Bomaderry Development

Discussion in 'Development' started by keentobuy, 11th May, 2017.

Join Australia's most dynamic and respected property investment community
  1. keentobuy

    keentobuy Member

    Joined:
    26th Jun, 2015
    Posts:
    14
    Location:
    Canberra
    Hi All,

    After about 10 years of buy and hold, my wife and I are keen to embark on our first development.

    We currently have 5 IPs and our PPOR. Around $3m of property at just under 80% LVR.

    One of the IPs is in Bomaderry on the south coast of NSW (Shoalhaven). We bought it for $215k about 5 years ago - is now worth $350k or so. It's zoned B4 mixed use, which permits townhouses and units. It's a 809sqm block very close to Bomaderry town centre, shops, train to Sydney etc.

    I'd like to knock it over and put 3 or 4 units or townhouses on the site. It's a lower socio-economic area, so the build spec would not be high end. Estimate $600k build for 3 x 3, or $700k for 4 x 2. Soft costs on top.

    Value on completion estimated at $1.2M -$1.4M depending on which path I choose / can get approved. If possible, I'd like to hold and rent them all on completion.

    My question is really about the best option for getting this deal financed. I'm already fairly highly leveraged. My income $205k - my wife's $120k. Have about $70k in offsets.

    So I'm along way short on having sufficient cash to do this deal on my own. However, my parents are willing to provide a $100k as a loan that I pay interest on. They're retired, so happy with a 5% return on their cash.

    Interested in your thoughts on whether it's possible to get this off the ground and the best way to do it.

    Thanks in advance!
     
  2. Phase2

    Phase2 Well-Known Member

    Joined:
    14th Jul, 2016
    Posts:
    1,289
    Location:
    Perth
    Hi. Welcome to PC. If it were me I'd start by:

    1. talking to a town planner to see what's possible with your block and get an estimate of costs.
    2. talking to a mortgage broker to determine financing options including your $100k parental loan.

    and go from there.
     
  3. keentobuy

    keentobuy Member

    Joined:
    26th Jun, 2015
    Posts:
    14
    Location:
    Canberra
    Thanks Phase 2 - appreciate you responding so quickly!

    I've spoken to the duty development planner at shoalhaven council, so know that what I'm describing is theoretically possible.

    But yes - need to get a town planner on board. I will run it past my broker, just not sure they are as experienced on the development side of things.
     
  4. Phase2

    Phase2 Well-Known Member

    Joined:
    14th Jul, 2016
    Posts:
    1,289
    Location:
    Perth
    plenty of brokers on PC who are experienced with development finance..
     
    keentobuy likes this.
  5. gach2

    gach2 Well-Known Member

    Joined:
    29th Jun, 2015
    Posts:
    1,891
    Location:
    sydney
    I could be wrong
    but your numbers dont seem right to me
    Either build cost is too low or selling cost is to high
     
  6. keentobuy

    keentobuy Member

    Joined:
    26th Jun, 2015
    Posts:
    14
    Location:
    Canberra
    You may be right gach2.

    I'm more confident of the values on completion than the build costs. Watching the market and speaking to local agents, I think getting $400k for 3 bedroom townhouse or $350k for 2 bedroom unit is realistic.

    Note that my estimates of the build costs exclude all the planning, design, DA process, cost of finance. That may well be another $50-75k on top. Very early days.

    In saying that, I did take a look at this in trying to estimate it. Construction Cost | Building Cost | Cost of Construction | BMT

    Assumed $2,000 per sqm just as a guide. I know I need to do a lot more work to budget this properly.
     
  7. MTR

    MTR Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    27,753
    Location:
    My World
    what is the size of each townhouse?? in Melb today you would probably be paying around $1400-1500 per sqm??? Find out what it will cost in your State? then add the infrastructure costs, holding costs, and 5% contingency.

    If you have an ABN you could go RAMS lo doc if you are struggling to service debt?? I used this produce a number of times last project 4 townhouse development in Melb.

    If you want to know more, just pm me.

    MTR:)
     
  8. keentobuy

    keentobuy Member

    Joined:
    26th Jun, 2015
    Posts:
    14
    Location:
    Canberra
    Thanks for the suggestion MTR :)

    I'm not struggling to service debt - if I have an issue with finance I think it will be about skin in the game (i.e. cash).

    I was thinking 3 x 100sqm or 4 * 75sqm. They could be either units or townhouses in this zone.
     
  9. MTR

    MTR Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    27,753
    Location:
    My World


    It will cost more for townhouses, as you are building double storey.

    What is important is to find out what sells in this suburb, contact local re agents, you probably already have.

    Look at designs/builds in the suburb, don't reinvent the wheel, if it works just copy it.

    MTR:)
     
    keentobuy likes this.
  10. gach2

    gach2 Well-Known Member

    Joined:
    29th Jun, 2015
    Posts:
    1,891
    Location:
    sydney
    Other than the location I do not know the area so i just based this off common sense (so I could be wrong).

    1) end value of a brand new townhouse is 350/400k for 2/3 bedder with around 150/200m2 of land on a strata lot. Now you also say your property is worth around 350k for (im assuming an average 50 year old 3 bedder in average condition - could be completely wrong here) on a 809m2 b4 lot.

    2) I would not read that BMT site anymore (older figures) - being 2 storey brick townhouses in Sydney you would be looking around 2000 per m2 but wouldnt be suprised if it reaches 2200-2500 all up (including da/demo/subdivision costs). Not sure if construction would be similar but have found there is usually a premium in regional v capital cities.

    3) going back to point 1) im sure your sale prices could be right but you would need to provide decent sized townhouses. 75m2 2 bedders is tiny (once u include garages and pergolas. I believe the comparable you are comparing to would be 100-150m2 to get the prices you want.

    Do you plan to keep or sell? doesnt seem like a profitable venture once u factor gst etc
     
  11. keentobuy

    keentobuy Member

    Joined:
    26th Jun, 2015
    Posts:
    14
    Location:
    Canberra
    Thanks for your reply Gach2.

    1) Yes - everything you say at 1) is about right. The property is worth $350k but I bought it for $215k a while back. Bomaderry is just north of Nowra - a couple of hours south of Sydney.

    2) I'll need to get some quotes for both the 3 x 100sqm and 4 x 75sqm unit options and assess feasibility. Agree - that if costs got up to or over $2,500 per sqm all in it prob wouldn't be worth it.

    3) I know the area pretty well. Most of the 3 bed houses and townhouses are only 100sqm or thereabouts. The 2 bed units usually 60-75sqm. But take the point that being v confident w some realistic finished valuations is important.

    I plan to hold if I can get it financed without presales. Still trying to figure out best way to finance it!
     
  12. gach2

    gach2 Well-Known Member

    Joined:
    29th Jun, 2015
    Posts:
    1,891
    Location:
    sydney
    Im not a fan of developing in lower cost regions as sometimes the numbers do not stack (building cost is same while land component not)

    Have you considered developing on tight budget (provide most basics)
    e.g 60m2 2 beddroom cladded houses with carports and extreme basic fittings. granny flats are being done for around 100k each and if you were doing 4 sometimes you might be able to get it done cheaper (maybe budget 3-400k for build). Ive seen kits for got for around 12-15k (might be able to be complete them for 70-80k each)

    You might end up with a inferior product but these wont affect rents too much and return on investment would be same or better
     
  13. keentobuy

    keentobuy Member

    Joined:
    26th Jun, 2015
    Posts:
    14
    Location:
    Canberra
    I'll look into it. Def happy to consider any option that maximises the outcome. Thanks for the suggestion!
     
  14. JacM

    JacM VIC Buyer's Agent - Melbourne, Geelong, Ballarat Business Member

    Joined:
    12th Jul, 2015
    Posts:
    2,187
    Location:
    Melbourne, Australia
    I won't comment on the financing side of things but rather the eventual advertising strategy for tenants. If you plan to hold any of the eventual dwellings, I'm sure you're aware the area is popular for weekenders coming to the area from Canberra etc to play speedboating on the river. Nowra & surrounds is also a very popular area amongst the rock climbing community. Accordingly there might be opportunity to lease to the holiday market via Air BnB or similar as opposed to standard residential rental. Think very carefully about number of bedrooms & bathrooms if you plan to consider this as an avenue of opportunity. Groups like to wake up, breakfast, and have everyone showered and out the door to enjoy the day together, so having just one bathroom can be problematic.
     
  15. JKWS

    JKWS Well-Known Member

    Joined:
    25th Jul, 2015
    Posts:
    204
    Location:
    Australia
    Hey there mate,

    Im actually developing a site in Bomaderry myself at the present moment. Happy to pass on any advice and lessons learnt. PM when your free and ill help where I can.
     
  16. keentobuy

    keentobuy Member

    Joined:
    26th Jun, 2015
    Posts:
    14
    Location:
    Canberra
    Fantastic! Thanks so much for the offer. Will definitely touch base once I get this moving!