Profits from townhouse development

Disclaimer : TImewaste post. I am just educating myself and may help some with the info . I am not a developer yet, but maybe in future.

I am looking at this development site.They have a design for 15 townhouses/duplex but not DA approved yet.

Can anybody give rough idea on how much profit will the developer make.




My calculations

15 * townhouses / duples sale price : 750k * 15 = 11.25 mil
Land purchase price : 4 mil + 210k stampduty = 4.21 mil
Construction : 280k * 15 = 4.2 mil
Misc (driveway ,interest paid during development etc ) = 1 mil

Total = 11.25 - (4.21 + 4.2 +1) = 1.84 million profit .

Is this guestimate reasonable?

 

Like you said guestimate. Youll have to factory in land holding costs, consultants costs, legal costs, agent commission, marketing, council and authority contributions, levys, etc

 

Can that exceed 1 mil?

 

It really depends. so many variables.
Different councils have different fees and charges.
Also depends on if infrastructure requires upgrading (sewer, stormwater, powers, etc)
Agents commission can vary but at just 3% the agent would be taking $300k+


As a guestimate its all good and well but once you break down the costs and the have a full blown feasibility you'll see the real numbers

 

Gst and income tax on profits!

 

For a project of this size and scale you may need to have existing financial capacity (cash or its near equivalent) to carry at least $6m+++ of the cost yourself before any lender will look at it. And then the lender will want you to spend your $$$ before they start any advances. They will want quantity surveyor estimates of the build costs too to support a quoted cost. And have presales. And then if you have no direct development experience on this scale you can forget finance. You cant rely on the builder for that.

 

Yup Thanks.

 

Build cost seems very low to me, however we don't the build type and details...

 

I assumed 200 Sqm townhouse with market rates for construction at 280k each. But probably you are right, if we look at per sqm, it can go upto 6 mil just for construction alone.

 

I would seek advice from council for any contributions involved. You can use a feasibility sheet to make your assumptions more accurate not just guestimate. The link below gives you a sample excel file.
Developer Feasibility Analysis

 

I think there are a lot of assumptions that could ruin this for hypothetical case study. It's unknown how big these townhouses and with that many on the block there is probably some retaining as well.

 

As noted above, selling costs, GST, consultant allowances and many, many more things should be considered, even for a hypothetical..
Even the smaller costs add up.
Start small - make small mistakes!

 

Sorry join the party bit late. My thoughts are...

(1) $280k per unit is not correct construction cost. It will cost more especially if basement carpark required.

(2) no bank will give you loan because you dont have experience. So you need to obtain commercial loan at 8-9% and it will eat away your profit.

(3) you may not achieve $750k because you may sale 60% off the plan to meet presale requirements of your lender. No presale no loan means you can't start project. You will flood the market and achieving top dollar will become less possible .

(3) concept plan is nothing. Even prelodgement plan is nothing. Council may not approve 15 units and issue less. Current concept may be not LEP & DCP compliant and you don't get same results. Many land don't achieve its full potential due to various constraints.

(4) DA cost for this type of project can spend over $100,000. (Full survey, Drawings, council, noise report, arborist assessment, flood study, soil testing, asbestos assessment, traffic report, landscape plans, access report and many more).

(5) DA package may be ready in 6 months after you start and Council may take 6-8months. CC takes another 3-4 months. Pre-sale of 60% units takes another 3 months. So your holding cost will be out of the roof.

(6) GST - you will pay gst regardless of profit or loss. So factor gst in your calculation. And you will get shock.

(7) other cost to consider - cc drawings 30k, Council contributions 50k, drainage easement 30k,relocation of power pole if needed 15k, widening footpath outside property 10k, strata subdivision with council & LRS 30k, and other costs.

Good luck

 

Very good point. No basement car park.

True, in the current market it will be difficult.

Thanks for other inputs as well. I am not putting my hands on this project, to begin with I will stsrt something small.

 

Council open space contribution?

 

Interesting thread.

I am watching a series of town houses for off the plan in a regional city and

The property 3000sqm sold for $2.75M in 2008

13 two to three bedroom town houses for $795K and up.

How much is this developer making on their original land value in 2008 and current value? If I'm looking at buying in a regional city and spending $800K I'm buying something with land.

I get there are a hell of a lot of costs to go into these projects but the question is would this person make a considerable profit on current land value.

 

Seen GST being a major issue

I dont believe GST is an issue as long as its planned right
If the property is registered for GST and all trades are GST registered then easy
If not and the margin scheme is elected at sale then shouldn't be an issue either

GST will generally be on profit

Only non GST expenses will cause an issue (which is usually govt and lending expenses). Yes it can make a breakeven a loss but it shouldn't be considered as a major issue (10-20 percent so technically should be 1/11 of that. If margins are that tight damn).

 

We’re are currently in planning for something similar, a little more size, but the process is similar:

- detailed feasibility required, a breakdown of the 1m other and the construction cost. Ie it needs to be a bit more thorough with better estimation of costs when actually completing. Generally on the biggest one, the construction cost, a detailed QS will be done before tendering the build. Unsure if 280k is enough, if it’s 2 levels and small 2 bdrs, maybe. If basement, no chance.

- budget a 12-18 month DA process. Carry cost associated with it.

- council fees could be charged per dwelling. It may be as much as 20k for 14 extra dwellings, $280k there.

- interest is the biggest one. Expect this to be in the non bank private space, with circa 3-5% fees on the loan balance + 6-10% rates. It will likely be a 7 figure bill unless you can fund a big portion yourself.

- ideally you can high level design the dwellings and have as much clarity on it too. It will adjust the end values a fair bit potentially depending on design/shape/etc. ie look at other nearby similar project designs.

Overall I wouldn’t be ‘first timing’ this. By the time we actually complete we’d have done a dozen or so much smaller projects, made a whole lot of mistakes, and gained a lot of experience that’d help complete something of this size. Relying on people without knowing what’s going on properly is one of the mistakes learned already. You’ll find this approach has flaws (but can be managed by hiring an experienced person to fill the gaps).