Seeking help on land in Tarneit

Hi Friends,

I am seeking some help on my situation. I bought an off the plan land in Tarneit in 2017 at contract price of $305k. It was a mistake, I understand. I am trying to sell it now on the same price or a bit lesser. But the settlement date is coming closer in May or June.
Now, if I am not able to sell it now, I wont be able to sell it after settlement as well. Then I would have 2 options :

1. Build a house and try to sell it again.
2. Build a house and try to rent it if unable to sell.

Now Melbourne being in the falling property cycle, this would be a worst investment being highly negatively geared and no capital growth in sight as well for at least next 5 to 6 years.

Can someone please help and suggest any options for me at this stage. Also, if I need to build only, is there any way to increase the cashflow, I mean instead of building one house, building 2 townhouses. Land size is 375 sqm.

I am not sure if townhouses are in demand in Tarneit or not. Also, I am totally new to this construction and building thing.

Thanks in advance for your help!

 

You need to check your contract and the subdivision plan for any covenant. New estates do often not allow land subdivision to build town houses. Especially with your block of land size.

Have you thought about what you want to build (3bed or 4bed), how much will it cost and what is the end result (estimated sale price or rent amount)

 

Do some market research. I agree that buying in Terneit wasn't a good decision, but the fringe suburbs are tending to hold their value better than the inner suburbs at the moment. I don't know what the market there is doing right now, but there is a chance that it's not as bad as you think.

 

Thansk @hieund85 I am more inclined on making a 4 bed, construction cost I think wont wary a lot. But demand for 4 bed seems to be more both for rent and purchase I believe in Melbourne. I am still to do my numbers. But my priority is to sell it rather than have to build on it. That would be a compulsion.

 

If you want to sell, it is highly likely that you will need to take loss and the question is what is the max loss you can accept considering the title date is not far away. Without knowing much details, my gut feeling is the best option is to build and rent out. Depreciation will help to reduce your negative CF but you need to crunch your number carefully.

 

It also depends on the estate and your block of land location. If it is a desirable part of Tarneit, it may not be that bad.

 

Thanks @Peter_Tersteeg , can you please throw some more light on your comment that it might be not as bad as I think. Do you think market can recover back in Melbourne sooner or are you saying in terms that I might be ale to sell land before settlement.

I have been doing some research and talking to lot of real estate agents in help to sell the land. Even willing to sell in a bit of loss as well. But not seeing much encouragement from agents or market.

Thanks!

 

Thanks @hieund85 , won't I miss on the capital growth if I build and rent it out as Tarneit already have had its run and will be silent for long period now. Also do you have any idea on estates in Tarneit, I can PM you estate name if you could help in suggesting if it is desirable or not. Thanks!

 

I'm just saying that not all of Melbourne is doing the same thing. Certainly the market in general is dropping, but there are locations that are continuing to increase in value. Those locations tend to be at the low, affordable end of the market.

Get an understanding of what you can build in the area and what it might cost. Then look at what these types of properties are currently selling for.

 

got you, thanks mate!

 

PM me so I can see if I can help. Tarneit is one of the areas that I have been monitoring.

 

Thanks mate!

 

I had a Melbourne client only few weeks ago with similar scenario and advise to him after looking at his personal situation was to sell the land.

Issue with land is that it's a dead investment as it produces no income.

And with land size of 375sqm, doubt you will be able to put two townhouses ..

Without knowing full situation, hard to say sell or not but I'll be more inclined towards selling and hoping you can break even!..

 

If the OP can sell the land with no or minimal loss, then this would be the best option. The issue here is he does not have much time to sell (2-3 months). Lands in the area are taking quite a while to sell unless you accept big discount. So it all comes down to the OP circumstances and the numbers when comparing selling land vs build + sell vs build + rent. Whichever suits the OP the most.

 

Hi @SydneyInvestor
Bad news is that you have bought at the peak.
However, some estates in Tarneit are pretty good. Though none of them held their value from the peak. Wyndham Vale on the other hand was much cheaper comparatively and still dropped 5-8% in value.

If you sell now, my thought is that you will lose a substantial amount. Also selling in Victoria before title is not something that is considered good. You will be mistaken with someone who wants to get rid of land before title and that you are not able to settle; thereby people will start lowballing and that will further impact your morale.

I would suggest build a 22 square 4 bed and constrain the cost of build to 235k to 240k inclusive everything. Also, get the final property appraised for selling price and rental and see what suits you best. 308k plus 240k = 548k. I think you should be able to rent the house at 450 a week. I am hoping you would be able to get this price and the lot would be walking distance to station.
With all this and taking into consideration depreciation and other tax deductions and IO loan, you might be slightly negatively geared or neutrally (hoping) geared.

Hence, you should be able to hold it until next few years. I do not think you might be thinking the same in next 3 to 5 years.

Regards

 

+1 this.

Exactly what I think. Control build cost while maximise rental/selling appeal by smart layout design. Depreciation will help reduce negative cash flow allowing you to hold for few years while you are trying to sell or until the next boom (no one know when). Selling now in an urgent manner will mean big discount.

Crunch the numbers and see what is the most suitable option for you.

 

Thanks Ashish for sharing your thoughts
Ultimate action would be the same only to build and try to rent. However, not sure if I would be able to rent out easily and what rent I would receive because of the oversupply in that area. Also, location of the house and estate would be a great factor. Lets see...
Do you have any contact for a good builder. Most of the builders I have come across are dishonest in that area and try to rip off...

 

Thanks mate!

 

Have you checked your contract? It is likely you will be unable to sell the land before or AFTER titling without consent of the developer.
They do this as they don’t want land banking which obviously decreases the value of the estate.

Make sure you start their before anything else.

If you sell NOW then you are going to take a substantial hit. I had a mate do this exact thing in POint Cook years ago and lost 100k. Bought land peak Pre GFC sold after GFC because discovered he couldn’t build what he wanted.

In his situation by far the best thing would have been to just build a cheap townhouse that maximizes the land. Throw a tenant in their and the just hold as a negatively geared investment.
Eventually the market recovered and if he did this he would have actually made a profit.

Tarneit will be exactly the same but how long until recovery then who knows.

From a finance perspective it also makes a lot more sense to get a land and build contract.
Personally if I were you I would be in the process of speaking to Metricon (cheapest) and seeing what they could put on the block.

Townhouses is 0% chance By the way. They won’t allow it and even if they did they would be tiny on that land size and people don’t move to Tarneit for show box townhouses. Their would be no demand.

 

I will pm.

Regards