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Honest opinion on purchase

Discussion in 'Development' started by Hazelnut_Flatwhite, 29th Jul, 2016.

  1. Hazelnut_Flatwhite

    Hazelnut_Flatwhite Member

    Joined:
    28th Jul, 2016
    Posts:
    10
    Location:
    WA
    Hey,

    I've been going over the feasibility of developing my property non stop for the past few months... I'm keen to get some outside and more experienced opinion if anyone is willing to offer it.. help to separate me from my clustered thoughts! Our downward trending economy in WA has been a lingering thought.

    I purchased my house in 2012 with intent to subdivide and develop.

    The property;
    Morley, about 8km straight line NE of Perth CBD. Walking distance to the big shopping centre. Nice street, 75% at min of the houses have either been heavily renovated or demolished and developed.
    745sqm
    3x2 1965 brick house, I'd call it very average condition. Pretty dated and unattractive inside. 100SQM
    R20/R25
    $550k purchase

    I purchased with a buyer's agent ($12k) as I was working overseas and was specifically seeking an investment, not a home. I engaged a surveyor prior purchase,conducted due diligence with developing in mind and have discussed possibilities with more recently.

    My options would be;

    Demolish and build 2 - battleaxe configuration

    Demolish and build 2 - Narrow lot. I didn't think this would be possible but speaking to a surveyor recently brought up this idea. Lot is about 18.5m wide. After that chat, I noticed one going up around the corner like this haha.

    Retain and build on rear - This wouldn't be possible without taking off a chimney from the side of the house, maybe even removing a course of bricks, relocating the carport, modifying the roof eaves to be flush with outside wall, etc. Even then it'd be right on the 3m clearance required for rear access. Bearing in mind condition of front house. So this would be a MAYBE possible.

    My plan is basically to develop and hold. Rent both out and save for a house I want to have a family in. Would only consider selling to fund something else or am forced, but likely leave as a nest egg to pay itself off over 20/30/etc years. My job is quite manual and I doubt I'll be able to do it at 65 years old or whatever the retirement super age will be then!

    Do you think I've paid too much initially to make this a profitable development? Any opinion on feasibility?

    Appreciate any honest comments... I'm a potential first timer and you can get a bit twisted going over things in your own head too much haha.

    Cheers!
     
  2. Phase2

    Phase2 Well-Known Member

    Joined:
    14th Jul, 2016
    Posts:
    428
    Location:
    Perth
    If it's a nice street etc I'd split down the middle so both lots have street frontage. What types of new properties are being built? 2 storey?

    If you're looking to build and hold both, then now is a probably a good time to do it, with builders being not so busy, costs more competitive etc.

    This is a good thread for getting an idea on dev costs in Perth. Survey strata considerably cheaper, especially if you're going to build and hold.

    With Perth the way it is right now (soft), you can always apply to WAPC for the subdivision, then you've got time up your sleeve to decide what to do.
     
    Hazelnut_Flatwhite likes this.
  3. Hazelnut_Flatwhite

    Hazelnut_Flatwhite Member

    Joined:
    28th Jul, 2016
    Posts:
    10
    Location:
    WA
    There are quite a lot of 2 storey houses on the street. Primarily battleaxe lots but one just around the corner with the slab down with 2 street frontages. Waiting to see whether they'll go single or double storey.

    I have gone out and collected quotes from some surveyors for the subdivision/application/title etc just recently. Guess I've just been lacking a bit of confidence in the project lately.

    Current economic climate, vacancy rates and dropping rent aside... a few nice developments in the area have got a fair bit of coverage lately.
     
    Perthguy likes this.
  4. Perthguy

    Perthguy Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    4,782
    Location:
    Perth
    It would be worth considering a cosmetic reno on the front and building behind. What kind of rent are people with renovated 3x2's getting in the area? That will help you decide if you want to retain or demolish.

    What you need to work out is:-
    1) cost to demo and build 2
    2) rental return

    Then work out if it is worth investing the amount of money required in step 1 is worth it to get the return in step 2.

    For example, in Cloverdale, I have a 3x1 currently rented out for $340 pw. I can knock it down and replace with a 2 storey 4x2 for around $300k. The new townhouse would rent for around $440 pw. Essentially, my return on the $300k is $100 pw, which is about 1/2 the cost of interest on $300k. This really doesn't stack up in terms of return on investment, so I won't be demolishing.
     
  5. John Bone

    John Bone Well-Known Member

    Joined:
    9th Feb, 2016
    Posts:
    62
    Location:
    Melbourne
    I agree with Phase2 that a split down the middle would be best. I am not confident about the market for townhouse though. There are only 2 townhouses listed for sale at the moment and only 3 sold in the last 6 months. Is this a lack of demand or a lack of supply.
    On the other hand, there are 209 houses for sale in a market of 8563 house which is 2.4% compared with state average of 1%.
    I know the market is off the boil in Perth but I would suggest a lot more market research.
    In the past 12 months there have been 245 house sold (300 in the year prior) so the current stock is about 10 months supply and that is not an indication that this is a sellers market.
    Despite the slow sales market, advertised prices would seem to be slightly higher than last year and slightly down on the year prior to that. This is an indication of a fairly flat market.
     
    Hazelnut_Flatwhite likes this.
  6. HD_ACE

    HD_ACE Game-Changer Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    450
    Location:
    Perth
    Hi HazelNut

    I bought a similar property at the same time in Morley except 4 bed and 50k less.
    I Continue to look at all the options above and still find end values do not support development. In my situation it would be a retain and build that would stack up the best or split down the middle as it over looks a nice park and has been done with a few properties on the street.

    Another option I have is to turn the rear into a self contained granny flat so would be two rentals 3x2 and 1x1 which looked like a great idea at the peak of the rental market, but not so great now.

    Also I have good tenants paying top rates atm but their lease expires end of the year so if they vacate I may have to take another closer look.

    The current rental market is a concern for developing to hold at the moment, but you should be able to get some good build pricing. Also water corp have lowered their fees which helps.

    I believe Morley has good long term prospects. All the Tonkin upgrades going on atm should do the area well.

    Feel free to pm me with address for some more personal feedback.
     
    Hazelnut_Flatwhite likes this.
  7. Hazelnut_Flatwhite

    Hazelnut_Flatwhite Member

    Joined:
    28th Jul, 2016
    Posts:
    10
    Location:
    WA
    @HD_ACE

    When I first moved in, late 2012. I was talking with my my neighbor who bought there like 20 years earlier. He was telling me about the massive rents my other neighbours two rentals were getting. I couldn't believe it so I checked online and confirmed.

    My other neighbor developed and put in two two storey houses. Quite nice. Were getting 750 and 600 per week rental front and rear respectively. Made the project look a lot more feasible.. hard to say what rents will be 12/24/36 months from now.