How Much Should I Spend Building?

How Much Should I Spend On Building...continued

Say you manage to find a bit of steep hillside close to the city, that has a harbour view. You might be able to pick this up fairly cheaply - for examples sake lets say $150,000. You spend $300,000 on building a new home. The end product should be worth roughly $450,000? Well because of the view and the handiness to the city you may well have more like a $600,000+ end value. Especially if the design, layout and finish are all of impecable standard.

I can hear some of you saying now "you can't build something on a hillside for $300,000!" Probably true. That's why if you are going to get into a project on a difficult site you check the costings very closely. It's not unheard of for a challenging site to cost $50,000 to $100,000 for just the foundation work. This can blow any profit out the window if the finished market value doesn't come up to your expectations.

Overcapitalisation is what you're trying to avoid at all costs. So if your land is only worth $80,000, don't go spending $400,000 on building. The local area is not likely to support values up to $480,000.

In high land value areas there are significant opportunities for gain on subdivision. But that's a topic for next time!