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Development potential

Discussion in 'Development' started by PacMan, 25th Mar, 2016.

  1. PacMan

    PacMan Active Member

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    Hi All

    Been watching the forum closely for a few months now. We bought our first IP in Heidelberg West, VIC and we are now assessing if our site is suitable for a profitable subdivision. This is the first time I am embarking on such a project so thought I would share my journey on this forum and get some of your valuable opinions and suggestions.

    First things first I have to find out if the project will be feasible and if the numbers make sense; so I have attached my feasibility calculations plus some drawings obtained from DBYD. Once I have bit more confidence then I can move to the next stage of checking if we can obtain finance for it.

    BR
     

    Attached Files:

    Last edited: 25th Mar, 2016
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  2. A Jeremy

    A Jeremy Active Member

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    If you don't mind me asking, when did you buy the property and what was your investment strategy when you bought it?

    Jeremy
     
  3. MTR

    MTR Well-Known Member Premium Member

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    Hi PM

    Just a couple of questions

    I am confused how much are you allowing per sq for your build?

    What are you building?

    Is there any development on your street?
     
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  4. PacMan

    PacMan Active Member

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    Hi Jeremy, I bought the property Dec 2014 and my strategy was to buy and hold. Before NG it is about 12,000 out of pocket per annum, but recently if finances allow it I thought I will try run the numbers and see if I could make a decent profit by subdividing and learn a lot in the process.
     
  5. PacMan

    PacMan Active Member

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    Hi MTR, I am allowing 10,500 per SQ for a low key / rent ready build. I am very close with 2 builders and they are willing to give me a good price.

    So far the idea is to build 3 off 2x2x1 + study townhouses with a common drive way on the right hand side or the easement side of the property.

    To answer your question about development I have seen several developments recently on and around the street with similar layout as proposed above.

    At this stage:
    • What I am not very confident with is Infrastructure costs as not sure if I have missed something?
    • Is there enough contingencies for both building and infrastructure?
    • Legal/CPA expenses for project this size?
    • Equity requirements?
    • Profit margin acceptable after factoring in GST?
    Thanks
     
  6. MTR

    MTR Well-Known Member Premium Member

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    I think you are doing a great job.

    Your build costs are lean but you are going low spec? are you selling any?? I would not go low spec if this is the plan

    Your numbers are similar to my project in Thomastown, have you read this (4 townhouse development)

    GST use the margin scheme your accountant can explain this.
     
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  7. Barny

    Barny Well-Known Member

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    Hi @PacMan,
    New fences?
    Soil and rock removal fixed into contract?

    And have you seen what profit is possible to sell with plans in place, sold off without developing?
     
    Last edited: 26th Mar, 2016
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  8. PacMan

    PacMan Active Member

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    That I will have to decide once I speak to my accountant and see if it fits our long term goals. So your suggestion is if I was to sell any then I should consider increasing the specs to better quality so it attracts more buyers hence quicker to sell it?

    I have indeed looked at your project at Thomastown and still fascinated how you fitted four in similar sized block. Did you use a drafty or architect?
     
  9. PacMan

    PacMan Active Member

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    Good point, I will have to ask if the soil/rock removal and fences are included. I will have to have another discussion with the REA about selling with plans then workout if we are better off as less risky even if its lower profit.
     
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  10. Barny

    Barny Well-Known Member

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    You may need to speak to a few different agents that sell to builders/developers.
    There's usually a Price range, that builders will pay per dwelling you can fit into plans in your area.
    I recently went through the same feasibility with 3 townhouse build, in the end there was about 100k more profit in building and selling off, than selling with plans without any headaches.
    But the 100k profit can easily be eaten away if issues occur along the way, project time frame could blow out, you never know what they will find once digging starts, etc etc. also factor in loss of other investment return your missing out on during the year it takes to build.

    Let me know how ya go when all figures are in.
     
  11. MTR

    MTR Well-Known Member Premium Member

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    draftee, but my recent project in Melb I use architect and also employ a town planner to strategise

    They were small townhouses.

    I would never go low specification regardless of product only because I know that it would be difficult to sell but also its shooting yourself in the foot IMO. It may also impact negatively on valuations even if you are holding??

    What I am seeing now is that buyers ie FHB, investors, downsizers etc expect a certain standard. What was once considered higher spec is now the norm just from my experience

    Market in Perth started falling when I sold my 3 villa development project in Spearwood (view on SS) my villas all sold within 4 weeks, they were smaller than what was considered normal for the area but I achieved higher prices. I believe this came down to having higher specs than the norm in the area and also the elevation had the X factor, which most did not consider.

    For me when developing my first consideration is "what do buyers want"? and will I money building what they want.

    MTR:)
     
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  12. PacMan

    PacMan Active Member

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    Thanks my friend. I am going to drive by REA offices next week to see if they have any builders that would be interested and the price range. It would be interesting to see the difference in both scenarios. I will update once I have bit more progress.
     
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  13. PacMan

    PacMan Active Member

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    I have a lot to learn and I would like to model my investments based on successful models before me, so appreciate your input:). I have spoken to a few people who have no experience of development themselves who have all recommended to simply build low spec but I believe you cant just ignore "what buyers want"? I will have to put that on the list of questions I ask myself every now and again before I make any decisions when it comes to the design stage.

    My wife is an interior designer so hope she and our architect can help determine the best materials "that the buyers want" at the best prices. I will also be utilising a town planner.
     
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  14. Barny

    Barny Well-Known Member

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    If you don't mind sharing, which builders are you thinking or have been quoted on?

    Mtr might be able to recommend, I was going to use snowdon developments for my project but haven't gone ahead at this stage. They were charging around 13500 m2 for a more premuim build quality. Can easily blow out even more if I wanted too.
    I'm sure there are other builders, perhaps much better pricing too.
     
  15. PacMan

    PacMan Active Member

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    The builder is actually a family friend and hence the reason for the good pricing. But his usual pricing is around 12500 per SQ on low key so he is not really making much money on this job but he is happy to help me get started.

    But now I am trying to research my competition and can see anything from low spec to high spec that is affecting the sales price significantly. They have not disclosed pricing but seems that most of the unit sales are by this single REA so might go and visit him next week and pick his brain a bit. Then I can determine if I need to raise the bar and by how much.
     
  16. sanj

    sanj Well-Known Member

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    I think you need to work out upfront if you want to sell or rent them out because that will probably affect some of the decisions you make with the build.

    you've got contingency for your build but doesn't look like there is any for civil, holding costs etc
     
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  17. PacMan

    PacMan Active Member

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    Hi Sanj,

    I am planning to meet our CPA this month and discuss most tax effective strategy. My intention is to keep and rent them if possible.
     
  18. sanj

    sanj Well-Known Member

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    ok, keep in mind that the build may cost you a bit more then. eg you might choose tiles in the living room instead of carpet or laminate, you may choose tapware or aircon or toilets or stone tops or whatever that are a bit better quality to save on maintenance issues in the future. you may also upspec certain items keeping in mind that if you do sell in the future you want to be able to compete with newer product in the area, if there is lots of development going on.

    I've seen some 4 or 5 year old villas for sale that really struggled because even at the time they were built they were pretty basic but 5 years later they struggle to appeal and have to be discounted by a decent amount. not saying this will definitely be the xase as I don't know your area but something to consider
     
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  19. PacMan

    PacMan Active Member

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    upload_2016-4-2_20-25-17.png
    Hi All,

    Saw a similar post and am curious about the legends for my sewer plan. I can see that the red circles are junctions and the red lines are the existing sewer.

    What is 150 CONC / 98 MOR ?

    What is 531/67 ?

    Does the direction of the arrows point out the direction of the fall ?

    My assumption is the 33.07 is the length of the sewer pipe ?

    Thanks :)
     
  20. Bran

    Bran Well-Known Member

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    I find this an interesting question MTR - can you explain your thoughts on what it means if there is, or isn't?

    Is it better to be early, in the middle, or hold out with one of the last developable blocks generally speaking?