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Unit or House & Land Packages: 4 Key Strategic Investment Differences

By | Knowledge

When considering an investment property it often stems from feeling or hearing that ‘investing in property can be a good idea’. Maybe it’s going to be your first investment property? Maybe you already have an investment property?

Either way it should be a STRATEGY to achieve key family, personal or financial goals. Any strategy has specific purposes: so you do need to understand yours: what are you trying to “get” from having an investment property?
  • I need to build wealth, because I cannot get ahead doing what I’m doing
  • I’m paying too much tax: all the normal PAYG; is there a way to save tax and how do I do it?
  • I have some equity in my family home and I need to know options?
  • I don’t really understand ‘good’ verses ‘bad debt’: which is a credit card and which is an investment property?
  • Why does an investment property help and exactly what does it do for me?

1. DIFFERENCES in COSTS ASSOCIATED on an ongoing basis

Units will typically have some common cost elements because you will be owning a part of a grouped structure, which has current and potential ongoing groups costs and reporting requirements. These typically are grouped into a category referred to as Strata Costs and Strata obligations. There will be a predictable element to this that you can factor in and a possible (random) element depending on the age of the units and the existing strategies of the structured decision group.

This category of cost does not apply if you buy a House & Land Package

2. DIFFERENCES IN SALES TAX

Because sales tax is calculated on the first contract, this means:

  • In the case of a unit you will be required to pay sales tax multiplied by the purchase price of the unit. It should also be noted that the sales tax component is typically not able to be financed, so you need to have the deposit available plus the sales tax component;
  • In the case of a new House & Land Package, you will only need to pay sales tax on the land value, which represents a considerable up front saving;
  • In the case of second hand property of either type or an already built new house, you will need to pay sales tax multiplied by the purchase price. Because the sales tax is only paid on the land value with the purchase of a House & Land package, this may also help an investor with less available deposit or smaller equity in their home, to move forward with their investment strategy.

Because the sales tax is only paid on the land value with the purchase of a House & Land package, this may also help an investor with less available deposit or smaller equity in their home, to move forward with their investment strategy.

3. DIFFERENCES in what YOU ARE ALLOWED TO DO

When you buy a unit you will typically need to conform to the already agreed rules by which that group of units is governed, comply with the governing bodies requirements, potentially attend or vote on group matters and apply for permission for certain aspects of what you want to do with your unit.

When you buy a house, you typically can do with that house and its land whatever you decide to reasonably do. There may be streetscape guidelines, which does help because it makes sure your neighbours don’t do anything weird that may not be great for your view.

4. DIFFERENCES IN YOUR LEGAL RESPONSIBILITIES

With both their will be:

  • rates to pay;
  • services to sign up for (noting that if there is ever an issue with service provision that requires costs to be incurred, then;
    • with a house you are only responsible for your own service provision matters,
    • BUT with units you may need to share the costs of issues someone else in the complex has with their provision of services and the ramifications may be broader (more expensive).
  • Legal requirements to comply with, which in the case of a unit will include the responsibilities you have under the overall strata structure.  

New Home vs Second Hand: What you need to know

By | Knowledge

What are the technical difference between buying ‘New’ & ‘Established’ Houses?

Often the house you buy to live in, in the suburb you choose is a very personal and emotional decision based on how you feel about where you are going to live. We understand. It needs to feel right and you are going to live in it every day

WHY BUYING ANOTHER PROPERTY is very different

Because the objectives are different, or at least they should be, the criteria should be different: you will be doing this for specific reasons.
Typically the reasons include some combination of:
  • ‘Fundamentally I know that having an investment property is a good idea’
  • ‘I have realised and my Financial planner has told me, that I cannot earn or save enough money to retire on’
  • ‘I am paying the standard PAYG tax and my accountant has told me that I can save circa $10k a year in tax, that could help the numbers in an Investment Property and may even positively gear it’
  • ‘I know that property values go up, typically doubling every 10 years, so if I buy soon,then in 10 years I can expect to have EQUITY EQUAL TO THE PURCHASE VALUE and that’s a big deal: I could never save that much money in the same time frame!

TO SATISFY THESE TYPICAL OBJECTIVES: WHAT CAN I DO?

Start by listing what is most important for you: Why are you considering doing this? Your answers are important. List them. This will help you enormously at the time that you have gathered loads of information and you’re starting to get confused.
Then get a trusted accredited person to provide you FACTS
  • FACT 1: When you buy an investment property you pay sales tax on the first contract When you buy an investment property you pay sales tax on the first contract.
    If you buy a block of land then build you save = (Sales tax) x (build price)!
  • FACT 2: When you buy a new property (only), the depreciation schedule allows you to save circa $10k tax every year.
    Naturally this depends on the purchase price and your financial circumstances
  • FACT 3: New houses come with warranties on the structure, brand new everything and guarantees on all the products in the building
    Minimum 7 year structural build warranty, 90 day defect warranty
  • FACT 4: It is statistically likely that things will go wrong with a house that is older
  • FACT 5: You will typically be able to buy a brand new House & Land Package for a much lower price than buying a house near you. Entry point into the market is important. Lower priced investment properties may be more manageable initially.

 

4 Reasons to consider Dual Living

By | Knowledge

‘Dual Living’ is now a real option which 31% of people are considering.

Realestate.com.au, The Developer Insights: House & Land (March 2018)

What is 'Dual Living'?

A dual living dwelling is essentially 2 completely separate houses built under the one roof, with a single owner. Each ‘living area’ has its own street entrance, different address, separate front doors, separate kitchen, separate bathroom, separate living areas, separate garden. Power, water, gas, NBN and all other services are separately installed into the separate dwellings: bills go to the respective address.

Looking from the street though, the modern solution looks like a single house and shares the 1 roof. Typically one living area is larger (3 or 4 bedroom) and the other is smaller (2 bedroom)

2 SEPARATE INCOMES FROM THE 1 HOUSE PROJECT

When you build a dual Living house you are effectively building 2 opportunities under the 1 roof, you can do as you wish with them when built:

  • Rent both separately to different tenants and have 2 income streams;
  • Live in the smaller whilst a tenant contributes good rent towards your mortgage;
  • Live in the larger whilst a tenant helps you pay off your mortgage;
  • Change your mind or strategy over time between the above options.

HIGHER ROI ON THE LAST $100K*

Building a normal house can be a wonderful strategy and will save you money when compared to dual Living. The normal house is still the common option and we build them more. When you switch to a dual living concept you will need a carefully selected block which requires a wider frontage and needs to have fairly parallel sides to the block, because the second living area either makes the overall building wider, deeper or both, depending on the design you choose.

One thing is typically achieved though: the additional approximately $100k will achieve a ‘better bang for buck’ of rental! In a simple example a 4 bedroom house may cost $500k and the rent you will receive may be $430 – $450. Adding the other dwelling adds approx. $100k and earns
you approximately $230 – $250 in rent.

A DIFFERENT PROPERTY WHEN IT COMES TIME TO SELL

Just as you may consider Dual Living, so might a purchaser in the future. They will have the same benefits that dual living offers you. Someone may be able to afford to buy your house because they can offset their mortgage with the rental income: you might get a sale where someone else
misses out.

In modern developments, most blocks may not able to fit Dual Living and a percentage of people buy Dual Living and many builders do not offer the option. So the number of Dual Living houses in any area is limited. It gives you a more unique solution.

YOU MIGHT GET HIGHER TAX BENEFITS & MORE CAPITAL GROWTH

In all instances your personal circumstances need to be considered: typically the Dual Living option will be positively geared and thus does cause a tax bill on the income from rental exceeding outgoings, but also depreciates on a higher value and may separately incur costs. Yes this comes from a more expensive package, but importantly the more expense you are incurring is based on an extra income flow becoming available.