VIC Reno old house or knock down for Duplex?

Discussion in 'Property Analysis' started by youngbuck, 9th Feb, 2020.

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  1. youngbuck

    youngbuck Member

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    Hi guys - We have an old house in the inner western suburbs of Melbourne. We purchased the property a few years ago with the intention of renovating and selling, taking the CGT free proceeds to buy in a 'closer in' suburb and repeating the process.

    I have hit an intersection and not sure where to turn. Where do you draw the line between deciding to undertake a full renovation now and moving on; or living in it/renting it out for a couple more years before doing a duplex? Unfortunately for us, the block size won't permit 3 townhouses.

    I've done a feasability and while it is more profitable to go through with the duplex, the process will take longer with permits, construction leads times etc.

    Any advice or suggestions would be great! :)
     
  2. wylie

    wylie Moderator Staff Member

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    Are you living in it now?
     
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  3. youngbuck

    youngbuck Member

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    Hi Wylie, yes we are at the moment.
     
  4. gach2

    gach2 Well-Known Member

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    Whats the numbers
    Also use what the house could be sold for now as cost price of the lot (not what you purchased it for)

    Knockown rebuild duplexes usually have to be in higher value suburbs to make money (1 mil+)
     
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  5. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    You could draw up plans and seek DA approval for a duplex and sell the site with approvals. The sale price may be higher than the present resi use without the GST and tax issues. Seek local townplanner advice.
     
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  6. youngbuck

    youngbuck Member

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    Hi Paul, thanks for your advice. I think selling the existing with plans and permits won’t yield nearly as much profit as a renovation or duplex development.

    I think if I was on a large proper development site in an activity centre zone or resi growth zone; with potential for multi units, I’d Definitely go down that road.
     
  7. croseks

    croseks Well-Known Member

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    I am in a vary similar position as you right now.

    I have a house in south east Melbourne which is currently worth around $800k (my conservative valuation based on local sales, got offered $700k for land value back in 2017 peak)

    It is fairly old (1980's) and seems to be made rather very poorly (nothing major however no wall is straight and the bricks look like they were laid by a drunken sailor and a few other small issues). We are currently living in it and have renovated it enough to be liveable, however we would like to eventually upgrade to a larger, newer house.

    I keep going around in circles in my head as knocking down and building a duplex seems like the best long term solution but is pretty pricey and I am trying to convince myself it is worthwhile to build and hold both (rent one side out) as I will get a decent IP out of it as well.

    Here are some numbers I got from speaking with 4 different all-in-one builders (they manage the whole project from start to finish)

    3/4 bed, double story, single car garage, 24/25sq Duplex build is approx. $800-900k all in depending on which builder you ask. Here's an example https://www.metricon.com.au/new-hom...e_schemeeleven_v1(rdvis-com).jpg&floorplan=24

    So depending on your local area and what you paid for the original house, these need to be worth around $1M+ each to be profitable
     
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  8. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Have you costed the full project down to the cent incl of taxes (land tax, rates, holding costs, non-deductibility through the build, GST and income tax) ? I tend to find 9/10th of people dont and they estimate a profit far higher than the final outcome.

    Its hard to pull profit on a duplex. All levels of Govt make more than the owner.
     
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  9. youngbuck

    youngbuck Member

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    Hi Croseks,

    Thanks for your feedback. There will be a few of us in a similar situation. The Metricon duplex designs won’t work in my locale as there isn’t a market for that type of product and those constructions costs are too heavy in my suburb. Overcapitalised and you won’t see it back at the retail end. I think something like in certain suburbs where there is an appetite for large duplexes (certain suburbs down Bayside) etc.

    What are you leaning towards?
     
  10. ParraEels

    ParraEels Active Member

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    I suggest that you get plan and permit and sell. You will be far better off this way. Development is not for everyone and once you put your number down on the book you will realise that profit eaten up by cgt, gst, construction cost, other contingencies, consultants cost, council contributions, delayed in construction cost, construction loan interest, and many more known/unknown factors.