Is it Better to Develop Land With an Old or New Property?
Is it better to develop land by trucking in an existing dwelling or is it better to build a new house from scratch?
Ryan: This question, I like this question. How do you work out if it’s better to develop a piece of land with an old style property or with a new property? I was actually looking at this the other day because I heard about it, I don’t know how.
You know how you can get old houses and you can get them trucked to a piece of land and you can get them re-stumped and connected and stuff like that? This article that I was reading was saying that in some circumstance the uniqueness of these older properties actually gives them a premium price point in the market compared to if you just built one of those new build designer package homes. Do you have any insight into this?
Ben: Remember Rhys that came on the Christmas party last year at ITD?
Ryan: Yeah, I know Rhys.
Ben: Rhys, oh you met him a bunch. He did this not long ago. He bought a piece of land, bought the house up, cleaned the house up, and stumped it. He made about $115,000 because he bought the land at a good price and bought the house at an absolute bargain and was very handy, so that’s the only example in my actual circle of mates that someone’s actually done it and it actually worked out really well.
I don’t know about this concept of that type of property because it’s got character would be worth more, because there’s so many things that come into play there like position on the block, like floor sizes, how are in the current marketplace, like in quality markets like Sydney, Melbourne, Brisbane and a lot of those older homes have 70 to 80 or 90 square meter footprints, unless you fill them in underneath where a lot of the newer homes might have 200 to 350 square meters of space.
It’s hard to comparably say, but I can imagine if you were handy it would be a hell of a lot cheaper doing that. A lot of people give beautiful homes away for free just so they don’t have to pay the demolition costs in Brisbane right now.
Ryan: Yeah. Well, the one that I was looking at, it was a company that gets these houses and then sells them to you, but I do remember, this was years when I was looking and I would come across these houses that people would sell them for five grand, ten grand, free, as long as you just take them away.
This means, yeah, as Ben was saying, they don’t have to pay demo costs, so you just pay to come. Then you have to pay a company, obviously, to come and pull this house apart and to deliver it for you, but you can get houses for a very affordable price and get them delivered and re-stumped for an affordable price as well.
It would be way cheaper, but that’s just if you can find the right house and know how to do it.
Then you’ve got to consider, as Ben was saying, the footprint of the house, because people obviously tend to want more space these days. They don’t want small houses, unless you’re like me and you’re into tiny houses and stuff like that. We love the small living.
But as well, layout. Some of these old houses can have terrible layouts where the kitchen’s completely isolated from the rest of the house.
I lived in a house that was an old style house, and the only way to get to the back yard was you had to walk down the hallway through the laundry, and that was the only way to get outside, whereas houses now have the lounge room with the big double doors or quadruple doors onto a deck onto the yard, which is way better. They’ve got the open plan kitchens, so you’ve just got to think about all of those factors as well.
Ben: Another part of that question, just reading it a different way, this concept of knocking down and rebuilding an existing house versus finding an established house and renovating it, from a dollar perspective it is far cheaper to find an older property, renovate it, and release it than it is to buy a place, knock it down, and rebuild.
Dollar for dollar it’s significantly cheaper to renovate, but sometimes you don’t get the returns through renovating an old school home, and I’m really thinking now about the suburbs five to seven ks from Brisbane that we this type of property, and we do buy and knock down places and then rebuild. We also buy and support renovations, and the equity gains in both instances in the right suburb can be around about the same. Let’s say you bought for 650,000 grand, spent 100,000 dollars renovating it.
The property should be worth somewhere around the 900k mark versus buying for 600k, knocking down a home, and spending 350 on the build, and having something worth about 1.1 mil. You’ve got to be really careful with the feasibility of these things, like there’s only very specific times of a cycle where they can be really feasible to knock down and rebuild.
Most of the time when you see that happening it’s because someone wants to live there and they’re emotionally attached to the suburb more than investors that are making big money on doing that stuff and flipping it.
Ryan: Yep. Hey guys, I hope you enjoyed the insight to this question, which came from my live Q and A episode with Ben on YouTube. We will be doing more of these in the future.
If you want to check out Ben, then he is offering free strategy sessions to On Property listeners. To find out more about that, go to OnProperty.com.au/session, and you can see all the details over there. That’s it for today, and until next time, stay positive.