How much profit can be expected?

Interested to hear thoughts on profit margins.

I have a block purchased for 1.5m. Have solid plans for 2 units to be built for an all in cost of a million.

Estimated sale price of each unit is around 1.8-2m.

That leaves a pretty nice profit. Is it really that easy? (I plan to sell direct so no agent).

 

Less gst, less holding costs during the build, less building delays, less an allowance for your time and effort, less contingencies for cost overruns, less a provision for a market downturn less legal fees less insurance less marketing costs and less accounting fees.

It is not that easy. It is hard work.

 

This!

 

It's going to cost you 1mil to build two units?

You should be doing your DD to work out exactly home much you need to outlay.

Also find comparable sales in your area to gauge potential sales of property and see if the gain is with the effort.

Regards,
Arc

 

1 mil sounds a lot. But they are high end with 2 car parks level one and the living areas levels 2 and 3. That includes design, planning approvals, materials, cost of labour etc. Yes have looked at comparable sales and also will obtain an estimated valuation from a valuer on the completed units (this will also help with buyers seeking finance).

 

What area?

 

Noted! And you missed our capital gains tax (although this I believe I will avoid as I will name the development site as my home before developing).

I'm hoping no overruns and i will have a contract with specific amount in place by an experienced builder. Marketing costs will be nominal as I will sell myself or allow agents to sell at 2% commission. Would hold in event of a downturn and rent it.

 

Actually $1m doesn't sound like a lot, as in $500k each if the end value is $1.8-2m each

Ross has outlined the extra stuff you need to take out of the proposed Gross $1.1m but yes that does sound like an awesome deal. So I'm wondering if everything has been taken into account for.

CGT or income tax will occur even if the site is your PPOR as you can only claim one of the end products as your new PPOR and the other will be subject to CGT or income tax.

 

Thanks. It's a 405 sqm block in a prime area. I've never built before so sounds a bit scary. Had quotes ranging from 960k to 1.3m for "all in cost to build". I'm pretty confident on the resale value provided they are built to a high quality standard. Problem is I am not a builder and have never done a development before.

On cgt I was told I can build the units on the land but not strata title. Then sell off one (subject to strata title approval) which would get no cgt. Then retain and move into the other one and sell that, also getting no cgt as it would be sold as my home. Sound doable?

 

Could you get the plans they are proposing? Do they adhere to guidelines?

Could you get a fixed price building contract signed before buying the block?

Assuming high end, 3 level townhouses on 200sqm of land each?

Thanks

 

Will you be able to hold in the event that they don't sell?

 

Yep. Paying cash for all and no need for finance. So yes can hold/sent/sell. But aim is to sell and then repeat.

 

I already have the block. Yes also have design plans. Yes one villla each side of the 405 block built as far as permitted to boundaries back front sides and upwards.

 

PM me the plans and other detail and I will draft you up a feasibility

 

For multi level homes, 1mill doesn't sound high at all. If the finished product is expected to be 1.8-2mill, is it worth reviewing the spec and making sure it's up to standard for the area?

 

Is the land still worth what you paid for it or significantly more?
If each side is 202.5sqm then I'm assuming 3 storeys and a lot of building to boundary which is expensive.
The construction price is all in so I'm assuming that is what I call turnkey - ie carpets, flooring, window treatments, landscaping etc.
Ensure that the quotes have a high enough specification to get that lovely end price. Look carefully at your comparables and make sure it matches - I'm assuming full height tiling to all bathrooms, stone benchtops everywhere, high end appliances, LED downlights and feature lighting, frameless glass balustrading etc etc
I've done a lot of building, if you want me to go over your plans and specs I'm happy to - just PM me.

 

Many thanks. I bought the land for 1.3. Market value now around 1.6. But for my calculations as to whether to develop I take the market value.

Eg say I could sell the bare land and make a profit, how much more could I make if I developed (and would it be worth the risks).

 

That's not how it works.

You need to start at the end and work backwards.
You need to confirm your end values first. Look at market evidence of similar properties in the area of what you are proposing to build. Confirm if the are really $1.8-2mil in value.
Then work back from there, deducting all your costs. Add some contingency money (5% is an arbitrary but commonly used number). Calculate the taxes. Then see what profit you end up with on paper.

Start building get to the end and see how close you were to the target.

Blacky

 

Hi BM.

Are those range of costs GST inclusive? I'd be wary of being able to build something high end for only 500K per side all done and dusted. I reckon your resale values are spot on. Probably into the high one's in the current market. May even be higher by the time you finish and ride the market time some more.

 

In terms of risk of developing vs just selling the land, how confidant are you in the current real estate climate that in a year (DA + build time) then the prices you're needing get will still be there? This is part of your personal risk profile: there's always the chance of a downturn (don't know your location), and this often hits the top-end early and hard. The risks have - supposedly - increased lately. Your personal risk profile could be "everything will be ok", so developing would be ok. On the other hand, if it's "I'm a little worried a year out" then you could be better off taking the quick dollars for the land now, and do something with that money that fits your risk profile.