How realistic is this strategy? (PPOR)

Given the suburbs that I'm looking for is out of budget (10-20km from Sydney CBD), how realistic is this strategy?

1. Buy an old house (600m2+)
2. Demolish and subdivide into two lots (assuming the council allow for this)
3. Build a duplex or a townhouse
4. One property would be for me and the other for my parents

Rationale: potentially lower overall costs vs buying two townhouses/ duplex

Questions:
1. How realistic is this strategy?
2. What is the best structure in terms of buying the initial house (old house)?
3. What costs do I need to consider? (i.e. subdivision, change in ownership?, tax, etc)
4. Any other issues/ advice?

Many thanks!

 

Are you a builder or work in the industry ?

 

Unfortunately No.

 

Putting whether it's a good/bad idea aside, you'll need loans in the millions for that unless you have a large deposit.

The risk factor is huge, especially for a newbie.

And that's assuming the returns for risk is adequate.

 

Can I ask why the risk is high? I am a newbie, but keen to learn.

My thoughts on key risks:
- Council rejection
- Cost overrun

Rough calculation: LVR 80%. The loan is from the purchase only. We'll need a substantial deposit though, this is the hard part!

$1.8m purchase (20% deposit) + 81k (stamp duty & legal fees) + $90k subdivision + $650k (construction/ demolition/ survey/ etc) + holding cost 1Y $50k (3.5% interest) + extra costs/ etc $150k = $2.82m

(Am I missing other costs? change of title? Am I over/underestimating anything?)

VS buying two townhouses for let's say ($1.65m x 2) + stamp duty/legal fee = $3.45m

Potential savings of $630k (or more, if we can reduce costs).

Obviously this is only a start, and I won't based my decision on a "rough calculation"!

 

650k for duplex build including demo, survey etc for a spec level of 10-20km (high spec required) from the Sydney cbd?

There's one of your biggest miscalculations to start.

 

I thought the buffer of $150k might help with "extra costs". FYI: I'm not expecting a luxury, high-end build.

How much would you budget for "duplex build including demo, survey etc"?

Anyway, I might need to approach a surveyor/builder to get the right estimates/ advice.

 

Depends on the location. 10-20km from the CBD reaches some very, very expensive areas. If you build a crappy spec duplex in a high spec area, you're just gonna kill the value of your asset.

I think you have a lot more investigating to do re costs. But 650k for a duplex build including demo, etc is no where close.

You also have site works (OSDs can be a big cost factor), consultant fees, contingency, application fees etc. Demolition alone can be 25-40k.

 

effective purchase price for 2 townhouse/duplex
Apart from the build what is the strategy, long term hold (move than 5 years) ?
What is the expected rental return ?
I expect that the continued holding costs (loan servicing) will mean this isn't an effective use of what capital you may have....

 

How are you going to fund the build?

 

Ok, thanks Sackie. Definetely need to complete a full feasibility study.

 

PPOR. Long term hold. I already have a number of invst. prop. Will focus on shares as well.

I understand this is not the most efficient use of my capital. More of a lifestyle choice.

 

Savings (Parents & I)