Desktop Duplex Development

First of all, I don’t have a construction background. I hate dealing with builders or service providers or councils. I’m a bit sceptical about the ‘building industry’ and think that most of them are out to rip us off. But I want to start getting into development slowly. I’ve probably described most beginners here.

Well… this is one way to overcome ‘concerns’ and make the first step. How? One of the answer is PC networking!

I had had a few good interactions with Westminster through Somersoft and liked how she handled herself on the forum over a few years. She is direct, honest and knowledgeable. I got in touch with her regarding managing a development for a fee. To my surprise she agreed!

So… this is what happened so far.

Jan 2015: Signed an agreement on the expectations and fees.

Feb 2015: Westminister found a lot and did a feasibility calculations.

Mar 2015: Paid deposit on the lot.

Apr 2015: Westminister found a builder. Started working on the duplex design.

May 2015: Finalised the building tender. Worked on the land & construction loan.

June 2015: Land was settled. DA submitted.

July 2015: Made few minor changes to satisfy Council’s requirement. They wanted us to have garage for two cars. I would have just comply with it but Westy argued with the council. She showed that there is a planned bus stop nearby hence we don’t need two space for two cars!

Aug 2015: Got the building approval. Westminster did the colour selection. Made me to agree with it.

Sep 2015: Construction has started!

One thing for sure. There is absolutely no chance I would have gone in if I didn’t get Westminister’s service. I know that Perth is in a declining trend but I didn’t want to miss the opportunity. Also I think the bust time is a good time to build as there is not much competition... as long as the numbers work.

I’ll update this thread with property details and feasibility calculations later.

Happy to answer any questions... Hopefully @Westminster adds her comments as well.

 

Hey well done, will be following with interest

Need more details on numbers!

 

Well done @devank

Investing is all about leverage with both OPM and also Expertise.

Great to see you have leveraged @Westminster experience and no doubt will learn along the way through this project.

Wish you all the success!!

 

Absolutely. This is part of key reason I wanted to do this project.
Love to reach a stage where I can do 2 development a year and make 2 x annual wage from them.

 

As @Coota9 points out: Excellent example of leverage.

Great way to get out of your comfort zone and get new results.

 

Thanks @devank

It is a great little project for dipping your toes into developing. It's low cost, low risk and quicker than most developing options in Perth. Hopefully @devank's project will be finished in January.

I'll let him fill you in on the details of what he is building.

I met the Town Planner who designed the whole subdivision yesterday and he was very pleased that someone was doing duplexes in the area.

I need to make it clear that I am not a BA. I am a Development Consultant and do include site finding, feasibility and construction management/project management in my services. This is somewhat different to a BA as I do not negotiate on behalf of my clients, I investigate the development potential of sites, do up a concept and validate that concept with other professionals (builders, property managers, REAs, town planners and council). Clients then take that information and talk to their accountants, brokers, financial advisors etc and ensure that it suits them. They then negotiate and contract the sale of the site.

 

Well Done

 

Here are the numbers (simplified).

Land Cost
Land Price = $258,000
Government fees = $7,609
Holding cost (12 months at 5%)= $13,280
Total Land Cost = $278,889

Building Cost
Building tender = $389,900
Holding cost (9 months at 5%) = $14,621
Contingency + other = $35,000
Total Build Cost = $429,521

Total Construction Cost= $278,889 + $429,521 = $720,411



End Value
End Value - villa 1 (3/2/1) = $440,000
End Value - villa 2 (3/2/1) = $440,000
End value for whole project = $880,000

Equity Release
Equity = 880K - 720K = $160K
Extractable Equity @ 88% LVR= $140K

Cash flow
Loan Repayment on 720K at 5% = $36,021
Rent after expense= ($410 pw X 2 Villas X 40 Weeks)= $32,800
Loss = 36,021-32,800= $3,221

Depreciation = $7,000.00 x 2 villa s= $14,000
Paper loss = $17,221

Tax Back @ 37% margin rate =17221x0.37= $6,372
Net Cash Flow = 6372-3221= $3,151


Hopefully I have given enough information for anyone looking to start developments.
Happy to answer any questions.

 

The building tender cost includes all site, connection, council contribution costs?
Loving the development cost in WA

 

The only thing it doesn't include (which might be under other) is the strata titling at the end which will be around $2500-3000.

The figures that @devank has used above are nice and conservative - together with extra time allowed in the holding costs.

The only thing that may need to be changed is equity available at the end which may be down to 80% depending on APRA.

 

the end value is base on projection in completion in early 2016 price?

20%+ profit with +ve cash flow in a flat/falling market. awesome.

Devank, what is your own fund/equity required for this deal? I am guessing around $150k

 

Fantastic effort. Being a duplex, was this just under residential financing?

 

I don't think Devank has said what he's building

Duplex semi detached 3 bed, 2.5 bath townhouses
- rear single garage
- ground floor living, dining, kitchen, laundry and powder room, alfresco area flowing through to quite a large rear courtyard garden around 5m x 5m
- upstairs master bedroom + ensuite+ balcony and 2 further bedrooms with a main bathroom.

 

I'm guessing closer to 180kplus but just a stab.

 

There is $655k of actual costs there so if it was at 80% LVR then it would be around $132k
Pre-APRA tightening there would be banks that would do this around 90LVR but I don't know if they still would. Brokers would know best.

 

That looks great. Is this in Perth I'd love to know where you can get a development block for 260k from.

 

Yes... Following assumptions are fairly conservative.
Interest rate = 5%
Land holding cost= 12 Months
Construction holding cost = 9 months on full build cost. In reality, payments are staged.

We are building duplex. There is nothing on the market which I can compare. However, there are few similar spec (2bed/2bath) units advertised for 450-455K.

Real figures are bit complicated to calculate as the funds are coming from offset. So there is 37% going to come back after tax.
So... I would say it is about
= 20% on land + 20% on construction + additional costs
= 51K + 78K + 72K
= $202K before tax. => 195K after tax

Just remember.. I think I'm being a bit too conservative. It is a turn-key fixed price contract. So allocating 72K for all other is a bit too much. Also most of the 'addition costs' are likely to come at the end of the project hence it is not reasonable add interest on it.
Regardless, I should be able to finance it at 88% which would give about 256K back.

Yes.

 

I wasn't too far off..

 

There is worse things than being conservative but I agree that extra $72k worth of holding costs (interest), contingency and other items is likely to come in quite a bit lower.

Consider these items the bonus at the end and will make the project more profitable.

 

Under estimate and over deliver..

But in this case it's actually over estimate and over deliver