Development options

Hi there,

Asking on behalf of parents to see what options are available to them to develop their PPOR. It's an old weatherboard home and they're considering developing a duplex. No mortgage owing, however both pretty much retired and mum working part time. Given their income I don't think they're able to get any sort of finance to start development.

Wondering if there is any options out there to make this possible? Could I for example get finance for them and have myself as a guarantor? Or is there any other kind of finance they could get?

Plan is to sell off one side of the duplex to cover most of the costs and make profit and live in the other.

Alternatively, the property could be transferred to me or have myself added as ownership and then I take finance for the development? Although, I believe we would have to pay stamp duty in this case. This may be a last resort if they're unable to get finance themselves.

Thanks

 

Have you done any rough number crunching to see if its worth it? I'd be surprised if it was worth it compared to just selling to a developer and buying something smaller.

 

Could you buy off the plan from them, get your own finance and the rent/sell at the end?

 

Done very rough numbers. The property as it stand is valued around 600k. Would set a budget of 750k to build on 740m2 block with 17m frontage. Duplexes during the peak (2017) were selling around 950k. I'd say probably 850ks in today's market.

Total cost: $1,350,000 (Including own land)
Estimated value after development for both duplexes $1,700,000 in today's market.

 

Could be worth applying for a DA. Sell with the DA with property as is. Discuss with REA.

Building and then selling will likely mean GST and tax issues galore and erode any profit. Doing less eg just selling off the extra land is still a CGT issue. The main residence exemption wont apply to this. However with a DA and selling the whole site it may provided the efforts are limited. A REA may know of buyers who will demand the site for its potential

 

That won't be total cost. You have soft costs, contingency, marketing, staging, interest cost. Plus the ATO to deal with.

 

The preliminary numbers work and we have designed duplex projects with similar situation and numbers in the Merrylands area, however as mentioned by Paul, the tax implications from selling could possibly erode profit.
If you can make the rental return(s) sufficient to cover the build, you can look at this development in portion or in whole as an investment and provide you with other tax benefit. The equity and potential increase in equity will then allow you to pursue other opportunities.