Where is my equity? Lessons learned from buying a Perth cookie-cutter house

Over the past few years many new home owners and investors in WA have been left with no equity in their purchases, a result of buying land and building in estates where every block is the same size and every house the same variation of low quality build.

I know, because I am one of these people. Driving through these estates, you can quite easily get lost in the sea of grey rooftops, crème rendering and dying lawns, the result of standardised building practices designed to reduce the bottom line of low cost builders.

 

Where is my equity? Mark Campbell learned the hard way what to look for in an investment property.

Hindsight is a cruel thing, and maximising value, not minimising cost, should have been my focus when buying land. Focusing on communities where lifestyle and sustainability are at the very core is the key to building equity in times where everyone is after a quick win. I learned this the hard way. Here is my story.

Back when I started thinking about buying an investment property, I remember distinctly the feeling of urgency. That if I didn’t act now I would never get into the property market. I was naïve and the year was 2013.

 

Baldivis seemed a good choice at the time.

Baldivis seemed a good choice at the time. 

Everywhere you turned, someone was talking about the property boom. On the train, by the water cooler, at the gym. Incredible returns, 12 per cent growth and no signs of slowing, rental returns were through the roof and it seemed property could not be beaten.

With my deposit and pre-approval in hand, I set about researching a suitable place to invest. After exhausting my parents’ investment advice whose words of wisdom “make sure it’s a winner” did not exactly instil confidence, I turned to an investor assist agency to help me navigate the process.

They laid out my options and the first decision I needed to make was: did I want to buy existing or build new?

After weighing up the options for and against, I elected to buy land and build.

My rationale for building new was threefold, Firstly, it enabled me to have control over the end product and it made sense from an investment perspective because I could maximise depreciation and thirdly it was guaranteed equity upon completion.

The next step was to choose a location. I settled on the high growth area of Baldivis which has great access to existing amenities, schools, transportation and shopping.

After reviewing lots from a single developer, I purchased a block of land and went about the straight forward process of planning the build. Being the son of the bricklayer, this was the part I was looking forward to the most.

What I didn’t realise was I had been tied into the use of one of two builders, whose designs lacked imagination. But with the price of modification to any of their cookie cutter plans at an all time high, I chose a builder, retained the design and signed the contract. I did elect for one modification however, to orient my house in the correct direction for the block!

A recent valuation of my property indicated I would lose a significant sum of money if I were to sell.

The approach I took to the remainder of the build was to remove emotion from the equation. After all, I was not going to be living in the property. Grey roof, crème rendering, fully brick paved, neutral stylings.

The result was a house that was so standard it could have come out of a box. With the design approved, the build could commence except that the block had been levelled incorrectly. Four months later the build started. Eight months later it was finished. It till had some finishing touches to do, but I managed this myself.

During the build, my customer account manager changed four times, I was not informed about one of my mandatory inspections and for a simple house the overall quality of the build left little to be desired.

It was lucky my dad was so in tune with the building industry that many of the issues were identified and rectified prior to building hand over. For everyone else, having a building inspector available is highly recommended.

The feeling of relief after handover was immense, and in a year’s time the property value would have gone up enough that I could think about selling or refinancing. However, a recent valuation of my property indicated I would lose a significant sum of money if I were to sell. It also means that my plan to utilise equity to finance another property is a long way off.

From all of this, I realise that I am one of the lucky ones. By not extending myself financially and securing good tenants, I aim to ride out the downturn in the market in the hopes of recovering some of my initial investment.

Other home owners are not so fortunate and the number of stories I have heard from people who have been burned by the property slump is growing.

So what can you learn from all of this? Here are my top 5 lessons learned:

1) Don’t rush into the market, do your research and plan for the worst.

2) Understand that value is in the location. It is more than just about great amenities, think about lifestyle and sustainability.

3) Know your options – there are many developers on the market and even more builders. Make comparisons and find a solution that works for you.

4) Look for ways to add value to the build rather than minimising cost. Standard products will lose value over time.

5) Engage a building inspector to ensure the quality of the build is at a high standard.

Mark Campbell is the co-founder of www.landguide.com.au

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