3 townhouse development in Melbourne

Discussion in 'Development' started by malleybull, 5th Aug, 2020.

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  1. malleybull

    malleybull Well-Known Member

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    Hello all

    This is a very general query and feel free to riducle me for lack of detail but here it goes regardless;

    My current PPOR is a 1950s weatherboard house (slightly renovated) on a 700sq/m block in an inner Western suburb of Melbourne (house is fully paid off).

    I paid around $400k for the house in the late 2000s and it would probably be worth around $800k in current market conditions.

    My wife and my plan at the moment is to continue to live in the house until the kids are ready to go to High school (about 5 years time) and then rent a house in a good public high school zone in the Eastern suburbs whilst renting out our current home (probably looking at spending around $850 a week to rent in New school zone whilst should get around $500 a week rent from our place).

    However I am now thinking that when when we move it would be a good opportunity to knock down the current house and put up three townhouses.

    I am considering this because in my street two other 1950s weatherboard houses have already been demolished and three townhouses (4 on one larger sized block) built that were sold for around $775k each (double story 3 bed, 2 bath mid spec jobs) .

    My reasoning is thus, instead of having one older house worth $800k with a rent potential of $500 a week I could convert that to three brand new townhouses worth $775k each (total asset value $2.3 mill) that would rent out for $500 a week each ($1500 a week).

    Assuming the cost of the build is around $850k for all three (mid level spec) I would still be ahead a good $600k (that cost estimate is based on trawling through these forums so take it with a pinch of salt!)

    We would look at keeping all three townhouses to rent out so I do not believe CGT would enter into the equation .

    By the time we are ready to move / do the build we should have at least $400k in savings so wont need to borrow a large amount (say borrow $400 to 500k for three townhouses worth 2.3 mill so around 17% geared).

    I have no experience in property development but at first glance this seems like a reasonable strategy and I have many years to plan for it / do my research.

    What are everyone's thoughts, have I grossly underestimated the build costs or missed some other vital factor?

    I understand development of this type is a major undertaking but even if we pay extra for a project manager given our lack of experience we should still come out ahead.

    Looking forward to everyone's feedback.

    Cheers

    Malleybull
     
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  2. wylie

    wylie Moderator Staff Member

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    Sounds a bit like our first development, currently underway.

    We're building four townhouses. We had them drawn up four years ago and then sat on the plans because we couldn't afford to build them and our town planner said we had to make a "material start" within four years. So we took our sweet time. But either he got that timing wrong, or BCC may have tightened things up, because it turns out we had to be finished within four years. We had paperwork saying otherwise, but that didn't matter.

    So we scrambled and got started.

    We found an amazing project manager from this forum who's taken us through the whole journey. We had extra work to lift and reposition two houses, so our job has money poured in that nobody will ever see, and from which we gain no profit. No developer likely would have touched our blocks due to having to deal with two houses that had to stay.

    But for us, it is an income producing exercise and we turn two income streams into six.

    Surprises for us were that the civil works estimated at 50/75k ended up being just short of 200k (several quotes).

    The build itself is approx 1.76m and that was the cheapest quote. Earthworks were about 30k. We didn't choose it due to cost, but this was the builder we'd always wanted, so it was great that his quote was good. He's been fantastic too. Quick, easy to deal with, nice bloke.

    We could have built cheaper with lower spec, but we've chosen some things that will survive long term rental, ie. better quality engineered flooring so we can refinish or drum sand before eventual sale if required.

    We also chose high ceilings both levels, 2400mm height doors, a few things like that to take these out of "ordinary", but we thought were worth paying for.

    We also had chosen vanities, taps etc from bathroom stores, but decided to bring in a designer who has drawn up bespoke cabinetry, which isn't costing any more than paying retail from a bathroom supplier, because the kitchen guy is making the cabinetry too... economies of scale I guess, and will look less like "that's from Highgrove, and that's from Ikea".
     
    Last edited: 5th Aug, 2020
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  3. malleybull

    malleybull Well-Known Member

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    Thanks for the detailed reply, some great info here for me to disseminate :)

    You may not be able to give me an answer to this but given your build of 4 townhouses has come in at 1.76m am I being way too optimistic in my estimation of approx $850k to build 3 mid spec townhouses (probably be two x three bed, two bath two story dwellings and one x two bed, two bath single story dwelling).

    It is a flat block (14.5m wide) and we would just be totally knocking down the existing house, no moving / retaining existing dwellings involved.

    The street our house is on, it would be overcapitalizing in my opinion (and based on existing townhouses and houses on the street) to go high spec so we would be aiming for mid spec furnishings, etc,

    Like you we are looking at turning one income stream into three.
     
  4. wylie

    wylie Moderator Staff Member

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    I'm a novice at this development thing, but I'd say 850k for three townhouses, even mid spec, sounds low.

    When we first priced this up with a developer, I'd been given a price of 1.4m and was planning on allowing 1.5m. This young developer said she would allow 1.7m, and turns out she was right.

    I've heard on the forum that Brisbane build prices are higher than down south though.

    And of course, the project management is on top and also the BCC charge of 26k per townhouse on top again.

    We under budgeted for sure.
     
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  5. tedjamvor

    tedjamvor Well-Known Member

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    There's a company (won't name them as I have never worked with/for them, don't want to appear to vouch/recommend them) that is based in Melbourne and specialises in project management for townhouse development. They've got a few blog posts/case studies that have "real" numbers. If you search on google you may find them. Again, not sure how "real" the numbers are, but they do go into moderate detail above just land price, build price and sale price.
     
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  6. malleybull

    malleybull Well-Known Member

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    Is this the company that has a little aquatic animal as their name?

    If it is I have already seen their website and they actually have a case study for a dual occupancy (two townhouses side by side) in the suburb I live in.

    From what I can see though they seem to specialize in developing townhouses for sale whereas I would be looking to keep all three as rental properties.
     
  7. tedjamvor

    tedjamvor Well-Known Member

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    Yup. As I said, don't know anything about them or what they do.

    I don't personally see how optimising for sale/rent would drastically change given same location and market trends. Might be harder to finance without the allure of sales, however worst case scenario that option is still available.
     
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  8. malleybull

    malleybull Well-Known Member

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    I feel like I will need to talk to some builders to get an accurate understanding of the costs in Melbourne.

    I have seen average price for mid spec double story townhouses quoted around $1800 per square meter on this forum which would work out roughly $800k for 3 x 150sqm townhouses but it will obviously pay to talk to the builders directly to confirm this.

    As you say this is of course just the construction costs so there is plenty more to factor in to get a total build cost from go to whoa.
     
  9. Tufan Chakir

    Tufan Chakir Well-Known Member

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    $1800/sqm for mid spec two storey town houses is about right. But also add, site works, landscaping, service charges, driveways. Maybe allow up to $100k for these. I can give you the name of a Melb based estimator we use (reasonable fees) who you might be able to get a better idea from - his figures on the last two projects we used him for were spot on (even though I thought them to be high initially!)
     
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  10. malleybull

    malleybull Well-Known Member

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    Thanks, good to know my figures weren't wildly off the mark.

    Yes can you please PM me your estimators details.
     
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  11. craigc

    craigc Well-Known Member

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    Don’t forget your interest holding costs whilst property is empty and under construction.

    Allow lots of time for councils!

    Good luck with the project!
     
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  12. MTR

    MTR Well-Known Member

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    Its also infrastructure costs that make Brisbane more expensive to develop
     
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  13. Tufan Chakir

    Tufan Chakir Well-Known Member

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    done
     
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  14. Gforce

    Gforce Active Member

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    Good luck Malley. Hi Tufan. Would you mind if i had the number of your estimator too please? Is the estimator a QS, TP or project manager style operator? Thanks. Have a beaut week.
     
  15. Tufan Chakir

    Tufan Chakir Well-Known Member

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    QS - I'll PM you
     
  16. urbanista

    urbanista Member

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    here is another 100K of costs that noone mentioned before:
    - 30-40K DA paperwork (building designer initial plans plus working drawings, surveys, civil engineering, landscape plan, aborist report, energy rating report, council application fees )
    - 5% of the land value is an open space levy payable to the council upon subdivision, so here goes another 40k
    - 15K demolition
    - service connection fees (many builders do not include them in the quotes)
     
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  17. timthetoolman

    timthetoolman Member

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    Depending on what side of town you're looking to build in will vary the price per square metre as well. We are finding trades are charging 'overs' in different parts and right now with the huge swell of buyers going towards the volume builders the trade base is really struggling in Melbourne right now. Add on top of that the draconian lockdown rules and you will find in 12-months time there will be many trades looking for work after the current "25k swill" finishes
     
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  18. Kan

    Kan Member

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    can you please share your estimators details.
     
  19. Peter L

    Peter L New Member

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    Awesome thread,

    I am looking to buy a property in the western suburbs as well and do my first development. We're really unsure of the cost so I'll keep an eye out on this post for future updates!
     
  20. CTSB

    CTSB Well-Known Member

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    Would like a PM also if possible?

    Cheers.
     

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