My First Development Project - Melbourne

Hey guys, I am looking at purchasing a beach side site of 444msq (37m x 12m) to build two side by side double storey, 3BR+study/2BR dwellings, single Garage. Kingston Council. Aim is to sell and profit. I am in finance so I have spoken too and assisted many builder/developers do well and it's about time I started. I have a builder friend who is likely to do the build and has assisted with ballpark on all potential costs
Project cost (over-estimate) $2.3m turnkey includes holding costs 15mths. Finance required say $1.8m development finance + $500k investor funds. Potential profit I believe is very realistic and achievable less dreaded Tax (is ATO watching )
Few Q's:

1. TAX/CGT/Margin Scheme - I know this is individual so seeking general info and ideas:
- I'm thinking purchase in a Corporate entity with Family Trust to distribute and minimise tax
- Do we need to hold property for 6-12mths to reduce CGT ? or is this only Owner Occ
- Is Margin Scheme applicable (I guess as a going concern but does this apply if personal Investment vs business)
- If we were to put in personal names, is it 6 or 12 months to reduce CGT 50%?

2. Size appears small however I have seen other similar developments on around 14m wide lot (with a single & double garage). Is this width 12m just too narrow to make it work /sale-able ?

3. What would be a fair/equitable rule of thumb with Investors ie
- they are providing capital of $500k so I am thinking of returning % of profit based on % of total development costs eg 22% ( plus their Interest costs (as they are borrowing these funds to invest @ say 4%pa). What is general view ?

Appreciate any ideas. Thank you !

 

There will be no cgt as on revenue account probably.
Margin scheme might be worth looking into.

 

I have been looking into investors for medium sized land subs. And found other developers, syndicates offer different options like the below:

1. 25% a year as debt, paid at the end
2. 20% a year as debt, plus a profit split, say 30% of profit split between the pool of investors, 70% for developer.

We will be using probably the second option above or a variation of it. Investors get 'guaranteed' (paid before developers profit, so gaurenteed as much as it can be) 20% as debt and then the potential upside of development profit (30%).

Im a big fan of the parkdale/mentone/mordy area, beautiful part of the world. I was even a mentone iceberger for a time, should get back into it.

 

I'm going through the process of establishing an investor syndicate at the moment similar to what you've described above. How were the two options structured in terms of a written contract & or paperwork?

 

Get on to a designer-Architect - Town Planner ASAP about this
Do not make assumptions
Just because there are similar projects around don't assume yours will be the same.

Consider - single garage (allow wall thicknesses, and rough figures) 4m wide (internal 3.5), Double 6m wide - that's 10m out of your 12m width - allow separation wall thickness and you don't have much left for entries - and a long passageway to the rear. Even trimming the numbers down a bit, reduced wall thicknesses by selective materials - the numbers are going to be similar

 

There is a massive difference between 12 and 14m wide unfortunately, with 7m of width you can have a single garage + hallway + a small room at the front but with 6m wide you are a lot more constrained and you basically will just fit a single garage plus hallway plus staircase and end up with longer corridors.
A good designer might be able to get around it but it's going to have quite a few compromises to make it work.

 

what on earth is a mentone iceberger????

given the area, I can only think of drug conntations

 

Hi Sheepy,

It has to be margin scheme GST which will appx 2-3% end value. This is not exact figure but approximate. If i were you, i will take off/allow 5% of end value to account for margin scheme GST and selling costs.

For rest, i think comments by @Westminster and others are sopt on.

Good luck with your project.

 

Haha, swimming at mentone beach, there is about 50 regulars. To be an 'iceberger' you have to swim at least a couple times a week for the full year, wearing trunks or budgies only. I did the full year a couple of years ago, but got a little lazy of late, which my wife reminds me of every now and then....

 

When you say 25% as debt, is this Interest rate return ?

 

Thanks Tufan, meeting with Architect tomorrow. I came across a plan from a company with surprisingly exact land dimensions. It looks all feasible and the Architect sent us a rough sketch. I like the idea of selective materials to reduce walls. Thank you !

 

Thanks Rooky, had intensive meet with an accountant today that specialises in developments and it makes a lot more sense and how we structure. I had an allowance for GST in my Analysis around 2% plus selling costs

 

Yes

 

12m is well below the standard block width in the area.

The bayside standard block is 15.5m wide, volume builders offer this as a completely seperate build type due to the consistent irregular block widths in the bayside area. 15.5m.

Just a reminder that you can't simply plonk 2 garages and an entry door on each townhouse to make up the width, one of the two dwellings has to have a livable space in the front, usually a home office or such in one of the entry hallways. This is from recently getting a dual occ through Kingston council on a 600m2 15.5m block width.

This is due to Kingstons requirement of the development having a connection with the front streetscape which they feel is dying out with current development types.


12m is going to be fairly tight.