Nollamara Development Advice

Discussion in 'Development' started by AP121, 14th Aug, 2018.

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  1. AP121

    AP121 Well-Known Member

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    Hi Guys,

    I have done initial feasibility study for sub-division and build in Nollamara WA.


    Nollamara Feasibility Study

    Purchase Price $ 425,000.00

    Stamp duty & settlement costs $ 15,000.00

    Demo and other Works $ 25,000.00

    Council Approval & plan costs $ 15,000.00

    Total Purchase Price for Land $ 480,000.00


    Villa Build price @145,000.00 $ 435,000.00

    Finish Off Works $ 35,000.00

    Interest @ 5% $ 70,000.00 (approx)

    Total Cost $ - 1,020,000.00

    Selling Price @415K Each Toalt = $ 1,245,000.00

    Agent Commission @ 2.2% - $ 27,390.00

    Settlement and Misc. Costs - $ 20,000.00


    Net Profit/Loss $ 177,610.00

    Please share your thoughts and provide your valuable comments.

    Thanks
     
  2. JDM

    JDM Well-Known Member

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    Is your build price realistic? Have you considered tax (GST and income tax)?
     
  3. thatbum

    thatbum Well-Known Member

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    Even on those numbers it seems not worth it.
     
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  4. sanj

    sanj Well-Known Member Premium Member

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    Add in contingency and take off gst and there won't be any margin left...
     
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  5. MTR

    MTR Well-Known Member

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    Also wondering this suburb is there is an oversupply of this product? Lots of developers here

    If it takes longer to sell … interest costs could blow out and also end values could drop
     
  6. Blacky

    Blacky Well-Known Member

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    My thoughts too.
    There’s $100k GST and $50k contingencies to add in.

    =bye bye profits

    This ones a no go, but Nicely done on the Feaso though.

    Blacky
     
  7. Big Daddy

    Big Daddy Well-Known Member

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    Using the Margin scheme the GST should be much less than 100k (Claim GST during construction)

    Remember to add in titles (including water infrastructure fees) plus pillar/dome (6.5k) plus landscaping and fencing

    You might be able to get scrapping value on the demo
     
  8. AP121

    AP121 Well-Known Member

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    Build price is actual quotes from couple of unit developers with turnkey inclusions
     
  9. AP121

    AP121 Well-Known Member

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    Thanks for feedback. However, based on the advise from the accountant as a private developer might not need to pay GST??
    Please correct me if I am wrong
     
  10. AP121

    AP121 Well-Known Member

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    Thanks for the feedback @Blacky
     
  11. AP121

    AP121 Well-Known Member

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    Thanks for feedback
     
  12. AP121

    AP121 Well-Known Member

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    I consider that too. However, the indicative sell price has already factored that in. Currently new build villas in nollamara are advertised from 450K. My indicative sell price would be around 415-420K that too after 18 months and by that time not lot many developments occurring in that suburb (assumption)
     
  13. AP121

    AP121 Well-Known Member

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    Few things which I should have mentioned earlier:

    • Lot has already been cleared with fencing on all three sides. However, I still have included 25k in demo works (contingency)
    • 35K in finish off works (that includes only landscaping and appliances) as builders quote includes turnkey
    • 70K of interest might be bit more as well
    • Misc costs of 20k (may be excessive)
    With all these additional assumptions do I still need to add 100K of contingency?

    Please advise

    Overall on a 1.1 million project approx gross profit is around 17% is it too low to carry out development in current perth market?
     
  14. MTR

    MTR Well-Known Member

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    Ok
    I know a couple of investors - first deve, in own name, no gst??

    Check with your accountant??? I am not an acct

    This would change your bottom line and could perhaps work
     
  15. Big Daddy

    Big Daddy Well-Known Member

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    I dont think it matters - own name or company. If the intention is to sell then GST applies.

    I believe the desired profit percentage most developers target is ~ >= 20%. If i was selling the land instead of building then risk is minimised (time frame is much shorter and risks of building are nil) so 15% or lower may be adequate.

    @sash @Westminster @MTR @Perthguy @Blacky.
    1)Do you calculate every cent in your feasibility in the profit calculation ? eg The land tax, council/water rates as vacant land and whilst construction in progress, staging fees if selling, electricity usage by builder, accountant tax fees (before, during and after development)
    2)Do you calculate your holding costs based on the assumption of 100% finance. eg If you borrow 800k for build/land and you put in 200k for demo, titles and the fees above then do you calculate the interest at $1M even though you are only paying the bank at $800k (opportunity cost = because you could have that 200k sitting in the offset earning money)
     
  16. sash

    sash Well-Known Member

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    I calculate on all outgoings...but this could change if the development is delayed. So yes on all estimates cost as per point 1.

    Holding costs should be on only money cost..you can also cost out the deposit costs if it comes off a Offset. This too can be deducted.


    My guidance is this:

    1. Simple house and land in new estates 25-30% gross margin is ok. I like these the best..I am getting up to 60% gross margin on some of mine.
    2. Developments on existing land is trickier I would target 30-50% depending on how long and risky the development is.
     
  17. MRO

    MRO Well-Known Member

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    You either misunderstood your accountant or you need a new accountant. I dont think there is any way this would not be subject to GST.
     
  18. MTR

    MTR Well-Known Member

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    There is a way around this
     
  19. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Now that all sales in WA ask about GST on the selling form - if it's new land or new construction, you answer yes, you have to nominate the margin scheme (7%) or non margin scheme (10%) is instantly transferred to the ATO at settlement from the Buyer's money. New GST Legislation Passes For Purchasers Of New Residential Property Sales

    If you/your accountant has a way to get around this by proving intent was to hold but circumstances meant liquidation of stock etc etc then you would apply to ATO for a refund but I'd say your chances are slim to nil of you seeing that money again.

    Anyway. That is an actual construction quote? seems very low to me. I'd be expecting around $600k turnkey for 3.
     
  20. Ross Forrester

    Ross Forrester Well-Known Member

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    Get your accountants advice in writing.

    You might be able to avoid gst if the home your developing is actually your main residence. Alternatively get tax modelling on the long term rental and access to the 50% cgt concession.