Join Australia's most dynamic and respected property investment community

First time developer - planning stages

Discussion in 'Development' started by Inge, 4th Mar, 2016.

  1. Inge

    Inge New Member

    Joined:
    4th Mar, 2016
    Posts:
    3
    Location:
    Sutherland Shire
    Hi all,

    I have been lurking for a while, trying to get my head around the process of property development. I am finally past the contemplation stage and was hoping I could get some advice on our situation.

    The hubby and I have a fair bit of equity in our PPOR (have picked up some of the lingo ;)), I'd estimate 700K conservatively, and want to use it to start building a portfolio. Our thoughts were knock-down, rebuild of dulpexes in the Sutherland Shire area (this is where our RE knowledge is). To add to the mix, in the future we'd love to (hubby)/need to (me) either rebuild or develop our PPOR.

    So far I've determined we need the following to get started:
    1. A mortgage broker - there seem to be plenty of good ones on this forum. I'm seeing that it's not just your local Rams or Aussie service
    2. A specialist tax accountant
    3. A good conveyancing solicitor

    I'm thinking a broker is our first port of call to organise a valuation, determine borrowing capacity, look at whether we are even in the ball game for this sort of thing. Then I'm thinking we'll be off to the accountant to see about structuring things for the best tax breaks. Does this sound about right?

    Also I'm a little worried about recent changes to the LEP that came into effect last year, mainly that there will be a flood of duplexes in the area in the time-frames we are looking at, making profit margins a little too slim. Any thoughts about that?

    Thanks in advance, sorry it's so wordy (I'm actually worse in real life). I think this is the first of many posts!

    Ix
     
    Jess Peletier likes this.
  2. Blacky

    Blacky Well-Known Member

    Joined:
    25th Jun, 2015
    Posts:
    1,105
    Location:
    Bali
    If margins are too slim at the early stages, they wont improve at the later stages! In which case walk (RUN) away.

    Also - before approaching an accountant you will need a fair idea of the strategy on completion. Will you sell them, keep them or a combination of the two.
    Applying the margin scheme will help keep taxes to a minimum. Think about how you can stage the development to minimise risk.

    You could start talking to some builders and REA in the area to start feeling them out in regards to the costs involved suitability of sites, end values etc. Start making some connections.

    Make sure you have a really juicy cash buffer available. Inevitably developments burn through more cash than you can imagine.

    Blacky
     
    Leo2413 likes this.
  3. Leo2413

    Leo2413 Well-Known Member Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    5,858
    Location:
    Sydney
    1. Be sure about how much finance is available for you for any proposed project. (also make certain with council that your block can actually be developed into a duplex. No matter how certain you think you are, check with council and also check to see where the services are on your block, any easements, restrictions, any slope etc. Then:
    2. Understand the area you want to develop in, most importantly, end sale values for the stock you want to build, specs, designs, sizes etc.
    3. Get a good idea how much 'that stock' will cost to build from talking to builders and others.
    4. Create a spreadsheet to start your preliminary feasibility and start inputting the numbers you got to create a picture. Also have some type of sensitivity analysis for different scenarios eg sold if sold at 1mil, 1.1mil, 1.15 etc (This is probably the most important step. You want to get as much of the numbers as you can ascertain in here and as accurate as possible).
    5. If the numbers look good and there is a decent preliminary profit margin of at least 20-25% with a good contingency then you have to make an executive decision whether you go ahead with the project.
    6. If you have a friend or someone you know who has some experience and success and can help you look over it, it would be very valuable.

    Just a rough way to approach it.
     
    Last edited: 5th Mar, 2016
    York likes this.
  4. Inge

    Inge New Member

    Joined:
    4th Mar, 2016
    Posts:
    3
    Location:
    Sutherland Shire
    Thanks @Blacky & @Leo2413 for your reponses.

    We're keen to keep one, but would probably have to sell both on the first build, unlikely to get adequate rental return to make it feasible, although this all depends on whether we get a bargain on the land, etc..

    We've started a little spreadsheet with what goes for how much in the suburbs we're looking at, and what level of finish they are. I think we're at risk of analysis paralysis, but would much rather have too much info and decide it's not going to happen rather than end up going backwards.

    Thanks again, I'm off to research brokers!

    Inge
     
    Leo2413 likes this.