How do I choose between house and land projects and why are the contracts structured differently? Ask Margaret

Hi Margaret, 

I am interested in buying a property in Ropes Crossing NSW, The developer Bells River have asked me to sign two contracts: one for the land and the other for the house. I have to pay interest only when the house is being contructed.

On the other hand I went to another developer and he said that he only has one contract, one for both land and house together. You just have to pay $10,000 up-front and the rest I have to pay after it has been constructed.

I am still confused about what to do and where to go. Please help me one this.

Thanks,

Ahsan

Hi Ahsan,

When you build a ‘project home’ or buy a house and land package, you are essentially buying directly from a builder.  He has already purchased the land and is about to undertake the construction on your behalf.

It’s very normal for you to be requested to firstly pay a deposit equal to the amount of the land, and then make progress payments, usually around five of them, as the construction gets to the different stages.   As you make these payments, you will pay interest to the bank and you won’t have any income to assist you with that.  I usually advise investors to add the total of these interest payments to the starting value to get a better idea of the true ‘buy in value’, as this is what should be used to asses true yield.

These days though, some larger developers offer, as an incentive to use their company, the option of simply making a small deposit at commencement and a final payment at the end.  This can have both advantages and disadvantages.  Obviously you don’t have any costs to meet until the property is ready for occupation, however it can place a strain on the developer, who still has to buy the materials and pay the holding costs on the land. unless they are exceptionally well financed, there could be issues down the track, such as a situation where they cannot meet their current liabilities, which may result in liquidation before you take delivery of your completed property.

I’d chat to the one offering the ‘buy now, pay later’ option and make sure that they can reassure you of their financial stability.  Outside of that, it comes down to what you can afford to do and whose product you think suits you the most.

Regards,

Margaret

She is the founder of Destiny.

Have a property question? Ask Margaret!