Development flip

Hi guys,

I have an opportunity to buy a residential property with plans and permits approved for 3 townhouses. The property is off-market and I'm negotiating a sale price which at this time is approx $150k below market value.

My plan is to acquire the property ASAP with a short 30 day settlement and put it straight on the market with all plans and permits. I'm a first home buyer and can barely afford the purchase price as is let alone develop the property, so I'm just in it to make a quick buck and use it as a deposit for our first home.

Additional info:
- I have a yearly income of $80k, my partner $50k.
- We have one IP in both our names

My questions is, what would be the best structure to purchase the property under? We won't get the first home owners discount because we won't live in it for 12 months, nor will be get get the 50% capital gains discount. Can anyone offer any tips or suggestions on how best to go about this?

Cheers,

Jacob

 

Given the short time frame, depending on the state, look into an appropriately structured discretionary trust.

 

One word of advice get in quick and sign the deal before they realise they stuffed up on the sale price.

 

I would go a DT ASAP and preserve your FHOG

 

Before you purchase, ensure that buyers will pay what you believe it is worth. I put a small DA approved site on the market last year and the only people prepared to buy it were the ones who wanted to make a buck on the DA also. The best offer I received was 100K under the asking price.

 

Doesn't he miss out on the FHOG since he's already got an investment property in personal names with someone else?

 

Whoops! Just saw the first homebuyer section not the investment property.

My bad. No FHOG.

 

I understood we were eligible considering we have never lived in the IP?

 

Do you know the sellers motivation to sell??
Have you done a full feaso to see what is a realistic outcome? Since your a first time buyer id be extra cautious about it, if its too good to be true... ...
Best of luck, hope it works out

 

Sounds very fishy

 

That tells me there was not enough money in it for the developer/builder. No one will pay a premium for a DA if there is no money in it

I just sold a DA to builder in Melb they will want to make a minumum of 20% profit on completion of the end product.

 

Exactly. I was talking to one girl last week who was so excited she was successful at purchasing a site that will yield 3 townhouses. Her plan was to get a DA and then sell it for a tidy sum. She was explaining how relieved she was that council gave her a strong indication that once her application was submitted, the DA approval shouldn't take too long.

I know the area she bought in and when I explained to her in some detail the numbers etc and that no one will buy her DA site because they cant make any money on it....there was silence......

 

Does not surprise me.

Also, the designs must be excellent otherwise the product wont sell, why would anyone want to build a product that wont sell

 

Very good point @MTR . So really the person who is getting a DA to sell has to actually go through the entire development/numbers/feasibility/ designs/DD/market research like they are the developer themselves. Its not a matter of just getting a DA and flipping for big profits.

 

Exactly
I knew my feaso had perhaps 40%+ profit if I built and I knew it would fly out the door, took 2 weeks to sell

The builder who purchased my DA will make approx 40% profit, sweet deal.....because he can build much cheaper per sqm than I can

However if it was a developer who purchased he possibly would have made around 20% profit as they would be building at same rate as I would be building

 

If someone did buy the property at the price I wanted and built a low end project home on each side, they would make 200k plus on the project. More if better finishes/fixtures were put in. The agent just didn't market it properly. If I used the numbers that someone else does in their development progress updates in this forum then i am grossly underestimating the potential profit.
I'm only selling cos apra killed my servicing to do the construction myself.
I would've throught that 200k would be nice little earner for someone to spend a few visits to display villages, appoint a project manager to comply with the DA conditions and grab the profit 12 months later.

 

What State?

So it did not come with designs/plans?

I am only guessing from what you have posted

Some States such as Perth DA's dont work, no demand for this

RAMs lo doc for developing could be your get out of jail card, brilliant to get over servicing issue
Used this for my 4 development townhouse project in Melb you wont jump hoops

 

I wouldn't have thought that a developer would want to have approved house plans for a single house on a lot? being in brisbane on a sloping lot with views there are so many configurations I could've gone with.

 

No I haven't yet. Am nearly finished sayisfying the DA conditions and will be selling them as two separately titled vacant lots.