Build portfolio or develop site by site

I have bought 3 houses in Altona, Victroia recently. Total cost of 2.3m. Roughly at 70% LVR. Approx 2000sq/m in total.

I can put 3 town houses on each.

The view is to hold for 3 years, then develop.

My question to the group is:

Should I instead just hold the portfolio and continue to buy up blocks. Or will developing sites alow me to make more money.

I ask as it seems after 10 years, if I kept buying sites etc I would have a really nice portfolio. Low touch and would soon off.lots of cash.

however it seems that more money can be made by developing sites. Particularly if you have the cash to buy the larger inner city blocks. I.e collingwood for example, every warehouse seems to have been bought.

I'm not interested in postive cash flow properties, I'm much more interested in growth.

Thoughts ?

 

Jamie, have you done the numbers for:
1. What if you got a DA and sold, what would be the bottom line?
2. If you developed and then sold what would be the bottom line? Is it worth developing it?

Comes down to your risk profile, the funding available, costs incurred. With either option, could you then move on to better stock?

@MTR I believe is developing in one of the nicer areas in Melbourne and can shed light on this.

Sounds like a great position to be in.

 

Hi mate, developing doesn't always get you more money unless you know what your doing. Even with building 3, sometimes you can make more if you sell with plans, or as is depending on the home price etc etc. I'm currently going through the process to build 3 or2 side by side, sell as is, or sell with plans.
Undecided what works best as yet. But it currently looks best to sell off with plans for my scenario as I'm not a builder and can't build cheap to make the extra gain, which also has extra risks.
Speak to @Property Subdivision who can do the numbers for you.
Best of luck

 

Thanks,

My thoughts come back to this:

Instead of buying houses in good locations with good growth and wait out 10 years for the fruits of my labour to pay off... I could always just pay 2-3m for a site, say Footscray which has potential for 15 plus apartments.

Yes the pay off is much greater, and risk higher, along with more complications and tax.

The issue I'm finding is that sites under 800k typically draws groups of brothers / mates who are builders for expample and the competition is much greater. As they can do alot of the work themselves,houses get bid up higher. $2m sites plus can be found off market by simply approaching the owners directly etc.

I agree with both of you that I need to do the numbers but it just to me it seems that investing in one big site rater than a smaller site will typically give better returns.

I am living in the Fitzroy ATM its incredible the amount of old warehouses are being bought up and places presold before building has commenced.

Perhaps a shift in strategy...

 

Usually the more you build on a site will give you better returns. These same figures need to be done though before you purchase a big development site, to work out exactly what to offe. Everyone has a margin, and room needs to be left for the next person or even if you build yourself.

I like your shift in strategy, waiting for growth sucks, and may never happen. I'd rather have cash sitting in a bank earning interest than hoping land value goes up.

 

Hi, we have just settled on them.

We like this area and feel it will naturally continue to grow given areas around here have nudged further over time.

In 3 years, using simple inputs we would make around 1m in profit / growth. My view would not be to sell and hold.

I never see the point in buying something and organising DA and plans given its such a huge amount of hassle withow returns. However this would work if you knocked on doors and got off market deals on much bigger sites.

I've been sending out letters to owners of commercial building which overlap with residential sites nearby. So perhaps I can use the equity as a deposit here and then go through the DA stages with a view to divesting then, instead of building.