Got a question for the trio? https://forms.zohopublic.com/propertyplanningaustralia/form/GotaquestionforthePropertyTrio/formperma/zYCQAxzE_24CVlDafP1ozyzwtmB-8m1iCNtCTgDvHXM🎙️ Should I Build or Hold? A Listener’s Dilemma with a Vacant Block in Tasmania In this week’s episode of The Property Trio, we tackle a thoughtful listener question from Lauren, who finds herself at a crossroads with her property journey. Living in inner-Geelong and loving the lifestyle, Lauren is currently priced out of the local housing market for her own home. But with a block of land she purchased in Tasmania back in 2022, she’s weighing up whether to build an investment property on the land, or take a different approach to reach her financial and property goals.
🏡 Lauren’s Situation
Lauren bought her block of land for $180,000 (with $150,000 still owing), and she’s been told by local agents that demand for built homes in the area is strong. With building costs estimated at $330,000 and potential rental returns of $550–$595 per week, the numbers initially sound promising. On a healthy income of $100,000, paying just $1,000 in rent for her share house, Lauren has managed to save a 5% deposit. Adding to the opportunity, her sister has offered to go guarantor for the remaining 15%—a generous offer that could help her avoid costly lenders’ mortgage insurance.
💡 The Questions
But Lauren has some big considerations:
- Is sitting on vacant land in a market with oversupply a sound move, or is it better to build?
- How should she assess the Tasmanian growth drivers, and are there risks she hasn’t yet considered?
- What does the land-to-asset ratio tell us about this strategy?
- How could she think about a close family member's offer of guarantor, and what safeguards should they both put in place?
- Most importantly, how will taking on this investment impact her ability to borrow for her own future home? Will the rental income and equity help her, or will lenders view the added debt as a hurdle?
📈 The Trio Weigh In
Cate, Dave, and Mike unpack the intricacies of Lauren’s situation, looking at the opportunity through the lenses of lifestyle, risk, and financial strategy. Dave's team have modelled some borrowing capacity details to assist the Trio when weighing up the possibilities for Lauren's scenario; Borrowing capacity for home purchase:
- Current position: Existing $150,000 loan (for land) and $6,000 Credit card = borrowing capacity of $316,000 for home purchase
- Closing the credit card: Existing $150,000 loan (for land) = borrowing capacity of $345,000 for home purchase
- Proceeding with the construction and closes the credit card: Existing loan increased to $478,000 (land and construction) = borrowing capacity of $240,000 for home purchase
- Selling the land and closes credit card: borrowing capacity of $492,000 for home purchase
Lauren has a HECS balance of $50,000 with approx. monthly repayments of $472 that is also dampening the borrowing capacity. Dave goes into some great detail on lending policy constraints and enablers with regards to the impact of HECS. The scenario modelled suggests a further borrowing capacity lift to $558,000 could be possible, and he also shares the impact of further rate cuts too. How do the potential solutions pan out? Tune in to find out...
From forward planning to assessing milestones, and from understanding bank servicing calculations to weighing the risks of construction in a shifting market, the Trio leave no stone unturned.
And our gold nuggets!..... Cate Bakos's gold nugget: It's important to ask yourself the question,...
