4Unit Development (Perth)

So, despite my rantings in other threads about doom and gloom we have just recieved finance approved for the latest instalment.
The project is actually owned by my folks, my brother and I are just the ones running it. The site itself was purchased by my parents in the early 90's and has been their PPOR to date. The house was in a seriously run down condition, having had basically no maintenance or repairs done to it since ownership.
Current valuation would be about $800k
Zoning - R50
Size - 480sqm
Development - 4 units each 2x2 with 2 carbays.
End val - this is a hard one given Perths market at present. Units have sold in the area from anywhere between $500-$900k+. The closest sales are about 500m away, however these were in a much larger development in a busier area, closer to amenities (on the strip if you like) for $700k+.
Our property is located in an upper middle class area, surrounded by both dated small single level houses, and new 'mcmansions'. Mcmansions a couple of hundred meters up the road (same block size) sell for upwards of $1.5mil. Our neighbors split their block in two a number of years ago, and built two townhouses accross 3 levels. Sales for these have ranged between low $1mil and up to about $1.5mil. Most recent sales was about $1.2mil.
The most relevent sales however, have just occured (otp) at $650k. These units are similar, however, inferior location.
We conservativly put $600k on each of ours.

We have signed with a builder, who so far so good. We have certainly been impressed with them.

Numbers in short
Current val - $800
Development Costs - $1,100 (all inclusive)
End val - $2,400
Margin - 21%

Plan is to sell off a couple to clear debt and hold the remaining ones for ongoing income.

The site itself is nice. It is located on a fairly major road, with a ROW at the rear. Beyond the RoW is parklands. The site and zoning allowed for several options
1) central split side by side - this is what the neighbors did.
2) central split front/rear
3) combination of units - technically we could have got 6 1x1's (I think) or 4 2x2's (or a combination. Our limitations here were with parking space.
4) knock over and re-build mcmansion

Our research indicated that 4 2x2' provided the greatest flexibility, lowest risk. However, I think (from memory) a central split provided a slighty better margin (potentially). The central split was higher risk as at that level the market has dropped off quite a bit. Securing sales at +$1.2 would be a challenge, slow and costs to build over 3x levels where higher.

We have DA already, and the house came down in Jan. So we are off to site at some point in the next few weeks.

Blacky

 

Good work mate. exciting times ahead.

 

Well done Blacky, those numbers sound awesome, where about in Perth is the block?

What's the build time and are you doing double storey?

 

Block is in Jolimont (west side of Subiaco).

Yes - the build will be 2 storey. The original plan was to have two seperate buildings, so they looked like two houses, however, we couldnt get this through council. So had to join the buildings. cest la vie.

It will be interesting to see if we are conservative enough with our end values (I hope so).However, only time will tell. Though the down side risk isnt significant for us. If we dont hit our numbers, we can hold.

Builder is contracted to 10months from the time they are on site. The house is down, and block is basically level. So would expect pad down by around the end of Feb/early march.

Blacky

 

Fantastic mate. Good on ya.

 

Good onya blacky, will follow with interest. Perth could go either way at present; Liking the honest approach to numbers.

 

Cheers DT.
Im comfortable with the numbers. In reality the project is borderline based on the feasability - it wont take much to tip the scales, however, we are still comfortable to proceed due to a couple of mitigations
1) the 'market value' is based on current market. The alternative would be to sell the property which would incur some selling costs, and may not reach the percieved value.
2) the property has been owned by my folks for 20odd years. They did not pay the what the current value is worth (a lot less in fact). While this needs to be discounted when looking at returns, it is a factor at play. Actual cash investment is low.
3) LVR is low. At peak we are somewhere around 65% (including interest capitlisation). Assuming selling 2x units LVR will be at or very close to 0% (depending on actual sale price)(We may even realise some cash back if our numbers are conservative enough).
4) Plan to hold some of the units longer term. If we are short on our 20% margin (say its only 5 or 10%?) we will still recognise increased $ equity for what is essentially a 12month project (5% is still $100k). Not included in the feasability is the incetive the builder threw at us, which was 10months rent payment - thus my folks arent incurring additional costs (rent) during the construction.

So we consider the down side risk to be low.
Personally if the site was on the market and I could buy it for $800k, I would be hesitant to proceed. The margins are too tight, and the downsite risk too high. However, as we already own the property, the decision is to sell, (and re-invest the $$ elsewhere), or develop. Developing wins - hands down.

Blacky

 

Great thread. Do you mind sharing which builder you are going with?

 

That is a good fall back position.

Though I expect this product may fly out the door in this area??

All the best

MTR

 

Nice work, do you mind sharing the specs and size of these units? i.e Are you delivering a product that matches exactly the comparables or going higher /larger spec?

 

Yeah, the location is good. Close to Subi, public services, and overlooking parklands.

Will be interesting to see the outcome.

Blacky

 

Ive uploaded the designs. These arent quite the final version but close. We tweaked the internals a bit more to make the rooms a bit more furnishable, improved the laundry areas and bits and peices of others.

It took a couple of goes to get it through council, and we lost some items I prefered (the main one being laundry). The main issue was the ROW at the rear. We wanted to extend it 4m in order to have the reversing bay off the site. However, there is a large tree (in the middle of the ROW) which the council wouldnt let us be within 2m of (or 4m? I cant recal). So we had to cut some area off the lot for the reversing.

Each unit is about 75m2, plus balcony/patio +++

Blacky

 

They look nice and functional. Would love to see the elevations. Where is North? Assuming your current builder? Area boxes look similar.

I see DesignWA is taking hold already...!

 

Sorry North is to the right of the page. the rear of the property (where the reversing bay is) is due west.

Yes - Design WA (Im assuming that is what the 'new' design codes are called) were implimented into the design. We applied for DA under the old rules, but the council considered this build under the new ones (even though they haven't yet been implimented) We have no neighbors on the northern side, so plenty of northerly light.

No - we went with Soverign building for this one. We havent used them in the past. However, so far so good - they have been exceptionally quick with response times. From other projects their build quality is also very high. Time will tell. They have promised a 10month build time and have contracted to this.

Blacky

 

As you wish

Blacky

 

@Blacky curious who is the finance with - BWA or RAMS under resi or is it commercial?

Cheers

 

Good question
We went commercial (again) on this one.
Not the easiest finance deal we have written, but managed to stretch it accross the line. Again - we went direct without the use of a broker.
The rates are sharp for a commercial deal, though still higher than resi. Terms were reasonable.
No pre-sales required.
100%interest capitalisation
65% LVR
Servicing from rental included on completion.

Personally I wouldn't recommend this approach for most borrowers/developers as it would be unlikely to fly. Use a (good) broker!
However, we are a bit unique. I have experience in commercial banking, and my brother is currently a commercial banker. He previously worked in commercial property finance for BW, St George and WBC. So we maintain strong connections with bankers and know how to structure commercial deals - more-so than some brokers.
We shopped it to 4banks and WBC won out in the end.

Blacky

 

Going direct isnt a bad thing and in some cases its inevitable BUT you got to know your stuff and / or have an inside connection that does.

Thanks for sharing.

 

Slab party

These guys aren't messing around.
As soon as we had finance approval they started doing ground prep. We got the building permit only on about the 20th March and slab was poured today.

Hopefully this trend continues.

Blacky

 

Great work @Blacky , look forward to following your progress on this one.