HomeBuilder Grant Explained (Maximise Returns)

hi guys I've been asked to do a video on the home builders scheme announced by the federal government recently which provides 700 million dollars of free money for homeowners who are looking to complete renovations or build new homes over the next six months in this video I'm going to motor through all the eligibility criteria because there's already a million articles out there telling you guys what you need to do in order to be eligible what I thought was more important is to go through other government money that you can stack with a grant to maximize the bang for your buck also practical smart financial decisions which you can make with the grant as well as the mistakes or bad financial decisions that you can make in order to avoid them so let's make sure we get every last cent of free money to afford that smashed avocado and get straight into it this is an important disclaimer everything covered in this video is not any form of tax or financial advice and you need to do your own research please ensure that you go to the full disclaimer which has been linked in the video description as once you go past this point in the video you agree to be bound by the terms and conditions of this disclaimer there is no hiding the fact that construction activity in Australia was significantly declining even before covert hit in fact some industry commentators were suggesting declines of over 23% the thing with the construction industry is that it makes up about six and a half percent of Australia's GDP now this does not sound like much but once you take out government spending from the equation this equates to around 15% of total private spending in the Australian economy the other thing with the construction industry is that it is the third largest employer in Australia there is a lot of hate on line for a whole range of forums as to why the construction industry in Australia gets stimulated but ultimately the reason being is that the construction industry is a great tax base for the government for two reasons firstly all of the income is derived in Australia so it is taxed in Australia secondly because it's labor-intensive a lot of the contractors wages or income also is tax and ultimately stamp duties and other taxes from it so for every stimulus dollar that the government puts into the construction industry they receive a proportion of that back in the form of tax revenue so now we kind of know why we're getting this free money what actually is it well effectively it is a $25,000 non repayable grant for any home owner who's looking to renovate or build a property meaning we get the money and never have to pay it back for tax purposes it is similar to the first time - grant meaning it doesn't form any part of our taxable income but if the property moved from a home into an investment property some tax may be payable on the capital base of the capital gain getting on to the overall eligibility criteria first things first is it is an australia-wide grant the second thing is is you need to sign a contract between the 4th of June and the 31st of December 2020 the final thing is is that construction needs to commence within three months of the contract date now remembering that if you're signing it off the plan contract or a contract with the Builder you would want to make the contract subject to the construction commencing within three months so that they don't bind you into a contract and then you miss the eligibility of the grant and then you still have to purchase that property moving along to the eligibility of a person firstly you need to be a natural person so trusts and companies are excluded you need to be over at 18 years old and you need to be an Australian citizen meaning that permanent residents New Zealand citizens or people on permanent visas do not qualify for the scheme there is an income test on it if you're an individual your FY 1819 income needs to be under a hundred and twenty five thousand dollars and if you're a couple your FY 1819 income it needs to be under two hundred thousand dollars this is gross income meaning that interest dividends rental income and all income effectively that you earn needs to be included in this dollar value not just simply your wages finally the income test does make mention of or later meaning that if you sign a contract after the 1st of July they may assess your income based on the f1 19:20 income so if you're a borderline and your income is going up I would encourage you to speak to your state officers revenue centre to confirm if you would still qualify under 18 19 or if they're going to use your later income the eligibility for building new is quite simple firstly it needs to be a building for your own home that you're going to live in the second thing is is that the total package needs to be under seven hundred and fifty thousand dollars meaning the land plus the building needs to total less than seven hundred and fifty thousand dollars there is also a common misconception out there in the forum's that I've been reading that you need to be a first home oh no this is not the case anyone who's looking to build a house does qualify for this scheme the eligibility on the renovations is a little bit murkier the budget set for the renovations has to be between 150 and 750 thousand dollars now these have to be substantial renovations if you go on the ATO website substantial renovations are basically structural in nature meaning that cosmetic only renovations don't apply remembering I have actually got the definition from the ATO website and this is a federal government scheme they haven't clarified what the federal scheme defines as substantial renovations and this may differ from the ATO guidance the guidance document of the home builder scheme also does make mention of the type of renovations and needing to be for accessibility for safety or for livability of the occupants the other thing which the guidance document does state is that the renovations can't be for things outside of the dwellings such as tennis courts pools garages anything that is an external structure not affixed to the property I also don't entirely understand the cap on the renovations I think it is a PR stunt by the federal government to suggest that people who can afford over seven hundred and fifty thousand dollars shouldn't get it but remembering that you know you can simply have two separate building contracts and one would qualify under the scheme and one can be staged later I'm not condoning or suggesting you should do that because you could get bitten on the backside but again I don't understand why there was a cap put on moving across to the eligibility of the type of dwellings almost all dwellings are allowed apartments townhouses villas homes but for practical reasons these might not be ideal and let me explain why with off the plan apartment sales the construction can't already have commenced so if you sign an unconditional off the plan sale contract and the Builder then starts the construction within three months of you signing that contract you may qualify under the scheme but for practical reasons this is pretty hard the other dwelling type would has not been mentioned but it's becoming more common in Australia is granny flats now under other ATO rulings a granny flat is not considered a separate asset because there aren't two titles on the property so again we don't know if granny flats would qualify under the scheme and I will explain this in more detail in the debate later also it is worth mentioning that to qualify under the scheme for building new and renovating that you cannot be an owner builder and building contracts need to be independent and at arm's length based on commercial terms which can get quite tricky if you are trying to build for a family member and the final eligibility criteria which is the most important of all is that you need to subscribe to this channel because if by law the ATO requires me to provide them the subscriber list I will have to send them my subscriber list moving across to when the ground is paid and how the ground is played one questions easy one question is hard the easy one is that the ground we paid through your offices of State Revenue and it will be a similar process to applying for a first home owners brand the complicated one is when the grant will be paid there has been no determination yet as to when or how the grant will be paid ultimately we don't know if it's going to be a contract if it's going to be a slap down or if it's going to be a completion so this is an important thing to consider if you are planning to use a grant as part of your cash deposit you may need to carry it for a period of time I'm also just going to read out what documents you need apply you need photo ID you need a building contract you need the building registration number you need your 1819 tax return or later and you need council approvals building contracts occupant certificates and evidence of land value so they will assess all these things and make sure you qualify moving on to can you stack this grant with the other mcgovern grants now if you like free government money you need to like this video and subscribe to this channel because the answer is yes you can get the first time in his ground and the home builders grant and any other possible grants that might be available so let's dig into that the federal government's first homeowner savers scheme will apply with this grant but there is something which I would like to mention that hasn't been covered in the home builder on the ATO website it does mention that the income received from the first homeowner saver scheme does form part of your income now because there's an income assessment on the home builder scheme will that income impacts your eligibility criteria there is some debate because it does state that the income that you receive from the first homeowner scheme shouldn't be used on other government schemes to be assessed but again it hasn't been clarified so it is worthwhile mentioning the first home owners grant across all the states to apply and I've created a quick table and included that in the description of this video so that you can reference it so I'm going to go through this table in New South Wales Victoria and NT the first home owners grant is $10,000 in Queensland and sa the grant is $15,000 and in Tasmania the grant is $20,000 in Western Australia the first home owners grant is just $10,000 but I wanted to mention something the state government has actually released an initiative recently in the last couple of days which allows an additional $20,000 to anyone who's looking to build a home meaning that you'll get the stamp duty rebate the first home owners grant of $10,000 the $20,000 from the West Australian state government and the $25,000 home builder scheme so you can be up for close to $65,000 in government money if you are a first home buyer if you're not a first-time buyer you still get the home builder scheme but you will also get $20,000 from the West Australian state governments you'll get $45,000 of free government money the real kicker to all this money in Western Australia for first home buyers is when you apply that $65,000 over a 30-year loan at 3 percent interest on pni that initial $65,000 is an equivalent of a hundred and seven thousand dollars of interest savings remembering that most first homebuyers will be buying homes three to four hundred thousand dollars meaning that the actual dollar saving is massive there are a couple of things outside the ground that you need to consider and the first thing is financing number one the $25,000 grant similar to the first home owners grant won't be considered as genuine savings by banks meaning that you will still need to have other savings to demonstrate you have the ability to get a loan the second thing is if you were thinking of using a 95 percent loan and the deposit in order to purchase a property no money down this is not the case remembering that most properties need a buffer when you buy them and the actual deposit which you might need to save is closer to 80 percent of the property's value so the $25,000 will make a chunk of it but again we don't know when it's going to be paid so you'll ultimately probably have to come up with the savings and then get rebated back from the government the third thing is is if you are looking to buy and trade up and you are no longer eligible for the first home owners grant you probably need to be considering a 10% of the property's value in terms of a deposit even if you apply for this grant because you're going to have to pay stamp duty you're gonna have to pay LMI and this grant will help reduce that but ultimately there will be some cost that you need to bear the fourth thing is is if you're looking at renovating a property you need to find that one hundred and fifty thousand dollars from somewhere and cashing out can be a little bit tricky so make sure that you speak to your bank or your broker about all of these scenarios to ensure that you have the ability to get the money as a little side tip from all this stuff is make sure you also check that all the people that are providing you quotes for building works are registered builders because it is an eligibility criteria and I guarantee that with all this extra free of money there are going to be some not so savory characters going around offering building works so let's talk about who should not use the grant the first group of people is first home buyers who haven't done their budgets and don't know if they can afford to hold the property long term almost always when you're building new land estates you are in negative equity the agents fees alone to sell the property is probably close to ten thousand dollars meaning that if you're forced to sell in a couple years because you can't afford it you're gonna be eating up all this free government money and you're not going to qualify for the first-time owners grant again the second group of people is don't just trade up to tray it up meaning that if you're planning to build a bigger house just because there's free gum money that doesn't make sense because if you have to buy a block of land at $300,000 for the second time the stamp tree alone is about $15,000 and the agents fees on selling your existing property is about $15,000 meaning that you're going to be out-of-pocket $30,000 to get a 25 thousand dollar government grant if you're actually trading up to trade up because you need a big home it makes sense but otherwise it doesn't there's third type of people that doesn't make sense is the cosmetic Reno Dodgers and what I mean by that is if you think you can do a new kitchen for 40 grand and a couple of bathrooms for 30 or 40 grand repaint the house for 10 $15,000 redo the flooring twenty thirty thousand dollars quickly it adds up to one hundred fifty thousand dollars well they are assessing the eligibility and I would be concerned of having to pay back that twenty five thousand dollars if you've committed to all of these renovations the fourth type of people is The Renovators to renovate and get debt if you look at a 30-year loan at 3% this hundred and fifty thousand dollar renovation is actually two hundred and forty five thousand dollars in total costs so effectively it's about a hundred thousand dollars of interest over the term of the loan meaning you save twenty five grand of government money up now but you end up paying a hundred thousand dollars of interest that doesn't make sense the fifth type of person which doesn't make sense is the renovate to flip thinking that you can put some structural changes to your house and sell it for an additional price this is not the case because almost all structural renovations don't dollar-for-dollar return the investment if you're spending $150,000 and only getting 50 cents in the dollar you're going to be getting $75,000 back on the structural renovations at improvements of the home but you're only gonna be getting $25,000 of government money again don't think you can put some structural renovations into your house and flip it for a high price the next type of person is people who are drawing on L V ours over 90% in order to fund the renovations what I've pulled up is a quick table to show you the amount of lenders mortgage insurance you'll be paying a different price points and ultimately if you're paying lenders mortgage insurance just to get the grant if you're paying more than $25,000 in lenders mortgage insurance you are net in a worse position than you are today and the final group is renovations over $350,000 I have put up a quick table as to my calculations but anything over $350,000 the actual grant only makes up about 7% rebate on the cost of renovations now there's actually a lot of other factors such as a building process and tendering process and negotiation and materials which will make a much B impact than six or seven percent on the contract price so moving right along to what does a hundred and fifty thousand dollar renovation get you well there's a great little guide on our key Center and I'm going to pull up the website now and also link in the description the website address the first type of renovation you would get would be a additional living area an additional bedroom and an ensuite and some minor cosmetic renovations which does comply because you are doing some structural elements the second type of renovation which would be one additional master bedroom one ensuite possibly a cosmetic kitchen upgrade the other bathroom cosmetic upgrade and also upgrades throughout the house again that would qualify because you are doing some structural elements but remember if you're going from a three-bedroom one-bathroom house to a four-bedroom two-bathroom house you're probably going to want an additional living area so what are your financially savvy options when considering using the grant for a renovation the first people I think that will get their biggest bang for your buck is when you're converting a three-bedroom one-bathroom house into a four-bedroom two-bathroom home there's actually a great tool on real estate calm what this allows you to do is look at the difference in median price in any given suburb of a 3-bedroom home and a 4-bedroom home remembering that the data is a little bit skewed because it's common to have a three-bedroom one-bathroom layout whereas it's uncommon to have a four bedroom one bathroom layout so when you're comparing a like-for-like 3 by 2 to 4 by 2 the difference is not going to be as large not only do you increase the value of your home when you turn it from a three-bedroom one-bathroom home but ultimately if it turns into a rental property down the track it's likely that you will get more rent for it and the website does also show you the potential additional rent which you will gain the second type of renovation which I think will get some extra bang for your buck is granny flats and there are some debate around it in this AFR article they did mention that granny flats were particularly excluded but it talked about being a detached dwelling but the funny thing is is the federal government fact sheet which this AFR would have sourced the information from doesn't mention granny flats so it may be possible provided the granny flat is attached to the additional dwelling you can add an additional living area additional bathroom bedroom and answer for around 150,000 dollars and still potentially qualify for the grant now I'm not suggesting to anything dodgy and the intent shouldn't be to rent it out but say for example you had an aging family member that's finding it very hard to move around your property and you want a purpose build a granny flat that makes it easy for them to live such as your grandparents again coming back to the initial criteria of the grant being that it's for accessibility it is more than likely that you may qualify under the ground ultimately if you move out of the property later and it turns into an investment property a property with a granny flat rented separately would potentially achieve more rent on the flip side these let's talk about the financially bad things you can do when considering a renovating and getting the grant number one has to be using LMI in order to be able to get out the money ultimately if you're paying LMI you're effectively getting the ground and giving it to the bank and it does not give you any net benefit the second thing is if you're over capitalizing if you're going from a three by one house into a four by two house it might make sense but say for example you've already had a four-bedroom house and you want to go to five bedrooms or six bedrooms this is considered over capitalizing and this is probably not going to get you your return back on the dollars you've spent I'd also like to consider fixtures and fittings in an area if you're putting gold-plated taps in an average suburb it's more than likely never going to get the returned and finally when value is considered rate per square meter on the entire building area of a home generally the rate per square meter diminishes the larger the home gets as you're growing your house out bigger the return you're getting is proportionately lower and finally the worst type of renovation in terms of a cost per square meter would be going from single story to double story so almost always consider renovations on the same level but what are your financially savvy options if you are looking at building the first things first is if you're planning to build and use LMI do not increase your budget just simply use the grant in order to reduce your LVR and pay down your loan balance on a four hundred thousand dollar purchase price paying LMI at ninety five percent and getting the twenty five thousand dollars to reduce your loan balance the equivalent on a 30-year pni loan at three percent interest is about $50,000 of savings 25 underground and 25 of interest which is massive if you tell me look can I do want to increase my budget I do want to spend more I don't really care about saving money what's your other option well what I would suggest you do is speak to your banker broker about that $25,000 and see if it increases your borrowing capacity by increasing your borrowing capacity if possible go and look to a better area and what I mean by that is don't necessarily look at all of the house and land packages go to an inner-city area and find a better block and the reason being is ultimately you're reducing commute time you'll potentially have better investment returns or growth rate on the house itself and finally yeah we'll have a better quality of life living closer to the city provided that's where you want to live it is arguable that if you buy in a better area potentially the growth that you'll get will offset the interest and LMI savings on the balance of the loan but ultimately it is a roulette wheel you don't know if the future performance of an area that you're looking to buy in or perceive as better is actually going to have better growth rates and this gets me on to the financially bad things to consider when building new and using the ground first things first is what I mentioned before and that is using the ground to spec up your home there is going to be immense pressure from builders to get you to spec up the quality of home on cosmetic things such as fixtures and fittings and appliances and that is because the building margins on those things are massive this is the financially worst thing that you could potentially be doing with that $25,000 grant second thing is is not using the grant to pay down LMI LMI is not there to protect you it's in the case of a default it protects the bank ultimately if you are paying LMI and then paying interest on getting an lmia that is crazy when you've got $25,000 of free money there from the government and I'm finally going to conclude with some tips and opinions on the ground what about permanent residents well permanent residents don't qualify but say you have it a spouse which is an Australian citizen rather than going in and purchasing property with both of you on the title it is better to consider purchasing the property on the title with the Australian citizen because then they would meet the eligibility criteria but how do you protect yourself well that's when I would go to a lawyer speak to them about a binding financial agreement speak to them back speak to them about a loan deed speak to him about all the other options and potentially you can use in order to protect yourself the second type of people that are oddly affected is someone who is a big block who is always planning to subdivide the lot if you're planning to subdivide the lot it's probably not going to happen in time for this grand scheme to end but if you would apply to council under a built strata scheme with a planning approval and then go to build the house you may still qualify under the home builder scheme I'd argue that the current fact sheet doesn't say that the subdivision or titles have to be complete it just simply states that the building contract has to be signed meaning that if you're planning to subdivide a property and you can't yet what you potentially do is get all the plans done get the building contract all signed and then once you qualify for the scheme and you midway through the construction you can then apply to subdivide the property remembering that bank funding will need to be taken into account because you won't have to subdivided Lots so you'll have to fund the construction from somewhere third type of people which this scheme could really benefit is retirees who are always planning to subdivide their property and downsize now ultimately you can't use the scheme with the intent of being a developer because that is not building the home what you can do is knock down your house build a new home in the location which suits a subdivision but keep the land as one title and then in later years when you come to subdivide you can effectively put up a fence have a driveway and sell the land at a later date this brings me to the end of this video on the home builder scheme what I'd like to do is get all your questions comments and clarifications in the comment section below so I can answer them or if I've missed or made a mistake in the video I will rectify that but most importantly I like this video and subscribe to the channel below because I will be bringing it more content heavy videos on property and financial education make sure that you enjoy all the free money from the government and until next time thank you