B Invested

WHAT’S INVOLVED IN DEVELOPING A NEW PROPERTY?

 

Have you ever considered buying one of those house and land packages advertised on a glossy brochure? No? Good.

What about becoming a developer yourself? No? Well, maybe it’s time you considered it.

Developing a new property to flip, hold or live in can help you generate a nice chunk of capital. As long as you treat the build like any other business transaction and focus on the numbers, developing can enable you to earn a very nice profit.

The process is quite different from buying an existing property. There are many factors to consider and a bit more planning required than simply buying and renting out.

But, if you have the right team at your fingertips, as well as access to the best deals. All it really takes is a well thought out budget, the right type of finance and a good dose of commitment to see it through.

 

DEVELOPING WITH BINVESTED CAN INCREASE YOUR PROFIT MARGIN

 

Making money off a new development is simply a matter of buying land for cheap and employing a reliable builder who will build for a good rate.

But, how can you buy cheap land and organise a builder who won’t rip you off?

That’s where Binvested comes in.

Through its group buying power, Binvested is able to offer its clients access to pre-releases as well as heavy discounts.

Director of Binvested, Nathan Birch, says, “We are buying in bulk”. This enables Binvested to purchase blocks of land for clients at a wholesale rate.

He says, the builders they use are reliable and don’t spend money on glossy brochures. This enables clients to get a build done for a much cheaper price than what is advertised by glossy brochure builders.

Nathan says, by sourcing wholesale land and a cheaper priced build, Binvested is “Creating the opportunity rather than buying the opportunity off the shelf.”

If you buy something off the plan, the developer is doing all the work for you, but, they are also making all the profit. If you build a new development yourself, you will be able to build capital through the deal – keeping the profit for yourself.

 

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THINGS TO CONSIDER WHEN DEVELOPING

 

Before you begin a new development, there are several things you should be aware of. Here are some of the basic stages involved, as well as what you should do to prepare.

 

STRATEGY, STRATEGY, STRATEGY!

 

A lot of people get emotional when it comes to developing, says Nathan. This can be problematic because it takes the focus away from the numbers and away from the purpose of the build.

Having a clear understanding of your strategy can help to guide you through every decision you need to make.

“You need to work out what the property is going to do for you,” says Nathan. “It is important to understand how it is going to help you get to where you want to be.”

Depending on whether you are developing an investment property to hold, sell for profit, or whether you are building a home to live in, you will have different needs to consider.

Be aware of these needs and make sure the numbers stack up accordingly.

 

DRAWING UP YOUR BUDGET

 

It is important to factor in all costs. Here are the main ones:

  • 20% deposit to purchase land;
  • Stamp duty on the land;
  • 20% deposit for build;
  • Fees, such as architect’s and council permission;
  • Holding cost while build is being completed – usually around 12 months’ worth of mortgage interest repayments.

Although it may seem more complicated than simply saving a 20% deposit and buying an existing property, Nathan says if you have a good team and a reliable builder, most of the process will get taken care of by them.

The upside is, as long as you factor in all costs, the process allows you different stages and time frames to come up with the funds, rather than paying it all upfront.

 

LAND SELECTION 

 

If you are developing for investment purposes, it doesn’t matter whether the land is situated in an area that you would like to live in.

It is more important to buy based on the growth prospects of the area and whether the numbers are good.

If you are looking to live in the property, you should still examine the numbers to ensure you are making a profit on the deal.

 

CHOOSING A BUILDER

 

“Having a builder that can build to your specs is important,” says Nathan. He says, they need to understand what type of property you are trying to build – you wouldn’t want them to do a budget build on your dream home. Similarly, you wouldn’t want them to build a lifestyle home for an investment property.

It is important to build for the market, again, making sure the numbers stack up to deliver you a profit.

 

GETTING FINANCE

 

It is important to speak with a finance strategist in order to discuss your borrowing needs and deposit size. A good broker will be able to get you the best loan pre-approval for your borrowing profile.

Construction loans allow the investor to come up with a deposit, and leave the rest to the bank. The bank will pay out portions of the loan to the builder upon the different stages of building completion – preventing the builder from running off before the work is done.

 

DEPOSIT AND CONTRACT COOLING OFF

 

When buying land, says Nathan, you would typically put down a 0.25% deposit. At the end of the cooling off period, when you go unconditional on the land, you would put down either a 5%, 10% or 20% deposit, depending on your purchasing power and borrowing profile.

Upon settlement, you would then pay for the land in full using your loan.

When deciding how much deposit to put down, it is important to discuss your financial needs with a good mortgage broker. While it may be more feasible for you to put down a 5% or 10% deposit, it is important to remember that a deposit less than 20% will attract Lenders Mortgage Insurance. This will increase the size of your repayments and may even affect how much the bank will be willing to lend you.

 

STAMP DUTY (TRANSFER OF LAND DUTY)

 

The upside to building a new property, says Nathan, is that you only have to pay stamp duty on the land.

Stamp duty, or Transfer of Land duty (as it is now called), is payable upon settlement, but if settlement takes over three months, you are liable to pay three months after purchase. If settlement is likely to take as long as 12 months, due to the land not being registered at the time of sale, it is possible to elect to pay upon settlement. This frees up capital, however, you will also be subject to pay interest on the amount.

You may be eligible for a Stamp duty concession or exemption depending on whether you are a first home buyer. Conditions vary across each state.

It is advisable to discuss your stamp duty obligations, as well as the possibility of any concessions, with a solicitor who specialises in property.

 

GRANTS FOR FIRST HOME BUYERS AND NEW HOMES?

 

These also vary from state to state and can be dependent on several factors, including: the value of the dwelling, construction being commenced within a certain time frame, and whether you are a first home buyer.

The NSW Office of State Revenue provides details of grants and exemptions on their website.

Again, it is important to discuss these options with your lawyer.

Developing a new property doesn’t have to be overwhelming if you have the right team supporting you. There are a lot of great opportunities out there and Binvested can help you find the right one for you! Register your interest today (link to page) and we’ll tell you when the next opportunity to get a House and Land package at wholesale prices comes up!

 

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