21 yr old seeking development advice!!

Hi guys,

I'm 21 and looking to buy and build on some land for my first investment property.
I have a decent amount saved and a secure salary based job which I can get a good loan against as well so i feel like i'm ready to make this step.

I study construction management but mainly work commercial so i know very little about buy and sell building game.

I have a few questions i was hoping you could help me with.

- What level of research / planning should i do before buying the property? (I have spent a lot of time researching land rates sale rates ect. but should i go in with a pre based design and have this design evaluated by a real estate for its value?

- What're the main hidden costs of building a house? (Costs that i probably haven't allowed for)

- I have been told that a fair estimate it to allow $1100/ per sqm of building?

- Is there a rule of thumb for working out the possible spatial allowance? From my observations i've noticed most are 55-60%

I know some of these questions may be silly and i definitely have a lot more questions so if anyone has any advice i would be greatly appreciated.

 

Not silly questions. What area are you planning to build? Single or double storey? What type of construction - brick veneer or double brick? What level of finish, basic, medium or high? Can you do any of the work yourself?

BMT has a construction estimator that is useful

 

You're 21 and asking about development - wish I was 21 again!! Never silly to ask questions... I'm in my 40s and starting my property development journey now!

I also recommend looking at local DAs and see what construction cost they submit to council. It's not always accurate, can be BS but working out what's true and what's fiction is a skill to learn in any endeavour...

 

Key things to consider:
- Build a team of reputable and trusted advisers and consultants
- Start learning about property development using books, podcasts, seminars and anything you can get your hands on
- Dont be afraid to ask questions
- Use your team of experts to help you make the right decision
- Do your due diligence
- Ensure the financial side of the project stacks up
- Maybe use a mentor or experienced project manager to help you with your first project

 

@NickNoc - check out the next Master Builders course - keys to property development

6th February 2017 or 10/2/17 in Wollongong.

 

Personally I would not do it if I was 21 and looking to get my first IP, I would just buy an ip that suits my investment goals and go from there. The risk is waaay too high IMHO.

But if you really want to and assuming you take on some of what @PacMan said, first thing I would do before buying the property aka development site is to make sure you will be able to get the finance for whatever stock you have determined to build on that site. It is no point to buy a site and then realise that you won't be able to finance the build, if that's what you want to actually do.

1. Determine what finance you have available and what is the total Development costs you will be able to build according to finance. (land and construction costs AND soft costs)
2. Then based on that finance, find sites that fall within those parameters so you need to know what kind of developments will fit that finance you have been 'approved' for.
3. Do DD on those sites.

Personally I would never do it, build my first IP with no investing or development experience. Risk is too high. But don't let my limitations and risk profile necessarily apply to you.

Good luck .

 

My advice would be "dont rush into developments". You have time on your side. Use it.
Start small, maybe a reno project, with subdivision potential.
Cash flow is critical.
A "decent" amount saved may not be quite enough. More is never enough.

Potential profits look good. However, the risks are real. Im not saying dont do it, Im just saying tread carfully and slowly.

Life - It's not all Beer & Skittles (Old SS thread)

Blacky

 

I was hoping someone with experience could share on one of OP's question: What're the main hidden costs of building a house?

Would be great if everyone shares their input on hidden/unplanned costs so we could all learn and/or avoid a thing or two from each other's experiences

 

As per cut and paste from website:

1. Site Works
Site works are one of the largest hidden costs most overlooked in residential building and in some cases can amount to over $50,000. In particular, common items that may surprise incurring additional costs include;

• disturbed or unstable soil
• building over sewer or stormwater pipes
• rocks below the ground
• building to boundary (especially for narrow lots)
• retaining walls
• removal of trees
• site access

2. Inclusions
When signing the building contract, knowing your inclusions and exclusions is essential. Often the most simple things are assumed to be in a contract, but are actually excluded, such as:

• floor coverings
• light fittings
• fly screens
• overhead cupboards in the kitchen
• mirrors
• driveways
• landscaping

Your inclusions should be complete turn-key such that everything you need to move in is incorporated in the cost.

3. Interest & Holding Costs
When budgeting for your building project, do not overlook the interest and holding costs (rates, insurance etc.). Plan for timeline blowouts as delays may be caused by pending council approvals, weather and the holiday period.

Have your construction financier forecast a schedule of repayments. Ask about interest capitalisation so you are not out-of-pocket for repayments during construction.

4. Building on a Slope
As a very general guide, allow $5,000 – $10,000 extra per metre of fall across the building pad, for moderate grade slopes. Extreme grade slopes require specialised designs, such as pole homes or split-level homes.

5. Overlays and Covenants
Council overlays and estate covenants are particularly important to keep in mind as they will affect the requirements for building certification.

Some overlays that are common for adding extra costs include:

Character – some councils have character overlays, which outline the acceptable facade (street facing side) options on a home you choose to build.

Flooding – blocks in flood prone areas may require raising of the home or additional site fill depending on the type of flooding.

Acoustic – this is a very common requirement – see hidden cost #6 for more details.

Bushfire – the Bushfire Attack Level (BAL) affects the permissible designs and materials.

New housing estates will often have building covenants that must be adhered to, such as the type of facade, or front fencing materials.

6. Noise Insulation
Building in proximity to a train line, major arterial route or busy road will almost certainly require additional noise insulation upgrades, such as double glazing and insulated walls. These upgrades often quickly amount to well over $5,000.

7. Traffic Management
Some sites will require traffic management during construction, particularly if located on a busy road.

8. Connecting Utilities
When the site has been purchased without utilities connected, additional connection fees will be incurred. Depending on the location of the main sewer and stormwater lines, this can cost several thousands.

9. Prime Cost and Provisional Sum Items
Prime Cost (PC) and Provisional Sum (PS) are allocations in your building contract for a particular item (such as tap fittings, appliances etc) or service (such as excavation). These allocations are estimates only and the real cost can vary significantly. More on this topic can be found here.

 

Its hard to say. If they are hidden/unplanned - they are usually unknown.

On a recent development we hit a hidden/unknown rock, we therefore had an unplanned cost of about $40k to remove it.

What level of research? A lot!
an estimate per m2 - depends. Somewhere between $500 and $2,000. Depends on the area/product you are building.
I dont understand the third question.

Main hidden costs - delays, holding costs, delays, council costs/changes, delays, unforseen events, banks, design changes, unforeseen events, divorce, bankruptcy, running out of cash, delays...

The questions are too vague to give meaningful answers. Suggest reading more - theres loads of information on this site. Look at Westminsters, MTR, Leo, Be Developers and MichaelW's posts/threads. Loads of specifics on individual projects and the 'fun' that some of the members have had.

Blacky

 

Awfully big rock if it was a floater. If it wasn't a floater, was it otherwise unstable that you had to remove it?

 

Is a floating rock an oxymoron?

 

No. It's a large rock but not stable bedrock.

Then again, pumice floats.

 

Yeah. It was a big lump of coastal limestone.

 

where are you looking?

 

• Who's recommendation was it to remove - engineer or excavator?
• As it was sizable, it was likely that it would be stable?
• Was the floater in fill?

All too late now but chalk it ip to experience.

 

It was removed as it was in the way more than a structural issue. The build was on a steep sloping lot, and we were exavating into the slope. We needed some heavy duty rock breaker to get into it. From memory it was about 1m of coastal limestone bed rock.
We did actually enquire if the engineering could be adjusted due to the stability of the slope. Which was previously believed to be soft/unstable. There was a potential however at that stage it wasn't worth reviewing the drawings and causing delays. We had a buffer built into the estimates so drew against that.

However it is good example of a "hey...SURPRISE" that can happen when developing.

Blacky

 

I'm putting a day of Annual Leave to productive use and wll be attending this course at Baulkham Hills on 6 Feb.

Anyone else interested?

NB - the registration website was broken for me and it was attempting to double-bill me. You can use the attached form to register.

You also need to register for a unique student identifier.

 

Leo gave so good constraints for development projects.