Dev feasibility: No profit v/s knowledge

Hi all,

Doing my due diligence on a Perth property and the numbers indicate no profit (or potential loss). As a first time investor (aspiring developer), would you recommend going ahead with such a project as the knowledge acquired will come in handy in future? Thanks

I haven't included a buffer (not great!!)

695 - Purchase
30 - Stamp
15 - LMI (may be waived by bank)
30 - Subdivision
10 - Demo + clear (shed, patio, 2-3 trees)
15 - Reno (kitchen, bathroom and laundry)
40 - Other fees 5%
--------
835

350 - Build (Townhouse 3x2x2 - approx 180 m2 building area)
30 - Finish/Landscape
--------
1215


Option 1: Subdivide, build & sell both
Resale value
550 - Front
625 - Rear
--------
1175

Loss: 40
Potential offer to make 50k: 695 - 40 - 50 = 605


Option 2: Subdivide, sell house & land
Resale value
550 - Front
300 - Land
--------
850

Profit: 15
Potential offer to make 50k: 695 + 15 - 50 = 660

 

As an aspiring developer you should aspire to make money, not lose it...

This is crazy, if you want to gain some experience get in contact with some small developers and offer your services for free, at least you don't have any liabilities.

 

The best knowledge you can acquire has got to be how to develop for a profit...not a loss.

Anyone can "develop", it's finding the right opportunity that takes skill.

 

If you want to lose money, just give it to someone. Plenty of people out there will take it.

Search for the right opportunity not the wrong ones.

 

in terms of being a good idea, on a scale of 1-10, 1 being curing cancer and 10 being stapling your nutsack to the kitchen table this is a solid 9.

 

Does a 9 mean that the staple breaks skin, but doesn't actually grip into the Kitchen table?

 

Haha, def not keen on that 9, @sanj
Thanks guys, this gives me a clearer idea about looking at the right opportunities

 

Maybe you should enquire about some of the people on here who use their skillset to mentor you. Seems the safest way to guarantee you will be turning a profit. Especially if your a complete noobie to the game.

 

speaking from my little experience, I asked myself that question for a long time, convinced the market wasn't in a place where my strategy would work. Build your network and pick your market and profitable projects will come.... in theory

 

This has to be a contender for the quote of the year.
BTW is there such a thread for those truly great pearls of wisdom, might be a good idea?

 

Start small. Don't go in over your head. When you get experience then go bigger.

Maybe look at something less risky, like a quick cosmetic renovation or building a house/granny flat in a back yard.

Even building one house on block of land, as boring as it is, will give you experience in the construction process and you'll learn a lot about time frames, project management, floor plans, colour schemes, building inclusions/exclusions, financing, council approvals process etc etc

We built our first home, best experience ever, then built another home, then a duplex, then a triplex and then went on to do four and five unit developments ..... work your way up the ladder.

 

Surely you could find something that has potential to make money.
Going into a project knowing you won't make money is crazy.

My first couple of developments had the same goal in mind to learn from experience, and did not care if they did not make profit, (holding anyway), but at least they had to have potential for good profit if all went well.

 

A big part of gaining the knowledge to be a developer is being able to identify development deals and have the figures stack up. As a small scale developer, I've always secured my profit on the purchases of the dev sites.
Building costs can vary, but you do have some control over those.
Its the actual site that either makes a deal great or average, and learning to identify those sites is a big part of the learning process.

Best of luck with your aspirations

 

You havent considered GST. That can add or reduce profit. I have seen some use the correct GST advice and their profit can increase rapidly OR destroy it by not considering it. GST doesnt care if you make a profit as such.

I wouldn't recommend a loss making project. One thing you can guarantee is that you will lose more (or make less) then you expect.

 

can you build villas instead of townhouses significantly reducing build costs.?

 

good advice.

it's amazing what you learn along the way. I would not do it if there was no money in it, there would be no point

 

good point
also I believe it can also come down to buying and building at the right time and lots of luck

 

probably not in Perth at the moment?

 

thanks for the suggestion, @MTR. There's about 145m2 for the second building and with open-space requirements & 1 required car bay, I imagine it's only going to be like a 1x1 or a 2x1. I did the numbers on that as well and it didn't look promising either.

 

Thanks all for the advice

- I'm keen to offer my services in exchange of some experience with developers in Perth (PM if this is something you'd be keen on)

- Always looking at expanding my network, so happy to catch up for a coffee chat in Perth

For now, the search for the right opportunity resumes