Hi, New to the forum but from what I can tell it is great and some really strong knowledge here. Background. I am a construction estimator and currently working in residential construction, as we specialise in investment housing and townhouse developments I have lots of exposure to what other people are doing in the way of developments and I am starting to look into my own. (starting small) My question is, what sort of return would you typically expect when doing a simple knockdown & duplex build ? is there a percentage people work to eg: 10% 20% return ? When I run the numbers on purchase price, holding costs, applications, head works, build, realestate commissions etc. I just cant get the numbers to work. Maybe it is because I know too much about risks in construction ? Is the Brisbane / Gold Coast market not right at the moment ? It seems prices are too high for the purchase to make it work in higher priced areas with correct zoning and in lower priced areas the build price makes it not work as the final sales price is not enough. Is it a matter of sitting in wait for the perfect deal ? Am I missing something ? Thank you in advance for responses I hope to be an active member on the forum Chris
I suspect you are more knowledgable than most. As a tax adviser I see 10 people who do a dev. They tell me they made $300K. I tell then they made $50K and they disagree until the numbers prove it. I then see 1 client who says they budgeted a profit of $80K. They know their tax, cots and plan and I run the numbers and they made $80K....Often due to rising land values. Here are my observations of developers .....small ones.... The more your build (frequency or density) the more you make. Duplexes etc dont make money. Normally. Those with a budget may make a profit - Others wont. They will just tell you they did One third lose their shirt (in the recent Sydney market !!) If you dont know what margin scheme means dont buy the land NEVER buy developer land and the inability to use the margin scheme will kill profit If you dont have 40% more cash then the build budget dont bother.... Cashflow will send you broke The decision to sell after 5 years means you lost money. And wont recover your loss. You dont save GST using the 5 year rule
OSFA, post: 448417, member: 11407 @OSFA My question is, what sort of return would you typically expect when doing a simple knockdown & duplex build ? is there a percentage people work to eg: 10% 20% return ? I think for a duplex many developers will be looking for the at least 20-25% return on TDC. When I run the numbers on purchase price, holding costs, applications, head works, build, realestate commissions etc. I just cant get the numbers to work. This is normal. for every 1 deal that stacks up I am sure 20 wont. Every time I bought a site that worked, I did feasibilities on many, many sites that didn't stack up. Maybe it is because I know too much about risks in construction ? I don't think knowing too much in this area is a bad thing, unless its causing you analysis paralysis. Is the Brisbane / Gold Coast market not right at the moment ? Thousands of markets there with all different price points, demographics and different times that land was purchased. I am currently developing in Brissy with JVs and also have my own sites to develop soon which all stack up. Just depends when you bought the land and what market you're catering to. Is it a matter of sitting in wait for the perfect deal ? Well imho there is no perfect deal, they have their pros and cons. I wish I could sit back and have good deals fall into my lap. Unfortunely its not the case. Its all about being aggressive in going out there to find the good deals and networking with key players which can make a big difference. The last site I got was by chatting to my TP who basically said I gotta see this place ASAP and put in an offer which I did and had it wrapped up in 3 days.
Intrigued by this last bullet point - could you please elaborate. If changed mind upon completion and have claimed GST on construction costs (assuming registered for GST), I understand that the GST is repayable - in part at least. But a sale of the property after 5 yeas does not require GST to be remitted (1/11 of the difference between the sale price and the cost of the land, using the margin scheme).
Thank you everyone for the responses, and no I did not know what margin scheme means and after researching it I cant say I fully understand. Paul you are saying that most duplexes don't make money, do you think this is due to the vendors of the existing dwelling know what they are sitting on and suck all the profit out by selling for too much ?
