Buying house and land packages as part of your investment strategy and what you should be aware of
I see this over and over again! A property investor attends a seminar and is told or thinks that buying a house and land package is going to make them rich! The reality is a very different story. So, because of this I wanted to share my thought on this topic and how people can still benefit from purchasing a house and land package but doing it smartly.
Normal marketing companies that tell you to buy a house and land package and keep it for 8 years (as this is when the property will double in value) are basically selling you a lie! The reason they promote a package is generally because they are being rewarded handsomely via the developer and the builder for finding a purchaser.
They will also encourage you to hold for 8 years as historically this is how long it has taken for our property cycle to double, the other reason though is they don’t want you to sell this property as if you do you will quickly work out that you have been sold an overpriced property that will only make you money if the property market increases significantly.
At Multiply Property Group we encourage our clients to purchase properties so that when they settle they have already made a profit! We don’t want you to wait and pray to see if your returns increase (that is being a speculator- better off going to the casino)
What you need to realise is just like buying a new car, it depreciates as soon as you drive it out of the car yard, so does the value of a brand new home, even more so when you have purchased in an estate with hundreds of the same type and sized property available to buy. And then even more so if you are looking at selling it to an investor for depreciation benefits.
So why would you use this as a property strategy? Well, we have had a few clients who buy land and construct as a strategy however they buy it using a wholesale approach. These clients generally have limited equity or cash and at the moment the deposit required is small in these types of investments. So they look for land that is scarce. (Scarcity increases prices) So they don’t buy in new estates they focus on infill well located sites. They then shop around for a discounted rate on a build price. Some will get house designs created and use our expertise to tender out to a number of builders to ensure they are getting the best quality and price.
We also encourage our clients to work out what the end value will be, based on sales evidence. What the resale of comparable homes is selling for. Your purchase plus stamp duty and settlement costs as well as build cost and holding interest must come in lower to this. So that on completion you have instant equity.
This strategy if carried out properly can ensure those with little equity or cash can enter the market and use this property as a springboard to increase their portfolio or create them wealth.
So if you are looking at building your portfolio or purchasing a new home. Contact the team at Multiply Property Group. We love helping our clients make informed and profitable purchases.