    I still see my PPOR's as ultimate IPs, as I am far from our forever home.
     
  3. Perp

    Perp Well-Known Member

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    I view a PPOR as a consumable. I think it's near-impossible to build a half-decent home in a half-decent suburb and create equity; you're always going to lose about 10-20% in equity on a new-build. The question is whether you'll be happier in the cheaper home. If you would be, it probably is the better financial decision.

    But if you're planning on being in it for 10 years or more, and the nicer home will significantly enhance your quality of life, and you can afford it, then I say "go for it". (We've just done it.)
     
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  4. MissMarple

    MissMarple New Member

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    Thanks Bran. I meant we're not building for the purposes of immediately flipping it, we imagine we'll be there for quite some time, but still want to make an informed financial decision!
     
  5. thatbum

    thatbum Well-Known Member

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    That sounds like a lot (955k?) for a 3x2 on a half block in Palmyra...
     
  6. Perp

    Perp Well-Known Member

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    I just realised it's a rear block. I didn't know Palmyra, but that looks like it's going to be more like 40%-ish over-capitalised, doesn't it? Did you over-pay for the block?
     
  7. HD_ACE

    HD_ACE Game-Changer Premium Member

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    Why not compramise a little on the build.

    Is it single story?
    You could build a very decent 3x2 for say around the 300k mark?
     
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  8. mrdobalina

    mrdobalina Well-Known Member

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    You could probably do a 2 story for cheaper than 500k build cost, and reduce the risk of over apitalisation.
     
  9. MTR

    MTR Well-Known Member Premium Member

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    500k too high for rear build IMO, I would look at single storey as mentioned, try for around 350k if possible, should get you a decent spec.
    Have you looked at comparable sales of similar product in Palmyra?

    Mtr
     
  10. LifesGood

    LifesGood Home Building & Development Consultant Business Member

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    $500k for a rear build seems like it may be a bit over the top, even if its a "custom" build. As someone with 10yrs experience in project building, boutique "custom" building and also Real Estate I would recommend getting a few opinions and also looking at what is currently for sale in the area. I currently work for a project builder doing both single and double storey. If you have any building related questions at all I am happy to help. No strings attached of course!
     
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  11. Aaron Sice

    Aaron Sice Well-Known Member

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    that's some expensive 3x2....
     
  12. Perthguy

    Perthguy Well-Known Member

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    In my opinion, that is over. If you have a look at something on the market in the area for $930,000 to $970,000, it is a two storey 4x3 with a pool and a block size of 705 m². I am noting here that it has not sold. The sale price is unknown at this point but your numbers don't appear to stack up against this:

    http://www.realestate.com.au/property-house-wa-palmyra-119478507
     
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  13. MissMarple

    MissMarple New Member

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    Hi everyone, just wanted to say thanks for sharing your thoughts.
     
  14. Jessproperty

    Jessproperty Well-Known Member

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    I
    I would be looking at getting a project builder to build and with the money you save, you can put more into the finishing touches.

    We bought an old fibro house for $650k (bought below market value) in Sydney Eastern suburbs about 5 years ago. Fibro houses with same land sizes are now selling for $1.2mil.

    Our build cost is going to be about 600k (project builder) with pool and high quality finishes (in keeping with what the area expects). Custom builders quoted us $850k. It is only worth it for us to pay this much with a project builder as it's our 5th house build and have quite a bit of equity built up. We plan to live in this house for about 5-7 years...the other houses we built cost about $350k and were on sold pretty quickly.

    If you are planning to stay for a while I say enjoy it! Or you can always make the next house your dream home!
     
  15. Fargo

    Fargo Well-Known Member

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    Why do you say you will always lose equity on a new build ??, I have done 3 builds and didn't lose any.
     
  16. Perp

    Perp Well-Known Member

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    I added two important qualifiers: "a half-decent home in a half-decent suburb".

    By my way of thinking, that means not project homes, and not on the fringes of cities. I can't see a way to do both of those things without losing equity.

    Oh, and an unstated qualifier: doing it legally.
     
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  17. Jessproperty

    Jessproperty Well-Known Member

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    I think that goes with choosing the correct property... We have only once bought something and built it immediately...by immediately I mean, by the time plans are drawn, contracts are signed and build is complete it took 2 years, then lived in it for a year to eliminate capital gains tax when on selling to maximise profit. It was a project home in an OK suburb in Sydney's East. We managed a tidy profit of $300k but that had to do with timing of the market as well as buying under market.

    I wouldn't go in and build something to sell without allowing some time for the property to have a capital gain. There are plenty of people that will buy some land as their PPOR and over capitalise...but they are doing it emotionally because they plan to live there for a good amount of time.

    In saying that, it has been pointed out that in this case, it may not work out financially unless the OP is going to stay or even rent it out for a long time yet.
     
  18. MTR

    MTR Well-Known Member Premium Member

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    From my experience with land and house packages they work well in a rising market even in outer burbs.

    In Syd in current climate I have been told people are making money just on the land by the time the titles are issued there has been a jump in price.

    Same in Perth recent boom, investors making I believe 20% on their returns, outer burbs, just don't get stuck with them when the market turns

    MTR:)
     
    Last edited: 23rd Jul, 2015
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  19. Perp

    Perp Well-Known Member

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    Right, and it was precisely in this context that the thread was started, and that I was answering.

    For a PPOR, most of us already know where we want to live - and at the time it may be a good, bad, or indifferent market - and if it's an established area, there's limited vacant land. If you want to buy some of that land and build a "better than project home" on it, you're likely - in the short term, at least - to take an equity hit relative to buying a comparable already-established property.

    You build your PPOR - usually - because you have precise requirements and/or want to build, not because it's the optimal financial decision relative to established properties in the area.

    Totally agree that if you stay long enough, it'll work out at least an OK financial decision in any case.

    And as stated, I'm not sure you should view your PPOR the same way as an investment, anyway - I view it as a consumable, which, if I'm lucky, won't be too expensive.