House & Land
The benefits of building your own House and Land package, over acquiring an existing property
Choosing or creating your own investment home can be a complex and difficult process. Simply, building a home from scratch starts with
buying a piece of land, choosing a design and building a house. However, there are a number of critical steps involved to achieve your property
investment objectives. Not everyone is prepared to go through the process of buying land and building a house. They may not have the capacity to undertake this form of investment. This provides an opportunity to create an investment the market is prepared to pay or value more due to the risk, effort and time you have incurred. When interest rates are low, it is in fact less expensive to buy land before constructing an investment property. The combined costs of paying stamp duty on the land component only with interest incurred whilst under construction, is less than paying stamp duty on acquiring an existing property off the plan. As it is an investment, we want the cost of buying the land and building the house to create a profit or capital growth when it is complete. We also need to think about a future exit strategy for your investment. Ask yourself the question: ‘why is someone going to buy your property in the future and why are they going to pay more for it?’
How does the Process work?
There are two contracts for a house and land investment, often referred to as a split contract. You will sign a contract to acquire the land from the vendor or land owner, plus sign a contract with a builder for the construction of your house. You will need a loan for the land, and a separate loan to build your house.
Buying Your Land
You will require a 10% deposit to exchange on the land and the remaining 90% will be required upon settlement of the land. Once you have purchased your land, you will need a construction loan. Building Your Investment Property. A construction loan requires funds to be drawn down at specific stages of the building process and paid to the builder. This allows the builder to continue on to the next stage of the construction.
The typical Stages of Payments to a Builder are:
1) Signing of the building contract – the construction deposit is paid;
2) When the slab is poured;
3) Once the frames (walls) and trusses (roof) have been erected;
4) At lock up stage; that is, the bricks, windows and doors are completed and installed;
5) Finishing of the interiors, bathrooms and kitchen; and
6) Handover or completion of the property.
The Construction Process
The most important part of building your investment property:
Choose a Builder
The principal role of a builder is to co-ordinate the building works. The role includes supervising each trade, sourcing, quantifying and coordinating
delivery of materials. Most importantly, the builder quality assures the entire process.
Preparing a Building Contract ,including Drawings and Inclusions Standard contracts are available from many sources including industry bodies such as HIA
(Housing Industry Association) or MBA (Master Builders Association). The contract forms the basis of your legally binding agreement with your
builder including any dispute resolutions.
Construction Supervision and Certification
The inspection and certification of your investment property at critical stages, while under construction, is required by law to confirm that the property is built in accordance with the approved plans, specifications, relevant
Australian Standards, Building Code of Australia and council regulations to ensure the structural integrity, health, safety and amenity. These inspections can identify and rectify problems or omissions before they are built in.
Handover
This is where you undertake a final inspection of your property with the builder. At this time, you may identify construction defects, including incomplete works. You can instruct the builder to rectify any significant material error before you make your final payment and before your property is ready for a tenant.
There are a few key components of your build contract that need to be considered and discussed with your builder before entering into an agreement. It is important to remember throughout the process the cost of the build is being financed by you and not the builder.
Negotiating the Right Building Contract
Understanding what is not in a contract is as important as what is in the contract. While you think you are signing up to a fixed price contract,
you may in fact be exposed to items which are deemed only estimates and are subject to change once your building works have commenced.
There are very limited time obligations on a builder to commence construction of your investment property. For example, once a builder receives
your deposit, they are responsible for preparing your drawings and obtaining approval. There are however no time limits placed on the builder
when they should prepare these drawings to obtain the approvals.
Key Components you should consider when Negotiating your Building Contract:
1. Fixed Price Contract – Eliminate as many contingencies as possible Ensure there are no Prime Cost or Provisional Sum Items in your contract. These are estimates which may increase over the course of your construction works. The contract price should include costs for approvals before, during and on completion of construction. All reports required to be obtained for approval for the plans and construction of your property
should be included in your contract price (e.g.:
Surveys, peg outs, landscape reports).
2. Accountability of Time – Ensuring your builder is working in a fair manner to complete your investment property The contract should include maximum
requirements of time for:
a) The builder to prepare the drawings,specifications and approval documents
b) The builder to provide copies of relevant approved documents for your financial institution so they can approve your loan to commence construction
c) A time limit to commence the construction of your property
d) Maximum time period to complete your property.
3. Liquidated Damages – Receiving adequate compensation for a builder taking too long to build your home If a building contract has accountability of
time, it is only fair to be compensated for any delays. Including an amount for liquidated damages assists you with any additional costs incurred, such as interest costs for delays too your construction works caused by the builder.
Where PropertyinDemand can help?
PropertyinDemand adopts a ‘clients first’ philosophy. It is a simple concept that suggests when a client is satisfied; they will do business with you again.
The objective of Silverhall is not only to provide you a quality property, but more so to provide an investment tool that will grow in value. Research
PropertyinDemand has a dedicated research team monitoring the changing property environmentsaround the country. Both risks and opportunities are identified and recommendations are made accordingly. Research is not just for acquisition purposes.
Strategy
PropertyinDemandl helps clients to see property as a tool to achieve certain financial goals. Implementation PropertyinDemandsupports clients in all areas of the
investment process. From reviewing the research behind an investment to assisting where required with the finance, the legal process, property defects, insurances and managing agents. PropertyinDemand does not offer those services internally, but deals with professionals in all areas.
Monitoring
PropertyinDemand will monitor the investments of clients and keep them informed as to current values and corresponding opportunities each and every year.
Variety
PropertyinDemand sources a variety of developments in a number of locations such that clients in different situations can find the investment tool to suit
their needs.
