Should we build 2 townhouse and sell or sell land with permit - Ringwood

Hi Guy - got another quick question to ask:

Mom bought a property in Ringwood, very close to Eastland shopping, quite cheap, less than $500K but near big power line ( half the the backyard cover by this power line easement). But i am currently doing DA and should be able to put 2 townhouse on this - side by side, 2 storey, all min 3 bedroom each, could do 4 bed if i want but wanted to keep construction cost down a bit, around 170sqm each house. Try to stay as far from the power line as possible .

If DA approved, i can have half of her block for $300k, 275k to build, and hopefully can sell for $750k plus in this market. Mom going to sell her as well.

Question is : Should we go head to build these 2 townhouse or may be just sell the land with planning permit - If we sell the land with permit - may be around $650-700k max at this moment.

i feeling a bit risky to build these 2 townhouse. But again, did some research in this area - 2 bedroom - single storey brick house nearby sold for 600 2 years ago, sold in 2 weeks.

Really need to decide if we going to build this or not, if not, at least i can use the deposit to invest in somewhere else.

Thank all.

CL

 

All comes down to the numbers. If you can get 25-30% gross return on TDC then it may be worth it. If you feel there is imminent market risk then you can incorporate a sensitivity analysis to see where the numbers fall.

 

Big power lines will be a major deterrent to buyers.
Be very sure you are getting accurate advice on the likely sale price you will achieve.
Marg

 

So if you develop the townhouses you're looking at a sale price of $1.5 million for both based on your figures which leaves a profit of circa $450,000 ($1.5m - $550k construction - $500k purchase price). It's not clear if your build cost includes other development costs such as infrastructure charges. There will also be agent's commission to take off this amount.

If you sell, your profit is going to be circa $150,000 to $200,000 less development approval and agent's costs.

The above assumes a purchase price of $500,000 which you have said it's actually just below this so profit will be slightly higher.

As long as you have the capital and ability to carry out the development and your numbers are correct, developing looks like the clear winner.

 

Don’t forget GST and the margin scheme

 

If it is the property I am thinking of that we also looked at purchasing then be really careful with your anticipated sales prices. Those power lines are BIG.

Tools

 

Thank all for your advises, just look at the number again, if includes GST, i dont think we make lot of $$$ compare to sale the land with permit. So may be no build on this one.

CL

 

Don't forget if you build it will also take time (opportunity cost), stress, effort, potential disagreements with your mum, and trust in the right builder. Selling with the DA is a lot more straightforward if you are unsure of the outcome.

 

agreed - mom wanted to build but i think i will be able to convince her not to. Too much effort,stress and probably profit will be pretty much the same as we just sell the land with permit.

CL

 

If figures are similar either way, I would only look at building if there was good potential upside, but with the powerlines there's probably only risk and very much a ceiling on the finished dwellings.

 

Have you seen these 2 properties:

2 Margaret Street Ringwood Vic 3134 - House for Sale #127528382 - realestate.com.au

2/3 Margaret Street Ringwood Vic 3134 - Townhouse for Sale #122127438 - realestate.com.au

Both are very close to some massive power lines.

I don't think they'll get 750K for the townhouse, but worth keeping an eye on it to see what your product might be worth if you decided to build and sell.

Also, selling with plans & permits might be difficult for 650-700K. I suspect a lot of potential developers would also be hesitant to build. I don't think there's enough of a buffer to justify the risk.

 

More risk building at this stage of the cycle?
Take the money and run... just my opinion

Also selling a build near power lines we mean significant discount. This is very much a negative, been down this road myself and your market is very limited when selling.

 

Bank finance can be diffcult if within 50-100 meters of power line.....

 

Get proper tax advice if you proceed with the development but the GST will likely be less than you think once you account for GST credits/apply the margin scheme. The alternative is capital gains tax unless it is a PPOR so you will be up for a tax bill either way.

 

Our development site is next to these 2 houses. i also know this one : No 15 Hillcrest Avenue - next to 2 Margaret St - sold for $740k. have permit to build 2 house - liveabel condition though. Our current development site is not liveable through, so just buying land.

15 Hillcrest Avenue, Ringwood, Vic 3134 - Property Details


CL

 

i agreed, may be better just take the money and run, there are many other opportunity in property development. This type development probably for those investor who can build, that way they make little more money than us.

 

My broker did warn me about this as well. damn those power line really killing everything, but then again, we did bought it at a very good/cheap price.

 

We looked at this one and it looked inviting until we went to look at it and saw the power lines
26 Heatherbrae Avenue W, Ringwood, Vic 3134 - Property Details
Tools

 

No point of wasting money getting permits that anyone can get (unless your permit is something more substantive then what a builder/developer could get themselves). 2 on a block is nothing special on a typical block size in Ringwood. Sell without permit would be the way to go and sell now when the market is still OK as in a down turn there may be a real risk of no one buying even on a big discount

 

I went to the auction couple years ago for this one sold with permit 625K (slightly further from the power lines)

3 Margaret Street
3 Margaret Street, Ringwood, Vic 3134 - Property Details

they're now selling the back unit on auction 3rd march - @Chung Le you should go see how they do.

2/3 Margaret Street
2/3 Margaret Street Ringwood Vic 3134 - Townhouse for Sale #122127438 - realestate.com.au