Hello forum developers, I met some builder developers and armchair developers recently and they said the ROI is around 10-25% for their little projects. It's not bad at all but as the one coordinate to deliver some projects with 50-60% ROI, I found that they could get better figure if follow the shark. The key is design and contract management. It's always wise to spend best money for DA, but the rest would be put in extreme cost saving control. Forget about fancy shape building or decoration that overexcited architect proposed, the design and documentation only serve for ease building works, splitting into multiple micro tender packages so suppliers and subcontractors fight for smaller cake with generous discount. It's also good to know how to control the specs and its alternative options. Generally, architect or drafties prepare the tender in single whole package for their convenience hence eliminating all cost saving option in construction stages. So you'll need a good practical architect and a well contract nego skill then the ROI will be boosted 10-20% more than usual. It works extremely well with large development and may be worth considering for your next project.
Thank you for that helpful advice. As it seems the market in the the capital cities is coming off the boil a bit, it may be necessary to adopt a more of a hands on approach and create an extra margin by the methods you suggest.
Are you chasing your tail? By not factoring the cost of your own time, you're distorting the profitability. Yes, you can be hands on and source every component saving yourself the builder's margin but costing you on warrantying the supplied items ie transfer of risk. Materials which go missing, shortfalls, wasteage, damage etc are at your cost not the builder's.
Just wondering if you have worked on deals like this,and why will mirco-lending give you a discount?.
imo i would get the architect and builder to start talking from the beginning so when the architect designs it (according to the ideas the developer outlined) he can dicuss with the builder the most cost effective way whilst at the same time keeping true to the overall design plan and specs. This can save a lot of money and time and you dont burn your relationships will all the builders.
The key is getting the design and specs right at the beginning not cost cutting to achieve the result. If you're speccing for Elizabeth build to the standard but if it's Elizabeth Bay the standards and expectations are higher.
As @Scott No Mates mentions breaking it up into micro tender lots may work financially but it may kill your timelines. I'm assuming if you break up the supply and/or install of these components then they will need to be done after builder handover or seek permission from the builder (who controls the site) to allow access to your trades during construction. If one trade pulls out or delays the flow on effect can be harsh. Each of these small contracts have no allegiance to you as they are doing it at bottom dollar so if another site offers more they will abandon you without a look backwards. So for this reason I tend to let the builder do turnkey so that it might cost a little more but everything is covered under their warranty, they have trade teams which do have allegiance, and they can coordinate the timelines. I'm not sure either option is worth 30% more or less on ROI though - that is probably an extreme example. I do agree that a good DA is paramount and it is worth spending money and time on getting the DA that is most profitable. In my experience this usually is a slightly more expensive design that stands out from the cookie cutter crowd.
You guys spot on, Leo and Scott. It's not recommended to spend your time for sourcing material, suppliers, subcontractors, etc... to cut builder's margin. Leave the works for architects and in our case, a good estimator and contract manager. Apparently the projects should be large enough so builder willing to work with selected subbies and specs. It is clearly specified in the contract.
I'm a bit confused by your post @Mirafeli. Are you asking or advising? If you are advising it would be interesting for you to post more details about what was included in these subcontracts and how that was balanced with builder required timelines and how much money was saved.
Yes I would like to see some details if possible too. Also how would that work with regards to finance? Thanks.
I just share some experience working for a large developer as project coordinator. We apply the method to 20 - 500 mils projects so it may not work similarly for small multiunit development. Basically we split tender to concrete, plaster, joinery, facade, door & window,... and fixture & fitting supply. For example a Miele cooktop would be 30-40% off if signing contract directly with commercial supplier. The main contractor/builder will have to agree with the selected subcontractors and suppliers. In term of finance, it is similar as normal commercial dev funding and bank work closely in every stages.
A big difference in bargaining power on large construction projects vs small multi unit developments. Ordering 50 kitchens vs 2 or 10 containers of tiles vs retail will result in mass savings. Even bargaining power with subbies - 3 months of work at one location vs 20 different sites with downtime in between. It's not rocket science.
thanks for sharing. I don't expect there will be too many on this forum if any at all with $ value of this size/project, but I get your point. We are looking at other ways of reducing costs/bargaining power where we have a number of developers/investors building in a particular city (smaller projects) and we basically use the same builder, this can work too in similar way, just providing more business for the builder, win/win. Still working on this one. MTR
Just one point that may have been ignored here (which I discovered after speaking to several builders recently) The very problem that Westminster and others have rightly pointed out can happen with a builder and through a turnkey solution. In fact the builder himself may do it to you because of any one of many reasons. I have heard of many horror stories where builders will happily delay a project and pay the penalties involved because they have more cream elsewhere if they finish another project earlier. Not to mention that tradies will cross builders much the same way they cross developers. What the OP mentions sounds like a good plan for an experienced person if you can negotiate directly and get to know your tradies well, you should be able to save quite a bit.
MTR - what DA (design approval right?) aspects can help a build stand out? I'm looking to build a few townhouses in a street/suburb with many townhouses. I'd like to differentiate however so prices aren't influenced by other townhouses, similar to a scenario with a large block of apartments.
My philosophy has always been to build what people want, so if you want to differentiate great, but is this what the market dictates in that suburb? Will you be the trail blazer?
