Hello fellow PC experts, I'm in a dilemma whether to commence building or to buy another property: I've purchased a land with approved Plan to build 3 units @ $520k and has to commence building before March 2019. It has a 3br house and a granny flat at the back, now with total rental income of about $2,000 pcm with dual income. --> unlikely able to extend the permit again. Current estimated resale value about $620k as is. Cost of building will be about $600-650k for 3 double storey units. 2x 2br and 1x 3br. Each can rent about $370 pw. Each unit can sell about $440k, but I am looking at holding renting them out in the short term. Alternatively, I was thinking if I should buy another property as I currently only have serviceability to do either the building project or buying one more property. Any opinion on this situation? Will greatly appreciate any ideas..
I’ve no idea about developing, and certainly not even close to an expert, but the basic maths look shaky. Current value $620K. Build cost “around $650K”. Allow $700K, building always costs more than you think, and usually takes longer. Total built cost $1300K. Sell @ $440K nett each. Total $1320K. That’s a skinny $20K profit. Even if you pull off the total (plans, permits, fees) build for $650K your potential profit on completion only rises to $70K. What about holding costs and interest? Demolition of existing? GST? Tax? Marg
Thank you Marg, this is why I am slightly hesitant to commence building but the plans will expire next year and that will costs another 20k and months to reapply as the building codes have changed quite a bit. What are your views on building and then renting it out then? or buying another property at about $550-600k make more sense?
What was your intention when you bought it? Was your intention to develop it and that's why you bought it with DA plans? Normally a site with DA plans goes for a higher price so if it wasn't your intention to develop then why buy that particular site - was it for the dual income? Is there an option to subdivide it as it is and have the 3 bedder and the GF on separate titles? As @Marg4000 points out you'd be going in high risk to do this even as a holder and you'd probably have to tip in quite a bit of money for construction is valuations came in unfavourably. You'd make more money selling today than by developing. If you were looking to hold more than 5yrs then it might be acceptable risk but Melbourne might be at it's current value peak so what if it's worth less than 5yrs? Going and buying another property doesn't really solve the issue with this site. What would buying another site do for your strategy? What is your strategy? I don't actually have an answer for you but the subdivide as is might be a money spinner if they could be worth mid to high 300s.
I am new to property investment. I am unclear of strategy. When I purchase the property it appeared that it provide options of dual income, development and hopefully capital growth. I am uncertain if the GF can be on seperate titles. But it is an interesting option. The property is rather neutral at current. I hope to eventually live off rental income as a retirement plan and hence was ready to hold it for a lengthy period of time. However, Was wondering if this project is a better option as to a purchase to build the current portfolio. Given that the purchase(suppose a Brisbane property) or build (in Melbourne) will amount to similar expenditure and owning the same number of dwellings for rent. Nonetheless, the maths of the build do certainly sound risky and shaky. Confused Confused ~~ Thanks for your insight =)
how much spare cash do you have to throw at the deal, coz the build val will come in 15 to 25 % below the end value of each of the units the haircut is due to a bunch of things - mainly GST on sale, selling costs and a margin to convert to separate titles if the project fails half way through. Ta rolf
Building if you are doing it for the first time will be a very complicated process and costs can balloon out + loss of rental income. may be do a quick reno/add a bathroom to get better rents. you can always buy something later, especially in Brisbane lol...
Thanks Rolf. Factoring the haircut, the build seems not feasible at all. Now this makes me wonder why would anyone purchase this property from me, if I am to sell it ? other then a builder... (^~^)|! Thanks you
Begin with a smaller reno and progressively a one dwelling build as to jumping into a multi unit build... Thanks Thanks.
$100k profit if you sell as is vs 20-70k profit if you sell after build - I know which option I would go for Would then use the funds to finance the next deal. Happy times!
