VIC Thoughts on Rockbank h & l

Sure time heals all, however I would have rathered a passage of time in Melb 15km ring.

 

Each to their own.

 

Touché lol

 

Sorry got interrupted. Didn't mean to finish post.

Was going to say.

Each to their own. Buying in 15km ring might be too expensive for some, keep saving, keeps moving further out of reach. Meanwhile maybe that same person could have bought and built a H&L and in this time made their money back to go again.

I personally believe in the long run the inner 15km will plateau and rise by less percentage than the H&L belt. Obviously not everyone shares this belief. My rationale comes back to affordability and the ole pyramid. At the lower end of the pyramid there is more buyers who will help close the gap between the outer and inner suburbs. It's a longer term play maybe, but it's my strategy. That said as my portfolio value increases I will start doing more development in the middle ring suburbs and keep some ideally at a 5%+ yield on cost. Which brings me to another problem with the inner ring in housing is the lower yield and therefore less total portfolio you can hold to get exposure to the CG. Further to me the end goal is going to require yield over CG. That said CG will help me get their too...

 

Apartments in the inner ring have done better cg wise and had similar yields to h&l in the outer suburbs. Of course lately that's changed with all the new inner development.

 

Not at the current time....the outer areas are leaving the inner apartments for dead at the moment...the land supply and council red tape is the issue...otherwise there would be an oversupply..

 

Current? It's been the case for a couple of years I'd say.

Established, older larger apartment bank valuations are being affected. Rental yields, lending policy. All have been effected by the surge in development for at least the last two years.

If I was starting out now or advising someone starting out now what to buy, it'd be regional house or inner city apartment at a steep discount, off a purchaser who couldn't complete or a developer who needs the sale.

Buying h&l in outer suburbs might be a good play for seasoned investors chasing yield or depreciation benifits, but for a first investment having to wait 5 years for cg for the deposit on property 2 is a big drawback.

 

Incorrect........ quite a few of us are doing this in Melbourne @Cactus @Connor @ashish1137 and @melbournian

My numbers on a couple I have in progress...

1. Mickleham H+L - cost to build 17 sqm home with land - 300k...end value around 370k

2. Officer H+L - cost to build 17.5 sqm home with land 320k...end value around 390k ...land itself is now about 200k

3. Armstrong Creek - cost to build 12.7 sqm home with land 258k end value around 325k...

Rents on the are 360pw...370pw...and 330pw respectively....

 

Agree, I've done H&L builds since 2011 and each one has had an equity gain of between 40k-70k on completion.
When you take into account the developer/title delays, the subsequent stage releases and price increases it certainly adds a nice boost to your equity. That combined with organising your own builder puts you well ahead.

What's really driving this market at the moment in Melb is affordability and high immigration. Every weekend new Australians are out in there droves buying up H&L's in melbs outskirts..some still only 30km from the city. Which is causing massive delays in titles.
From an investor point of view, an equity gain 40-70k on completion, a shiny new property with good depreciation and rental renturn/demand, all within 30-45min of the CBD and from about 350K.

 

I couldn't disagree more with you.
Supply and demand, ther ring is the ring. I will explain later, but listen to property couch latest podcast comparing Cranbourne to somewhere in the ring and the growth compound over 20 years.
There is no more land in the ring, demand rises. Some will say yeah satallite towns will be built to ease that but have a look at New York prices and the level of people renting.

Sure yields willl not be there and it will be hard to build a multi property portfolio on just ring based properties but that is two different issues. Mine is that in the short, medium and especially in the long term the CBD ring will outperform the H&L areas..

It's economics mate.
Your shiney H&L will not be shiney in a few years and they will just be old houses like the rest in the middle of nowhere. Plus investors forgot the tax benefits of capital works on their fantastic depreciation needs to be added back on sale for CG.
Income growth drives prices. H&L areas doesn't attract the income growth changes as the ring areas do.

I can go in but being in a beer garden with my pint in the sun I can't handle the frustration of reading your post at present sorry..

Go buy as many h&l's as you want bud.
See you in 20 years and we will talk shop then

 

I'm just starting two in pakenham both 18.55sqm home on a 10.5 frontage lot 4/2/2 boundary to boundary for garage and master. Cost $325k end value $390k end rental $380pw. Will sell one and keep one. Land was negotiated 9-12 months ago.

 

Given I will prob be retired in 10-15, it might be hard to locate me in 20.

But sure I'm wrong your right. Your investment model is superior to mine, because people on a podcast said so. .

If you read my posts you'd know I am building a portfolio that balances CG and Yield. I do my own developments, put together H&L some to sell, some to keep. I will add middle ring properties that have development potential, subdivide and sell 1and keep 1 when I can afford to. What I'm not doing is just buying and holding. I don't expect the history to simply repeat itself every 7-10 years. Therefore I make my own equity. H&L is just one of the methods I use/plan to use over the long term.

As for sale add backs of depreciation, this won't be a concern as I won't make any CG remember.

 

The same convo had with people about Werribee last year....it will never grow...well have a look now.....

 

Yep...let me guess most of the growth would be due to escalating land costs and build costs.

Let me guess the land was 130k and build cost was 195k back then?

Today the land would be 180k and build would be about 215k.

That in itself has brought an increase of 50k in land and 20k in build costs..am I warm....

 

I was going to mention the same thing.... developers increase prices on later stages, under the table rebate the increase, so earlier stages think their house value has increased. Construction costs also rise but my opinion is that's more about including more in modern houses rather than like for like comparisons.


So when you are talking about end value, you have bank valuations on completion showing a higher value than the bank tbe valuation that built the property?

 

Pretty Close...

$135 land $180 build $5k stamps and convey $5k interest allow. whilst build is completed.

Now land closer to $185k. Build would cost most closer to $205k.

 

Now that Werribee is built out? That the estates now for sale aren't a short drive or walk to the shops? Now that Lara is where all the fhbs go to get stamp duty reductions fhog and cheap land?

 

Rebates only occur in a falling market. Good luck getting one in this market. Besides valuers aren't stupid. They are all over rebates if they are occurring.

 

Seems like a long wait for cg. When did you leave the initial deposit on Armstrong creek? That's a lot of time out of the market. For a $75k gain, of which you can borrow out $50 for the next one? It's a hard sell to new investors. Hard to build a portfolio with those sort of numbers with that sort of timeframe. I'm not sure where the answer is, but to give you an example my first hourlse cost $77, a year later, while getting a 7% yield I revalued for $100, used that to leverage into a similar property, following year again into a 3rd.

Now maybe it was just the market at that time, I'm not sure but I've been doing bank valuations for h&l with my work for the last ten years, and I don't have many repeat customers. I have quite a few trying to refinance their car loan into the home loan that usually doesn't value up at least in the early years.

 

Yep...nothing to see let move ...lets revisit in another 18 months.

Spot on...as a matter of fact if the FHB are not settling in agreed timeframes ...they are selling the land for a higher price...and in some instances keeping the deposit.

It is astounding we have people who live in Melbourne but have no clue what is happening with land...the opportunities are huge.....just look at how much Scumshine and Dandenong and Springvale are these days....it is path of progress. Melbourne will have over 6m inhabits by 2026....there lies the clue....by then the 200k land in Werribee will be worth 350-400k.....don't worry...I know 'nutin...I say nutin...I see nutim...