My "Armchair Developer" Experience (cont. from Somersoft)

Discussion in 'Development' started by Crido, 25th Jun, 2015.

Join Australia's most dynamic and respected property investment community
  1. Big Daddy

    Big Daddy Well-Known Member

    Joined:
    25th Jun, 2015
    Posts:
    998
    Location:
    Perth
    577k would include the land and acquisition costs.

    LAND: They paid ~ 1.3M for the site so thats 1,300,000/12 = $108k per apartment not including their margin.
    BUILD: They have stated their build cost is 2.66M so 2,660,000/12 = 221k.

    Total outlay = 1.3M+2.66 = 3.96M
    Total Income = 566*12 = 6.79M (assuming everyone paid 566k)
    = Good profit for the developer.
     
  2. mrdobalina

    mrdobalina Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    1,929
    Location:
    there's more to life than working
    The best thing is they don't use any of their capital, cos they've effectively pre sold all the apartments, and all the costs are being funded by the "armchair developer".

    Great model really.
     
    MTR likes this.
  3. Big Daddy

    Big Daddy Well-Known Member

    Joined:
    25th Jun, 2015
    Posts:
    998
    Location:
    Perth
    Yes, land is paid for by the "armchair developer" when they collect deposit. Construction costs are capitalised.

    Surely EOS cant be that incompetent? For close to 0% risk they have collected 50% profit or infinity return on capital ( 0/6.79m )
     
  4. MTR

    MTR Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    27,784
    Location:
    My World
    .... and the investors end up paying something like 18% interest on the funds... OMG.. crazy stuff.
     
  5. mrdobalina

    mrdobalina Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    1,929
    Location:
    there's more to life than working
    Wow. That is disgusting. (Or brilliant depending on who's perspective you're looking at).

    Edit: actually, this is brilliant from EOS perspective. Immoral, but nonetheless brilliant. The longer the development takes, the more money they make since they are charging 18% interest. No surprise the Windsor st development is waaayyyyy behind schedule.
     
    Last edited: 28th Jan, 2016
  6. MTR

    MTR Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    27,784
    Location:
    My World
    I think EOS got hammered - lack of experience, outsourcing the work, not in house and the rest is history, time management out the door, profits out the door, boom well came then gone.

    Just to think the investors should have made a profit just from increase of land it was the beginning of a rising market.

    MTR
     
  7. Westminster

    Westminster Tigress at Tiger Developments Business Member

    Joined:
    3rd Jun, 2015
    Posts:
    11,331
    Location:
    Perth
    @MoneyNeverSleeps the Loftus development is different to what Crido has invested in and is almost finished. He is invested in Windsor St, Perth.

    The Loftus one has been mentioned a few times in this thread too though. I think there has been a few people in Loftus trying to sell theirs.

    I would be very wary of "almost finished" as we know Crido has been almost finished for 6mths.
     
    MTR likes this.
  8. MoneyNeverSleeps

    MoneyNeverSleeps Member

    Joined:
    28th Jan, 2016
    Posts:
    10
    Location:
    NSW
    Despite the minuscule internal living, the apartment does come with a vestibule measuring 10.3sqm and a large courtyard measuring 47.1sqm which brings the living area to a total of
    125.9sqm. Add in the 2 x covered carspaces measuring an approx 15sqm each we have the total area on title of 155+ sqm which is pretty substantial IMHO. The extra outdoor space + additional car space must count for something?
     
  9. MoneyNeverSleeps

    MoneyNeverSleeps Member

    Joined:
    28th Jan, 2016
    Posts:
    10
    Location:
    NSW
    Files attached directly to post for your convenience.
     

    Attached Files:

  10. MTR

    MTR Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    27,784
    Location:
    My World
    Could only open Loftus Unit, as MrD stated the values are too high, I agree.
    Investors are jumping ship, I suspect the values wont come in.

    Once again, as I mentioned regardless the timing is wrong, you don't flip when the market is falling its dangerous and you have a good chance of losing money. Not to mention the poor track record of this company.

    MTR:)
     
  11. MoneyNeverSleeps

    MoneyNeverSleeps Member

    Joined:
    28th Jan, 2016
    Posts:
    10
    Location:
    NSW
    Hello Big Daddy,

    I'm interested to know where you got this "build figure" of $221K from? That sounds about right for a 2bed2bath unit of this size. The construction cost provided in their prospectus of $400k+ is HUGELY inflated. I don't understand how they can justify that figure.

    Cheers
     
    Last edited: 28th Jan, 2016
  12. MoneyNeverSleeps

    MoneyNeverSleeps Member

    Joined:
    28th Jan, 2016
    Posts:
    10
    Location:
    NSW
    This was one of the "risks" listed in the initial prospectus sent out to potential investors; that the margin suggested was only achievable if they were able to obtain finance for construction at an interest rate of 6.50% pa + Line Fees and Brokerage/Application Fees. How it went from 6.5% to a gut-wrenching 18%+ is very curious...
     
  13. MoneyNeverSleeps

    MoneyNeverSleeps Member

    Joined:
    28th Jan, 2016
    Posts:
    10
    Location:
    NSW
    Cool, thanks again for the advice. I'm slowly getting a pretty good picture of these "opportunities" as well as the developer themselves.
     
    Perthguy likes this.
  14. MoneyNeverSleeps

    MoneyNeverSleeps Member

    Joined:
    28th Jan, 2016
    Posts:
    10
    Location:
    NSW
    So the Windsor st development is still not finished, is it? As far as I''m concerned the Loftus st development has been delayed for something like 2 years now.
     
  15. Perthguy

    Perthguy Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    11,767
    Location:
    Perth
    I agree @MTR. My investment partner is looking for buy, renovate, sell opportunities in the Perth market now. Every property we find looks like it will lose money to me. For example,

    something like this 50m2 apartment in East Perth for $229,900 looks like it has potential...
    reiwa.com - 114/112-122 Goderich Street, East Perth

    until you find that a renovated version of the same apartment in the same apartment block is on the market for $249,000.
    reiwa.com - 305/112 Goderich Street, East Perth

    as a ballpark:
    Purchase costs:
    Government fees Mortgage registration fee $164.00
    Transfer fee $214.00
    Stamp duty on property $6,171.20
    Settlement fees $750
    Bank settlement fee $220​
    Total purchase costs $7,519.20

    Reno budget $10,000

    Holding costs:
    - rates??
    - insurance??
    - interest??
    - body coporate??

    Selling costs:
    Advertising $1,500
    Commission $4,980
    Mortgage discharge $164
    Conveyancing $750​
    Total selling costs $7,394

    Purchase: $229,900
    + purchase costs: $7,519.20
    + reno costs: $10,000
    sub total costs: $247,419

    Sale price: $249,000
    - selling costs: $7,394
    sub total sale: $241,606

    Gross profit -$5,813

    Looks like a lot of work to lose $5k to me.
     
  16. MTR

    MTR Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    27,784
    Location:
    My World
    thanks for this very detailed figures.
    not good though
     
    Perthguy likes this.
  17. MoneyNeverSleeps

    MoneyNeverSleeps Member

    Joined:
    28th Jan, 2016
    Posts:
    10
    Location:
    NSW
    Had the same problem when I was trying to find a unit for a small reno project in Sydney last year. Margin simply isn't there.
     
    Perthguy likes this.
  18. Big Daddy

    Big Daddy Well-Known Member

    Joined:
    25th Jun, 2015
    Posts:
    998
    Location:
    Perth
    Land Price from PriceFinder
    2.66M build price from the Development Proposal document sent to the council. http://www.vincent.wa.gov.au/agenda/2013/20130813/att/loftus002.pdf
     
    mrdobalina likes this.
  19. Big Daddy

    Big Daddy Well-Known Member

    Joined:
    25th Jun, 2015
    Posts:
    998
    Location:
    Perth
    400k to build a 2x2 apartment lol.

    If it costs 2.66M to build 12, why is it 400k to build one?
     
    BigKahuna likes this.
  20. Westminster

    Westminster Tigress at Tiger Developments Business Member

    Joined:
    3rd Jun, 2015
    Posts:
    11,331
    Location:
    Perth
    To be fair, no one puts the real price on DA because the fees are based on the amount so everyone underquotes. And the DA fees are purely on construction, not turnkey items.
    However $221k does sound reasonable and $400k DOES NOT :confused:
     
    Big Daddy likes this.