60k House under construction

The Finance

Andrew Kerrby author page

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Bargain!

I purchased the block of land in 2009 for only $75,000. It wasn’t on the market for long. My parents had wanted to buy the block and planned to retire there but didn’t have the money, so I bought it with the intention they may still move there later. I don’t know much about financial planning or investment but it seemed like a good buy. Soon after buying the block it was officially valued by the State Government at $150,000 – it had doubled in value in only a couple of months! This justified the feeling I had scored a bargain.

 

My new neighbour bought the large block next to mine and offered me even more money to buy my block. The offer was very tempting, especially for such a quick turnaround, then I discovered I would have to pay capital gains tax – a hefty 50% of the profit. And besides – where would I find another beautiful piece of land for even twice the money?

Death and taxes

My last remaining grandparent passed away earlier this year – after the 60k House project had begun but before we had started building. The modest inheritance I received will go towards the connection of services, buying appliances/whitegoods and ease any financial pressure – a contingency if the budget runs over a bit (it’s always good to have a little bit extra tucked away just in case).

 

Land Tax is a state government levy placed on all properties in Tasmania that is not your principal place of residence or used for primary industry (growing fruit & vegies or farming animals). The increased valuation for my block led to an increase in Land Tax I had to pay – around $750 per year.

 

Council Rates is a local government levy placed on all properties to provide services, such as rubbish collection. There is no rubbish collection in Flowerpot. Rates also fund other services. The rates for my block were around $500 per year.

 

So here I was throwing $1,250 a year in fees (land tax and rates) for the pleasure of owning a bush block – and not getting anything in return. It would cost me around $12,500 over the next 10 years NOT to build a house. Hmmm…

Government grants

The First Home Owner Grant (FHOG) scheme was introduced on 1 July 2000 to offset the effect of the GST on home ownership. It was a national scheme that was funded and administered by each state and territory. Under the scheme the usual payment was $7,000 if you purchased your first home.

 

The First Home Builders Boost (FHBB) was introduced in Tasmania for buying or building new homes to stimulate the building industry and address a housing shortage. At first it was worth an additional $8,000 (total $15,000), but after a slow uptake it was raised to $30,000 in November 2013 for anyone who built or bought a new house. This increased government grant would stay in effect for 13 months – until the end of 2014.

 

I had always thought that one day I would get around to building something on my block, some day. The fast approaching winding back of the (FHBB) prompted me to seriously think about building. Now I had a deadline – and that deadline was December 30, 2014.

Money talk

I met with my bank and discussed ‘finance’ (pre-approval to extend the mortgage on my block so I could build a house). I had been paying off my mortgage much quicker than the minimum monthly repayments. This is a good way to reduce the overall interest you pay over the life of the mortgage (have it paid off quicker); build ‘equity’ (what you own, not the bank) in the property; and demonstrate your ability to save money.

 

There are various home loans and finance options available – it is best to talk through them with your bank, and even shop around to ensure you get the best deal that suits your needs. After some initial discussions, followed by misunderstanding, I was able to secure a mortgage that grants me access to the money I have borrowed so I am able to pay for materials and trades directly.

 

There’s a lot to be said about being able to sleep easily at night not having to worry about a mammoth mortgage hanging over your head. I don’t know why people do it. It’s not something I’m interested in – I prefer to live with freedom and flexibility.

Christmas Cheer

On December 23, 2014 (yep – two days before Christmas and eight days before the end of the year) I signed a contract with a builder to build $60k House. It seems I got in at the right moment, just in the nick of time. The first condition for retaining the FHBB was to commence building within 26 weeks of the date of the contract, meaning we had to have the concrete slab poured by June 23, 2015, hence the stress surrounding getting the slab done on time (see previous construction posts).

 

* The current FHBB is worth $20,000 and has been extended to 31 December 2015, after which it will be further wound back to $10,000. Get in quick!

 

Disclaimer: Any advice contained within this blog is of a general nature only and cannot be relied upon. Details provided are in good faith and relate specifically to this project. Any author will not be held responsible for advice or information presented.

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