2017 is the year for new builds and bulk deals at Binvested. We recently talked about what’s involved in developing a new property and why it could be a great strategy for you and your property needs, whether you are an investor, a first home buyer or looking to build your dream home!
We covered the benefits and things that you need to consider. But, what’s the actual process of building your own property?
Common building milestones.
Once your land is ready to be built on, there are five distinct stages of construction that will occur. After paying your deposit, the land will be prepared and the slab will be laid. Following this first stage, your lender will inspect the site before paying the first installment of finance to fund the build. At the commencement of each next stage, the bank will pay another installment of finance. This is done before the final settlement when payment is completed.
The bank pays the builders these installments directly, meaning the borrower doesn’t need to organise payment themselves. Instead, the borrower makes mortgage repayments to the bank the same way they would for a home or investor loan.
Five stages of building.
1) Prepare lot and lay slab – this is completed after the borrower lays down their 20% deposit.
2) Construction of frame – completed after bank makes first payment.
3) External structure, roof, windows and bricking – this leads to “lock up” state.
4) Internal work, such as electrical, plumbing, kitchen, bathroom and floor covering.
5) Completion – final settlement when the bank pays the builder the remaining funds.
At completion of the build, the bank pays the builder the final remaining funds.
It is important to stay in regular contact with your bank or broker throughout the course of the build, says Nathan.
“Keep them updated on any changes that might have happened in your life,” he says. This is to ensure that when it comes time for settlement, you will definitely have enough funds to cover the cost of the build.
Keeping in contact will also keeping you informed of any changes in lending policies that may affect the completion of your project.
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This is where you pop open the champagne and celebrate – you’ve just moved one step closer to living life on your terms!
But, it’s important to stay focused and have a good, long hard think about what you should do next. Markets can change quite a bit over the course of a 12-month build and this may mean a change of plans would benefit you more than your original intention.
Nathan says, if you had planned to flip the property for profit, ask yourself, “Does it make more sense now to keep it and rent it out?”
Or, perhaps it would be better to sell your PPOR and move into this new house.
It is important to work out how your new property will help you achieve your goals after the date of settlement, says Nathan. Keep up-to-date with the market and stay on top of your working knowledge as an investor. This will help you maximise the amount of profit you make from the development.
Who can benefit from developing?
Those who have already established a good foundation portfolio can benefit from developing to flip, because they can use any resulting capital to help to pay down their debt without needing to sell existing properties.
Since they already have an asset base, these investors have buffers in place to protect against unforeseen circumstances.
Those who are starting out can also benefit, because they can possibly make use of the first home buyers grant.
Developing can help them acquire a brand, spanking new property for wholesale prices, which can sometimes be considerably less than what is advertised on a glossy brochure.
Any extra capital that is generated can be used to put into building a good foundation portfolio, allowing them to expand at a quicker rate.
Working with the current market.
“A lot of investors get shy around building a property to start off with,” says Nathan about those reluctant to develop.
He says, many starting investors are choosy about how they want to achieve their goals, preferring to take the same approach as Nathan took more than ten years ago.
The thing is, he says, the market is not the same as it was ten years ago.
“You’ve got to work with the market we’ve got today,” he says.
“What I could have done ten years ago is different to what presents in the market today.”
He says, while some people don’t want to follow certain strategies, those strategies could be the very thing that helps them to pay down debt, or generate enough capital to really ramp up their portfolio.
“The property is just a vehicle to get you to your end goal,” he says.
“You need to get different vehicles at different times to get you where you want to be.”
Are you interested in learning more about how you can purchase a house and land package at wholesale prices? Register your interest today and get exclusive access to all the information you need when these opportunities arise!
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