Planning first development

Discussion in 'Development' started by Alex87, 2nd Dec, 2016.

Join Australia's most dynamic and respected property investment community
  1. Alex87

    Alex87 Member

    Joined:
    1st Dec, 2016
    Posts:
    8
    Location:
    Perth
    Hi guys and girls.
    Im new to this but have been interested in it for around the last 10 years.
    I have found a block but I think it may be alittle out of my league for my first go, so may look for something that's not such a big project.
    My first question is, is there anything im missing when working out costings for the project ?
    I have taken into account the following,
    Purchase price
    Taxes and costs involved in purchase
    Changing titles
    Demolition price
    Site works
    Utilities (Water, gas and power)
    Build
    Selling costs

    Would love input on what I am missing, and any advice on what to look out for ?
    Also what would generally be (on average) a reasonable time frame Between changing titles and beginning build stage ?

    Thank you for any help you can throw my way :)
    Alex.
     
  2. wombat777

    wombat777 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    3,565
    Location:
    On a Capital and Income Growth Safari
    Your cost categories above are fairly broad / general so hard to pick what might be missing, however more obvious ones are:
    • Interest / Holding costs
    • Contingency
    • Escalation of costs
     
    Phantom and Mustafa Salehi like this.
  3. Alex87

    Alex87 Member

    Joined:
    1st Dec, 2016
    Posts:
    8
    Location:
    Perth
    Any chance you would be able to fine tune my list by making it not so broad, so I can get a good look at what to account for ? :)
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,667
    Location:
    Australia wide
    What about

    Taxes on holding

    Taxes on the sale – income, CGT and GST

    Stamp duty issues

    Asset protection

    - Project failing

    - You being sued

    Death mid project

    - You and others involved

    Death after

    Incapacity midway

    Ownership structure

    Funding structure

    cost blowouts

    delays

    building insolvency
     
    Egga, samiam and Perthguy like this.
  5. wombat777

    wombat777 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    3,565
    Location:
    On a Capital and Income Growth Safari
    • Design phase
      • Draftsman / Designer or Architect
      • Town planner
      • Traffic engineer
      • Acoustic engineer ( where relevant )
      • Landscape designer
      • Civil engineer
      • Hydraulics engineer
      • Quantity surveyor
      • Solicitor
    • Pre-construction phase
      • Building approval drawings
      • Geotechnical & soil testing
      • Surveyor
      • Structural / Civil engineer
      • Hydraulics plan
      • Plumbing application
      • Building approval Application fees
    • Construction phase
      • Asbestos removal
      • Demolition
      • Vegetation removal
      • Earthworks and fill
      • Sewer construction
      • Water connection
      • Plumbing inspection fees
      • Independent building inspections
      • Plan sealing
      • Utilities connections
      • Landscaping, fences, driveways
      • Floor coverings, light fittings, window treatments, etc
    • Other
      • Real estate and marketing
      • Interest holding costs
      • Council contributions / infrastructure levies
      • Escalation costs
    Many of the above might be factored into a fixed price or turnkey build contract, but there are lots of things to consider and it depends very much on the site.

    NB - I'm as new to this as you :p
     
  6. Proprieta

    Proprieta Member

    Joined:
    2nd Dec, 2016
    Posts:
    9
    Location:
    WA
    Terry thats enough info to scare anyone off from property development. A number of those items while are certainly risks, are manageable.

    Any property development is relatively challenging, so you want to do your homework and consider assistance from an experienced project manager or builder to assist in managing the issues, depending on the size of your project.

    Most of the larger project builders offer a service that will assist in developing your property. It is worthwhile utilising their services and considering it like having a personal tutor. You can then learn from their experience and put it into practice on subsequent projects.

    Purely for some guidance I have attached a basic feasibility template to give you further ideas as to costs to cover.

    Property development can be very profitable and a worthwhile craft to hone your skills. Never think you are bigger, smarter or above the market. Make sure you can sell and rent below market and breakeven at worst.

    Ask a lot of questions, speak to the local council, understand in detail the planning rules. Speak with local agents know what is selling and the value. Speak with your broker/banker understand what you need to demonstrate to obtain the capital.

    BUT don't wait for the perfect deal, find a good deal and put your skills to work.

    Good luck! You can do it!
     

    Attached Files:

    Northboy, bondibch and beertank23 like this.
  7. Alex87

    Alex87 Member

    Joined:
    1st Dec, 2016
    Posts:
    8
    Location:
    Perth
    Wow definitly alot more intricate lol
    Think il definitly seek the assistance of a project builder.
    Definitly thinking original idea will be far beyond my capabilities and financial capabilities haha.
    Think might start smaller and build upto bigger projects as i gain more experience and finances haha
     
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,667
    Location:
    Australia wide
    Don't get me wrong, I am not saying development shouldn't be undertaken, just that these things need to be considered and planned for while hoping they don't eventuate.

    Something simple like not appointing an enduring attorney could mean the whole project falls over mid stream.
     
    Perthguy and Ross Forrester like this.
  9. Proprieta

    Proprieta Member

    Joined:
    2nd Dec, 2016
    Posts:
    9
    Location:
    WA
    Yes Terry I don't disagree with any of what you said, and you are spot on that some of those items left overlooked could end up turning a development into a nightmare very quickly.

    I was more making the point, as the poster was indicating it was his first time entering the world of development, best to give them some encouragement that it is challenging but achievable even for a rookie.

    I do agree with you on the Estate Planning, it is amazing how many people I come across in both business and development that have no will, enduring power of attorney or guardianship. At the very basic level that's only $1,000 to establish.

    Keep putting out the word Terry, it will save a lot of business issues for a lot of people.
     
  10. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,667
    Location:
    Australia wide
    Lawyers tend to focus on what can go wrong!
     
    Perthguy likes this.
  11. Westminster

    Westminster Tigress at Tiger Developments Business Member

    Joined:
    3rd Jun, 2015
    Posts:
    11,331
    Location:
    Perth

    Why do you think it's out of your league?
    It's probably out of your league if it's hideously expensive or very complex (ie more than 3 dwellings) but you'd be surprised what you can work out with a little help on here to see if it's feasible or not.

    The main thing in terms of general items I see missing from your list is Council Costs (DA application fee, possible Public Open Space Levies, Building Permit fees), Holding Costs (interest payments on your mortgage from Settlement to Selling), Contingency (always nice to have 10% of the construction costs in the budget for things that crop up or items that you didn't know about and failed to account for in the feasibility).

    With some projects you can start the DA process before you own it. Generally you'd be looking at 2mths for design, 2 mths for DA, 1 mth for working drawings and building permit, 1 mth to get to site. So around 6mths but allow some extra if possible as dealing with councils takes alot of patience.
     
  12. Westminster

    Westminster Tigress at Tiger Developments Business Member

    Joined:
    3rd Jun, 2015
    Posts:
    11,331
    Location:
    Perth
    PS the general recommended rule of thumb around here is to aim for 20% gross profit. Gross profit doesn't include tax as that can vary wildly between individuals/structures.

    If you are planning to sell and are doing Built Strata then there is around 6-8weeks wait for new titles at the end. This doesn't prevent you selling but you won't be able to settle until they are released by Landgate.

    Also if you are selling you and you have built then you need to factor in whether this will be classified as income tax or CGT and also GST. GST is payable on new construction (or substantial renovation) for anything that is sold before it is 5yrs old.

    The ATO is a major joint venture partner in all you do and wants it's share of the profits :)
     
    Northboy, samiam and Mustafa Salehi like this.
  13. Alex87

    Alex87 Member

    Joined:
    1st Dec, 2016
    Posts:
    8
    Location:
    Perth
    Alot to consider and take into account, think il spend alittle more time on research (hanging around here haha)before jumping in head first. Yeah out of my league coz of size, 33 unit developmemt is a big project and this point in time i cant fund it also as my current house has lost value recently. And savings been chewed up going back to study.
     
  14. GregB

    GregB Member

    Joined:
    22nd May, 2016
    Posts:
    17
    Location:
    Gold Coast
    May i ask if you've done vegetation reports? These greenies have the potential to screw up all your plans. There might be protected vegetation, low risk, high risk, waterways, remnant vegetation, buffer zones etc etc that could take a large % of the land.
    We knew that before we started but required town planners, environmentalists etc to lodge papers with Council to ensure we didn't disturb a blade of grass.
    Generall (from our experience) the state governments are more concerned with protecting a blade of grass than allowing for the destruction on non-native flora or fauna.
     
  15. Westminster

    Westminster Tigress at Tiger Developments Business Member

    Joined:
    3rd Jun, 2015
    Posts:
    11,331
    Location:
    Perth
    Wow 33 units? Bloody hell that's huge!
    I'd start a little smaller :)
     
  16. Alex87

    Alex87 Member

    Joined:
    1st Dec, 2016
    Posts:
    8
    Location:
    Perth
    Yeah thinking duplex or triplex now to get started and learn the ropes any pointers would be great like what to look for in a purchase
     
  17. Westminster

    Westminster Tigress at Tiger Developments Business Member

    Joined:
    3rd Jun, 2015
    Posts:
    11,331
    Location:
    Perth
    Something with appropriate zoning that is feasible, desirable and within budget :)
    I know that sounds trite but that is the basis of it all.
    Desireable product generally means a good design, in a good location (doesn't have to be a fancy location but a good spot within the suburb - ie near amenities perhaps) and suitable to the target demographic (not a 5 bedroom house if everyone is retirees).
    Once you have a grip on the costs of all those items listed in the above posts then you can work out the feasibility.
    Then watch out for easements (sewer, power, road widenings etc) and other things which are not immediately apparent and can sink the deal
    Think about structure (personal, trust or company) and strategy and how all those things will impact your serviceability and loan products that will be available to you. How much deposit will you need and how much are you able to lend.
     
    Northboy and Perthguy like this.
  18. Iamnumber5

    Iamnumber5 Well-Known Member

    Joined:
    31st Dec, 2015
    Posts:
    352
    Location:
    australia
    @Westminster i have been checking out your facebook page. Nice stuff. Are you only doing in WA?
     
  19. Westminster

    Westminster Tigress at Tiger Developments Business Member

    Joined:
    3rd Jun, 2015
    Posts:
    11,331
    Location:
    Perth
    @Iamnumber5, yes for now I'm only developing in WA. Never say never though :)
     
    Adele, samiam, aussieB and 2 others like this.
  20. Abi

    Abi New Member

    Joined:
    30th Nov, 2016
    Posts:
    3
    Location:
    Melbourne
    Hey Folks,

    I have been buying IP's with a potential to develop for the past three years Victoria, I find it really easy look at the Zoning maps, overlays and other things related to development and planning

    However, I find it hard rather impossible to do the same for QLD & SA properties.

    Any suggestions or links to websites would be very helpful.