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Kendall & Associates Pty Ltd
Quantity Surveyors - Project & Cost Management

PO Box 442,
Black
Rock, Vic 3193 AUS
Ph: 61 3 9589 1995
Fx: 61 3 9589 2997
 
Southern Accounting and Consulting Services Pty Ltd
Certified Practicising Accountants & Business Consultants
PO Box 115, Carlton South, VIC 3053 AUS
Ph: 61 3 9650 3888
Fx: 61 3 9654 1788
 

 

   

 

     
 The 3 P's

Prepare Procedure Process
To Build, The Budget 1. Deposit
Renovate, Financing Earthwork
Or Move? 2. Base
Display Homes 3. Frame
Existing Property 4. Lock-up & Fit-out
Newspaper & Net Select the People 5. The Completion
Talk to Accountant Doing the Paperwork The Landscaping
Talking to Lawyers Applying for Permits The Maintenance
Talking to Agents The Authorities The Disputes
Taking a Walk  Shopping  Guarantees
Please note that some of the points raised here could be subject to change. We are all faced with regulations but thousands of houses are built across Australia daily without problems. These people receive the best satisfaction in ongoing business.
To Build, renovate or move? This question is very important as you need to look at all the considerations before your move into housing. Generally housing has not only been seen as an important safe diversion against the other income producing areas but it provides a valuable source of shelter and lifestyle that no other form of investment can provide. What needs to be considered though is the cost to enter into such an investment.
To build a new house attracts GST (Federal Tax) over all aspects. It also costs more to buy new materials. The materials have changed in size and availability and regulation.
To renovate means you have to meld your new design into an existing structure.  Not all existing structures are worthwhile keeping or renovating. In the process of rebuilding  some defect that already exists may not be noticeable to the owner until further and proper investigation. Walls that may have looked okay on the outside can be full of white ant. This is basically because the previous homeowner failed to properly maintain their investment. In my experience proper maintenance is not overcapitalisation.
Moving
comes down to lifestyle,  the insidious STAMP DUTY (State Tax), moving costs and family dis-establishment that needs to be costed against staying where you are and using that money to renovate. As all investments work in timely cycles the optimum would be to purchase higher risk type shares (75%) and have some rainy day money (25%) in your youth, sell these for a deposit on your house when you decide to settle down. Then when the equity increases in your house after paying off some of the mortgage return to purchase more of the blue chip type shares (25%) and rainy day money (75%) as a form of retirement benefit. Paying off the house as soon as possible seems to be the most effective from a taxation point of view. Some empty-nesters go so far as to sell the house and rent ( they make fantastic tenants) and disburse their cash assets enjoying their retirement. Your accountant can advise you further on this style and plan your risks accordingly.

Display Homes  House and land packages provide you  generally with everything that is new in the business from the furnishing's to the building materials but it is the most highly competitive as contractors and builders work on volumes rather than unique options. This being so sometimes you find some pretty shoddy work depending on the company you get to build. Personally I don't think they are as proud of their work as the general builder but they tend to be quicker. They like to option up from their standard house to increase margins. "Caveat Emptor" {buyer beware} should be adhered to here.
The only drawback may be that new housing generally is situated on the fringes of urbanisation, so if you work in the city be prepared for your travelling time. Against this is more open space and possibly a better environment to raise children, but these new developments could be de-leafed as the developers prefer to work with a clean site unimpeded by vegetation.

Existing properties range from a modest 1br apartment to multi-level & multi roomed homes. It's already built and can be moved into quickly and you see what you are getting based on a current market price, unlike renovating or building. Drawbacks generally are that it may need spending on maintenance items without improving or extending.

Newspapers & NET
are a good method of comparison for all three forms, (build, renovate or move) once you adjust agent hype on price, liveability and location. The internet is an absolute boon for comparisons these days with auto-emails and a wider search area.

Talk to an Accountant to give you a good plan or insight into your budget and affordability. They mostly have trade and builder contacts in the building industry through their own clients and an accountant can provide some valuable insights. Money spent here could save you headaches later.

Talking to Lawyers can relieve your mind as to property legal costs (conveyancing, contracts, etc). I find talking to a lawyer can put you in the latest legal frame of mind as they use there jargon to explain your rights and obligations. Again money spent here to review a contract could save you lots of time, money and most importantly... headaches. Also like accountants they have many contacts in the building industry.

Talking to Agents can be daunting with agent hype but in reality they rely upon you for future business. Some are obviously very busy working for their current clients. There are plenty of agents out there, so get them to come to you as part of the selection process and work from there. Simply if an agent doesn't give you the time of day then get another agent.

Taking a walk is a fairly good idea and if you find a house that appeals, approach the owners by respectable means to see if they would sell their house to you sometime in the near future, only if it isn't listed with an agent. You will be surprised and possibly delighted at this method. Face to face contact can be beneficial.

The Budget requires setting some sort of realistic budget which means that if you have to tighten the belt the process is easier, than those who overspend. Overcapitalisation of a house can be easily done. Have you checked to see how this suburb reacted in the last property downturn? What was the trend back then for peoples lifestyles. Financial freedom that allows you to enjoy yourselves as well as being housed is more important than being bogged down with a huge mortgage. Notwithstanding the more you invest in your property could mean a better return in more than just financial terms. But you just need a crystal ball to pick the cycles. Do the cycles fit your age and lifestyle?

Financing your investment means that you should not be mistaken that the only form of finance comes from banks. Banks tend to be very conservative in their calculations for providing housing loans and that is something they need to address. The lending regime over the past has seen many banks still recovering these losses after many years, much to our children's children expense. These days with a deregulated market there are many new forms of finance, from residential to commercial, but the banks are providing more stable forms of loans. However the self-employed in today's contractual market are struggling to get financed.

Select the right people to help you achieve your chosen goal as it doesn't pay to string people along hoping to get the best deal. Remember that they have been doing this a lot longer than you and will not give you what you're unwilling to pay for. Be upfront and tell them what your outcomes are and how they can be part of your team as you build your portfolio. Remember that a house is an investment not just a shelter. I cannot stress how important this procedure is and to me the only place to start is with the Architect. I really do not understand why people consider the architect a waste of money. Would you build a brick wall without proper foundations? The architect designs, fashions, costs, processes, arbitrates, implements, details, scrutinises, engineers, supervises, all for nearly the same price of having the house repainted because the colour wasn't just right.

Doing the paperwork is very important and you should be aware of the requirements. Details & variations are common grounds for disputes.  Detail the variations, making sure they are agreed and signed before the work gets done and also talk to people and get them onside. Communication is an important tool in making less headaches for your builder and yourself. A common objective is as important as signing paperwork. However though there are unscrupulous people.
      
BE AWARE.

Applying for permits requires you as the client to be aware that these things have to be processed and that time and diligence has to be applied to them. Planning laws are designed to protect / share common resources with the general public. The application process requires that those surrounding you are not disadvantaged with your development. Ask for the timeframe for applications before applying and consider that your application may have reason for further investigation. The Building permit is required to confirm any engineering or proper construction methods that the Architect or Builder have applied through the documentation process and/or during the construction phase.

The Authorities are those people we all love to hate as they go about their duty of administering the laws that are placed before them, because they are the final administrator before / during the work. We tend to be impetuous and from a few circumstances we can become cynical of these processes. They have a job to do like everyone else. I'm sure you as a professional wouldn't want to be told how to do your job! This process is being made more transparent through private inspections services.

Shopping is probably the most important part of the whole building process and really should be directed solely at those items we have documented in the specifications commonly known as Prime Cost Items. These items must be realised as being the finishing items in the construction process and should not be taken lightly. Over the years I have heard of disputes from the colour of the paint doesn't match my very small sample swatch to colour of the hinges. If your tradesman/builder is aware of the effort you apply then you have a good chance of solid communication. If not then you may have deliberately mislead them and all I can say is that at some stage you might end up in the courts. The shopping process is your final mark upon the building process and should reflect your tastes and affordability. The first thing most builders look at is the PC items to see how affordable their client is. You can easily counter this by competition in the tender process. I once had a client who boasted to me how he had copied a display home so he could get a cheap house. Needless to say but I didn't build this house. Someone else did and it ended up in court.

Deposit is the first payment made in the building process. This is to secure the contract and builder. Payments are spread over the building process as each section reaches completion.

Earthwork is when the first sod is turned and although there is no payment in this section this may be your first variation to a contract to compensate for digging. Most normal house sites generally don't have problems as soil tests are carried out at the order of your local council who these days are quite updated on where problem sites belong. Variations to a contract can be misunderstood so it is important to document and agree before starting.

Base is your second payment and covers areas outside of carpentry like the plumbing and electrical rough-ins where necessary, termite protection, concrete slabs, foundations or stumps. Now that you are out of the ground things should begin to progress a little quicker. If there are any issues raise them now.

The Frame is possibly the most impressive section as the bare bones of the house are quickly seen through stud frames. The walls are littered with all that brass and copper or plastic for the plumbing and cables for lighting and power. This is a good stage to consider getting telephone and other services into the house so they may be well situated in the floor plan. However this stage does mislead you into thinking that the house is steaming along, and although it is, once those walls go up and the cladding starts to go on things appear to slow down. This time also seems to make people aware just how small some rooms look and others look way too big. It is a bit of an illusion at this stage because there is little to scale things against. You would be surprised how much you can fit in that space once you scale it against your furniture and not the clear open spaces. With today's lifestyle there is some merit in having a large open space that can be divided up into bedrooms when the family comes along as prefabricated roof trusses allow so much diversity.  If there are any building issues deal with them now.

Lock-up & Fit-out is when you finally get to put the key in the door (legally though the builder holds it till completion). At this stage you may be looking at several variations to your original design (hopefully not) because it is at this stage that the fittings PC items, start to go in bringing the house together. Again another payment at this stage. If there are any issues raise them now.

Completion is when the last tradesman has left, the carpets are being cleaned, the builders rubbish has finally been removed, and the house cleaners are finishing. Now you are ready to move in and to do so you have to pay the builder his final payment. At this stage most people are quite happy but a few are feeling the strains and stresses of the building processes. Delays due to bad weather, design variations and material or labour shortage may just be a few things that have gone wrong. And if you have been storing up all those little items that bugged you from the very beginning you may be feeling justified in withholding payment from the builder. However you should have raised these issues during the stages of the progress payments. He has the key, he believes that he has attended all your wishes, and he is entitled to believe that he should be paid. Remember he still has obligations in regard to his building workmanship and housing guarantee. A side issue at this stage is the ownership of leftover materials. Unless the builder signs over ownership of these materials the client should not assume that these belong to them. To maintain an effective price structure builders will buy in pack lots, charge the client for materials used and use the leftover materials for the next job, thereby reducing wastage and time delays. Do the right thing by your builder and clarify this in your contract right from the beginning. Another requirement at this stage is the Certificate of Occupancy (C/O) before you can move in.

The Landscaping is to be done and if your budget doesn't stretch to a landscaper then get the ground levelled, top dressed with good soil impregnated with lawn seed. Having lawn is more important than trees as you don't want all that dirt coming through your house. Once you live in the house you get to see the most important views and can plan the garden layout with sunlight and shade in mind. Oh...and the shed.

The Maintenance period is when any builder worth his salt should call back after a period to inspect and repair any workmanship defects. These should not amount to anymore than an hour's work.

The Disputes do happen and I suggest you see a solicitor if you cannot amicably work things out. But to me its a waste of money when a little genuine could be used. If using a Professional, such as the Architect, this limits your disputes in some cases. However there are unscrupulous people out there that will take advantage of your ambition to house yourself.

Guarantees are required by all states in regard to building work over a certain value. See your local authorities or builders practitioners board.

For further information regarding guarantees contact your local authority or do a search in the links search.

 

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