Question

Hi guys,
Im 26yo living in Perth currently have one ip apartment in Southport on the GC and about 80k ready for my next move. I believe that the Perth cycle is nearing the bottom of the trough and want to buy here.
I have been looking at 500ish SQM blocks around the middle suburbs with established houses to buy and then flatten and build a duplex or two story house on and sell later.
The thing is that it Would take me around another 5-6 years to save the 20% to build and develop the block with no room for further investment during that time.
So just after some guidance, am I moving too fast and should I not consider projects like this until I have more equity/cash or should I go for it?
Thanks

 

Why not buy this place, keep investing as normal, and develop later when you do have the funds?

 

Make sure your gst and income tax effect is factored into your cashflow for the above strategy.

But yes a lot of guys are thinking like you with this cycle.

 

Hi Ross,
Can you please send elaborate on this?

 

Taxes make a big impact. Like if you build a duplex and sell them off you might pay gst on the sale.

 

Ok thanks

 

What's your end goal?

There's a huge room for growth in multi-res in Perth.
If I lived there and had the borrowing capacity, I'd be flattening/converting homes into boarding houses. High % cash-flow. It's a dirty business, when done right, it pays well.

If your aim is to be a developer, I'd suggest working on a project first. It's a steep learning curve. The money is irrelevant, you can always JV if it's a good deal. Just remember, picking a JV partner is harder than picking your life partner.

 

Welcome to the forums!

It depends what your borrowing capacity is like. If you're looking at duplex blocks, you could buy a splitter and retain the existing house, split the back off and either sell for your next deposit or use the equity to allow the build of a new property.

It's going to depend a lot on the cost of the properties you're looking at and also your borrowing capacity.

 

I like the idea of splitting a suitable block to reduce debt and hold onto half for development later. My budget is around 400k and that is with borrowing 320... thanks

 

End goal is to create enough equity to live in around 70k passive income a year by 40yo!
I agree with with the room for growth in multi res Perth

 

Porque $70k y no $40k? Pre tax / post tax?

Doable. Requires an active investment strategy. Would need about $100-120k rent in today's value. About a $2M+ unencumbered portfolio.

How do you earn that in 14 years? Work backwards. Can you do It with PayG or buy and hold? It will likely be paid down exponentially, not linear.

 

Have you looked at your unit in Southport lately? How is it doing? GC units can be risky and it could have a large effect (positive or negative) on your Perth plans.

I'd give that the once over before doing anything.

 

Why do you think you need another 20%?
You know the properties will be valued based upon completion?
If you don’t subdivide first this will hurt you but if you subdivide first you will instantly get an equity boost (pending market not going backwards).

Cost to subdivide is 30-40k so a lot cheaper than 20% deposit.

 

You'd really benefit from working out a strategy and planning it all out. Because your current purchase is in Qld, you are possibly eligible for FHBG which could save you in stamp duty - if you move in, reno, get the ball rolling on the sub-div, you could get a good head start on things and then rent it out shortly after.

 

Yes, I am eligible! Thanks

 

I was just thinking the back would only lend me the money for the development with 20% but I didn’t factor in the equity coming from a subdivision! Thanks

 

I have yes. While I’m not expecting huge CGs from that purchase it’s in a good spot and in my opinion, the best in the complex and the 7% yield is good for the moment. But yeah I’m constantly watching the GC

 

Si bueno casi dígale quiero $70k después tax.
I meant to tell you I want 70k after tax!
Can you tell me what payG is??

Thanks for all the great comments I’m (obviously) very green and keen to learn all I can! Cheers.