Should I Buy a House and Land Package?

Welcome back to another weekly episode. And today what we’re going to be talking about is house and land packages. And I think it’s very, very relevant, especially in today’s market to really be talking about this and to educate anyone out there who may be considering buying a house and land package.

I may seem a bit pessimistic about it. I guess I am to a point, but don’t get me wrong, for some people’s situation, for some investors, these they may be a very good option. I’m in terms of the tax appreciation, in terms of the cash flows they can get from those sort of properties as well.

The first home buyers or home buyers in general, who maybe aren’t looking for, or that concerned with creating wealth through property, then this may be a real consideration for them. So buying in these Greenfield or these newer estates or these house and land packages may suit some people, but for the majority of people out there, if you’re going to be buying these house and land packages, I really think you should be really well-informed about them.

So I’m going to run through a few reasons, and pitfalls of these house and land packages, especially the ones that are out in the Greenfield space. So especially those ones that are 25, 30 plus kilometres outside of the city. So let’s start with what obviously I think most people know……you’re going to be paying a premium cost.

Obviously you’re buying brand new, you’re paying for all the shiny new bits and pieces of it. But what you also need to be aware of guys is you’re paying for a lot of the advertising costs, and you’re also going to be paying for the middleman as well. So that’s the person who pretty much you’re getting in contact with and that are selling you the property, that’s the selling agent. A lot of them will get kickbacks from the selling –  a lot of them will get commissions back from the developers for unloading this stock. And I call it stock because there’s two different types of stock. You’ve got investment grade stock, and also non-investment grade stock. Generally, these ‘packages’ and considered non-investment grade stock.

A lot of those house and land packages are not investment grade stock, but the real costs that you really got to be factoring into this guys is maybe 30 or 40 or $50,000 worth of commissions, which sounds incredible. But that’s what they can get up to for selling you or offloading, the stock that’s contained within these Greenfield sites.

The second point to touch on is your tax depreciation, which is going to be sold to you hand over foot by these selling agents. Now for some people it could work well. What you’ve got to remember, is tax depreciation is an outcome. So the thing is, land appreciates in value, then why is the property or dwelling depreciated in value? So that’s why when you buy brand new tax appreciation is so high is because it’s really at the top of its depreciation schedule.

So you know that 5, 10, 15, 20 years over time, the amount of tax you can depreciate off that will decrease over time. Now, when you buy an established property, for example, the established property that may be 10, 20, 30, or most likely it’s 20 or 30 years old in a lot of cases is that the depreciation on that dwelling has pretty much come to an end because most of that property, most of that property has appreciated in value.

So if we then take a step back when we go and buy a brand new home or one in these newer states, the house and land packages, a lot more of your money is going into the product or the dwelling that’s sitting on top of the land rather than more money going into the part of the deal, which is the land that’s appreciating value.

So you must really understand where your money is going. When you’re thinking about tax depreciation and why that tax depreciation is going to be a carrier. So guys just remember tax is an outcome. It’s not a strategy, you’re not investing or buying property for, for tax benefits solely.

Tax benefits are the cherry on top and not what you should just be solely focusing on. Okay. Now the third one is the scenario. Now when you get into these Greenfield or these newest states, they have stage one, stage two, stage three, etc. Now, what happens is as more supply comes online, it reduces the capital growth in the area because one of the fundamentals of capital appreciation or capital growth is going to be your supply and demand ratio.

So if your supply is outweighing your demand, you’re not going to get much capital growth. And that’s, what’s typically going to happen. In the future with a lot of these areas, as they go through their stages, it will subdue the capital growth because they are brand new properties. So just remember the future capital growth or the future value uplift for that property when deciding.

So, the capital growth is, is subdued. Especially for Australia where you should be looking at  doubling your property value every 15 years. It could be sooner. It could be a little bit more, let’s just say 12 or 15 years. So if you bought a $500,000 property, you’d expect for it to double.

And if you’re not thinking this way, you probably should. Most people at the end of the day, especially as they move on in life, things are going to change that that property is going to be one of their store holds of wealth. And they should really be considering how to maximize that.

I hope those points really stick with you today guys. And I hope that gives you a little bit of more clarity around what happens with the house and land packages and why you pay that premium, and where that money is actually going and how it can actually affect your future wealth creation.

So, guys, I hope you enjoyed the video, like share with anyone that you think that needs this. Especially if they’re looking at doing a house and land package, remember guys, if you want any more clarity and confidence around, you know, decisions that you’re currently making in the property market with the way it currently is at the moment, feel free to reach out.

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