Bought From A Bankrupt Builder In Beachside WA - Now What?

A small-time builder who owned a potential 8 unit site on a quarter acre block went bankrupt recently. Before going belly-up, two small 3x2 units were almost totally built. Most of the hard yards have been already done, with only utilities and a driveway needing to be put in.

Then the liquidators took over and I now find myself the proud new owner of a partly-completed development.

I do feel sorry for the builder - this must have been heartbreaking for him. I was the only buyer in town - nobody showed-up at the auction and the vendor was happy to deal with me. The lenders settled for a fraction of what was owed to them.

The local Council is hungry for rates/money and is committed to development. Older houses on quarter acre blocks are being razed and replaced with (for the most part) tastefully built units. The area's zonings are sweet: R40 is pretty standard, but on some streets in town that goes up to R100. My own newly-acquired site is R80.

I've been investing in property for almost 35 years (mainly in beachside suburbs out East) and have ridden many market cycles. But I have never seen anything like this - the market here is shot and if you are a cash-buyer, realtors take notice and treat you with great respect. Plenty of rentable old homes on large blocks are selling for less than half what they could have fetched barely 5 years ago. My place once sold for $730,000 in 2006 when it was just an old house and WA was booming. I managed to pick it up for $320,000 last month - and it has two brand new units on it.

My question to old, experienced hands is this:

Although I have owned dozens of properties over many years, I have never developed before. What would YOU do in my situation?

For the curious, this is a beachside suburb an hour south of Perth. Most Perth-ites would be able to guess the name of the place.

 

Wow. Half price! Develop it! So much to learn!

 

I'm pretty sure I know the exact site. Two units built at the back and room in the front for the rest right?

I wouldn't really be in a hurry to do much with it, since the end values really didn't add up from when I looked at it.

Might be okay for a rental strategy?

 

Curious where it is. If the value dropped by half, it might not be a blue chip area to start off with? Perth 5-10k have been OK I would have thought? But you might be just very lucky picking up something really sweet. In that case congratulations!

 

Sounds like you need to finish off the two existing units and rent them until things pick up a bit more (unless you have the money in the bank earning near nothing)....
Or you could finish the development over the next 12-18 months and hope the market is well in recovery mode.
Congrats on taking the leap and getting what sounds like a great buy

 

Not knowing how much due diligence has been completed on the site it's difficult to judge how much work remains outstanding and to the quality of the completed works. Therein lies the risk of whether any of the subbies working on the project have caused unseen damage to the completed sections of the works eg poured slurry down the drains, cut electrical cabling etc. So some thorough investigation is required.

Although the cost go complete may be higher than most estimates, you'd be best off to complete the first two units, remediation the rest of the site (turf/basic landscaping), get the occupancy certificates and put them out for rent (some return is better than nothing).

Any subbies who were left unpaid won't be happy, especially in a small town but that's not your problem - they can price the works to complete but you don't owe them for unpaid invoices.

Engage site security to ensure the site isn't stripped or vandalised and get works completed asap.

 

I guess it will come down too how long this site has been vacant..

Plus it would be very hard to add anything to the above post by Scott No Mates ,all i would do for a start is read that post several times and print it out and file it away to fall back on..

This is what i would do..Secure the site with wire shade-cloth fencing plus all safety signage ..Re Install the power and have the site safe then go over the site with the sparkie and if most of the rough-in is complete then let them sort it out..Next the plumbing have that pressure tested and work from there any plumber worth 32 cents in the dollar will know and sort that out with in one hour..

As i hope you have all the plans current permits ,if not who ever in the local councils singed off will ..

But i think the big and most important is insure this site yesterday ,that's always 12 out of 10 on the stress worry chart once that done then the rest just falls into place .

Just one other tip,who ever you contract to complete the various sections as you may have to employ out of town labour tell them you will pay 50 percent up front ..good luck..

 

Send a camera down the drains.

 

Is it Rockingham?????

Rockingham has been an absolute basket case

 

Lots of unemployment, social issues, Meth, etc. But really cheap properties?

 

I'm going to guess Mandurah. It has never recovered since 2006 and yes you can buy stuff at 50% off. I would normally advise plenty of caution to people thinking that 50% off is a bargain because it merely is 100% of what todays (and the last 10yrs) market value is.
However you have at least got some almost finished houses in your case which depending on the cost to finish will help.
I'd finish them off, built strata them (I assume the lot hasn't currently been subdivided?) and start renting them out

Questions you need to think about
- can you subdivide the rest and sell off as land? is there money in it?
- are you in for a long term ride?
- can you finance to build the other 6 - this is epic finance hurdle so you may need to subdivide all the lots first to get this going on individual loans
- can you sell off the rear 2 to partially fund building the front 6
- can you keep staging it and build 2 at a time (not the most economical way to build but finance may dictate this is an option)

 

I would agree .... Mandurah still high risk

 

That was my first guess too.
If subdivision is a viable option, I'd agree - finish and rent or flog the first couple to pay back what the site owes you, then decide upon the remaining sites.

 

Land values are just insanely low but I still don't think I'll ever be tempted, just too volatile a market $160k for R60 land of 993sqm 15 Eacott Street, Mandurah, WA 6210

 

@Comrade 1984 did you have to pay GST on the sale or did you negotiate it to be $320k inc GST?

 

PS just realised which one it is.

I would also explore doing a new DA and see if it is more worthwhile putting 2-3 villas in front instead of the 6 apartments. Apartments are expensive and you might be just throwing money away for a lot of extra hassle.

 

Ditto, Wow not been looking but so low .... gotta tell you something

 

Good guessing Wesminister, That Bum and MTR. About that link you provided MTR, the best offer they received on that site at 15 Eacott was $120,000. It's being presented today by an agent I am familiar with. And more likely than not the bank will accept it - there are no other serious takers. Needs a bit of work but can be rented out for a pittance until the market improves. Mandurah has plenty of new infrastructure, great for those who can afford to stay the course and wait a few years for capital gain. But holding property in the meantime and dealing with tenants etc - now THAT is the hard bit!

The contract said "GST to be paid if applicable." As the project has been going on for many, many years, I have asked my conveyancer to find ways to have the GST waived. Do you have any suggestions? Thanks in advance.

 

What would it cost persqm to build 3 level townhouses Westie? This part of Mandurah is not so far from the waterfront and some of the new buildings in the area are nice (if a little cramped).

 

My preference would have been for that to be scrubbed from the contract and for your offer to be GST inclusive. Do you know if the builder/owner has been claiming GST credits during the construction? Does the contract say that they are using the margin scheme or full GST on the transaction?

What does your accountant say?

I'd be using a lawyer not conveyancer on this.

Why 3 level? I guess it would fit more on the site but you'll need to run all scenarios and work out which ones work best
For single level I'd use $1300psqm fully finished, for double $1500psqm and for 3 level then $1600psqm. Those prices are for pretty basic finishes and probably light weight construction for double/triple levels.

My gut says the best scenario for the block is 2-3 more single level villas on it. But I have not run any sums and that's just my gut. You don't want to waste the money you have gained with the 2 houses at the rear.