Starting Development Company - Where to begin Melb

Hi All
Completely new to this website, i wish i had found it earlier because the information on here is incredible and would of saved me alot of time. I see i am going to be spending alot of time on here and will be getting very active with conversations and being a consistent contributing member so ill introduce myself before my question.

I am for melbourne, i went back to uni after a few years in real estate to study Architecture and Construction management at Deakin to gather as much knowledge as i could to begin my own development company, I have one year left of that course so now its time to begin the next steps.

I bought in officer a house and land in early 2016 understanding that the redevelopment of frankston would mean than anything in that corridor would boom.
I purchased a 4 bed 2 bath 2 living site for 390k, i then refinanced and pulled out 30k to do improvements such as landscaping and external works like a pergola and other amenities.
It is now on the market for 580k with that being around the median price for a house of that size.

This will leave myself with around 130k to look at the bigger development such as a sub divideable block. I understand that if you want to create a successful development company that you begin small as it does not happen overnight.

The plan was to always hold onto property and leverage equity but after doing research and find that officer has only dropped 1-3% and other areas that are prime sub divide locations such as kilsyth, lilydale, mooroolbark in the east of melbourne are around the same price ranging from 500-640k which 500k representing a knock down and 640 representing a small reno on 800-950m2sq blocks, So would be decent backyards or potential for 3 units, Each land presents different possibilities as the location varies with demand. we are at the bottom of the trend with prices beginning to trend upwards so great time to buy i believe.

Pretty much i understand the basics of what is required when it comes to sub division but i guess for me its understanding the more complicated things and more indepth in relation to costs so i dont under estimate, I would also love any sugesstions on apps and programs that can work this out for me. I do know being in real estate for a few years that programs cant predict trends and thats research based but things such as build and sub division costs, relocation of services would be great to have a point of reference for that so i dont under estimate.

So i am looking at suggestions for the following
- Apps/ programs for feasibility
- extra costs that i need to consider when looking at potentional locations
- anyone that has dealt with that area and what problems or tips they have
- any development suggestions in general
- tips and tricks to help me
- even knowledge material would be great

Being new and having a pretty good understanding i would just love any advice to help me progress as i know i will need to be a sponge to be the best property developer i can be.

Thanks guys

 

If I were you I would first go work for a developer and learn directly from someone. You have the education so I imagine you should be able to find something and start earning an income.

Then on the side you can look at doing your own small development. With the tax concessions available to individuals and the small starting point you have then I personally see no benefit in starting a company. You could buy a block with a house and do a renovation/subdivision whilst you live in the property.

Then you could sell the renovated property and develop the new land you have created. You can potentially do all this CGT free (see an accountant).

But having zero experience with no income and starting a company seems like an absolute recipe for disaster.

 

Well its funny you say that because i do work for a real estate developer whilst i am finishing my studies, i work as a project administrator. The boss of this company is the main reason why i would like to start this. He started sub dividing now now has a company of 100 and making millions building architecturally aesthetic townhouses and high rise apartment buildings.

Sorry i should of been clearer when talking about my objectives in the beginning. My long term goal would be to turn this into a comapny but that is 10 years down the track when i have the equity and experience behind me. I want to start small and do exactly what you have said and find a house on a large block reno the house and build on the back then as i become experienced progressively get bigger until it becomes a full time job, But i will be doing this on the side until it is feasible to do so.

I have started looking at properties to achieve to do something like this but i would like direction on apps or programs or information i can use to give me an idea of rough costs so i can quickly turn around numbers as the blocks i am looking at are moving quickly and i dont want to overpay due to inexperience and not be able to make a profit.

I must admit my work is a great source of information but im trying every avenue to soak up as much information as i can, also alot of people here dont have the side projects, and the few that do are high enough up that they are always flat out and dont have the time between this job and their side projects to spend hours with me.

Hope this clears it up

Thanks

 

you havea great opporunity being surrounded by somone who is successful,

I would be picking his brains and begging him for guidance or even mentoring

 

Whether stuff moves quickly or slowly you will probably need to learn to do it the old fashioned way and as you get better at it you will quickly be able to assess if a site is worthwhile delving deeper into it after 15 mins of work. My favourite saying here is "the deal of a lifetime comes along once a month". There is no rush. Take your time, connect with professionals who can help, learn an areas market so you can spot the bargains and know end values, understand about structure and entities, know how borrowing can differ for developments etc etc

Nothing will do everything for you but you might want to look at Feastudy Feastudy makes Australian property feasibility studies easy I don't use it myself as I prefer to model information in my own way but it might give you some answers to some of your questions.

However no software or app is going to be able to give you town planning advice and that is crucial to working out what can go on a block. Even once you know the density zonings each Council has different town planning schemes which have potentially more restrictive overlays and requirements that can sink a deal. Imagine if you bought a middle density block thinking you could build 3 on it but found the council charged a very high Open Space Levey and had a policy that required all mature trees to be preserved and that meant only 2 houses could be built on it.

Sorry for sounding like a Debbie Downer but the essential part of developing is risk management. You have made some good money on your first IP and you need to build upon it not wave goodbye to it because you rushed into a bad buy.

 

Thank you for your advice, I guess i have come to the conclusion that it is something that i will have to create myself as there are so many variations.
To further this conversation what are the factors that i need to consider when i look at development properties
I factor in Purchase, Stamp duty, Sub division costs (Cap at 50k to include potential relocations and Drawings) and then build, and sale costs.
What else am i forgetting >?
Does anyone have a spreadsheet they use ?

I just dont want to overlook something then it comes back and bites me.

 

agree, replace the word "development" with "being a doctor" and it shows how naive OP is being

 

How is seeking more information from people who have actually done it and trying to build my knowledge base considered naivety?

I think the worse issue is that you wasted time out of your day to make a comment like that, to someone you don't know.

Each to their own thought

 

No need to get so defensive. Especially just because you didn't like my response

You wanted to make a decision on something that requires years of expirience/knowledge, in a matter of days, shows naivitivity

There are experts on here who have all basically said the same in nicer terms, just don't come back in a years time starting a thread that says "I thought I was going to make 20% on my development but the reality is a 5% loss, what do i do to get out?"

 

Was not defnesive at all was just questioning your motive considering every otheropost had some kind of useful information or suggestions and yours was a poor attempt at humour.

Well considering I've worked in real estate for years then went back to uni to study even further another 5 years to be at this stage I'd hardly say that is a couple of days. But again making those kind of remarks when you dont know someone ia the result.

The idea of this post was to gain knowledge from these experts on things i may have overlooked when creating my feasibility study, again in saying that I work at a real estate developer and have run it i past them. But by not being naive i have posted the question here to get more opinions and avoid that post next year. But again I don't understand the naivety comment. The question was there an app or the best process people use to do there feasibility, not whats in a feasibility

Must of been fantastic that when you started you just magically knew everything. Unfortunately I am not that lucky

 

Let’s all calm down
OP sounds like your in a fantastic position and what your suggesting sounds like a good starting point.

Their are loads of feaso software programs or spreadsheets out there. Honestly if your doing a single split then a decent developers spreadsheet will probably do the job. Software will likely bog you down and overwhelm you.

A very ballpark figure to aim towards is 30k for a single subdivision including plans and permits.
Your starting point needs to be a mortgage broker to explain the finance side of things to you. With 130k your options are going to be limited because you have to fund the subdivision with your own money.

So once you factor in say 12% deposit plus government costs then really you have a small amount to achieve this. Anything in a suitable area above 600sq is totally out.

But let’s say you take somewhere like Bayswater and you find something on 600sq for 600k.
Purchase costs with a good dose of LMI is going to run you around the 100k mark which leaves you just enough to maybe pull it off.
I would highly recommend living in the original house whilst you go through the process as you can gain some tax exemptions when you sell (see an accountant).

 

Thanks albanga, with what money we had in the beginning we needed to somehow save quicker so we saw the opportunity and took the risk, happy it all worked out and now onto the next one.

Awesome i will focus on creating a thorough spreadsheet to make sure i can cover as much as i can.

Do you think a 12 percent deposit is to low ? Im lucky that because i am still at university so i fall under concession which means my stamp duty is halved as im exempt from stamp duty up to 350k purchase price. So theres another 15k there that will go towards the sub division.

I have been looking at mooroolbark and ferntree gully. Looks like we will get a block between 800-950 for around 600k so will get to decent blocks once subdivided.

Yeah we will definitely living in the front house whilst this all occurs, most of the houses need some work so we will be doing that whilst we are the back organised.

Generally how long does a sub divide take from beginning to end? Ive been told anywhere from 6-12 months depending on how busy the council is.

 

I say 12% because that is considered the LMI sweet spot. Over that and LMI increases fairly significantly. More deposit is great but then it leaves you with no money to actually subdivide and renovate. In addition if you don’t actually have the full 20% then your going to be paying LMI anyway and that’s when you need to ask yourself do I tip in more cash and be left with less or put in less and be left with more for the sake of let’s say 4-5k?

You have said “we” so I assume a partner or family member. That’s important because being at uni I am guessing your servicing is not going to be the strongest. Again this is where a good broker can guide you. @Peter_Tersteeg is down your way and is a brokering gun.

Before you buy anything be sure to speak to the local councils and see exactly what is possible. Also make sure you understand the areas demand for subdivided blocks. It’s great these areas have bug blocks but do people living there generally want big blocks? I sure know if I was heading to FT Gully it wouldn’t be to go into a 250sq block.

As for timeframes then totally depends. The more subdivided blocks the longer. 6 would have to be very vanilla. I would be more inclined to say 12.

 

Hi @ThaRealJaySnell, love your enthusiasm.

Westminster is a developer from WA and has posted some really good information on her developments. You should check out some of her projects. Albanga i believe has done some development and has posted as well.

I remember reading on here, someone said there are two things that can make or break a development, they are planning and finance. For finance, speak to a broker and read the finance section. If you do a search for development finance you can get up to date pretty quickly.

For planning, there are a few things i would suggest, buy 'the victorian planning system' by stephen rowley. He is a lecturer/phd of planning at rmit uni. Its a planning uni book, and summarises the whole planning system in vic. Even if you only read the intro, it will be worth the cost, it gives a great summary. Also learn the planning schemes, look up clause 55 and study it.

Most council websites give a summary of the process, know what a development planning permit, subdivision planning permit, certification and statement of compliance are. RFI's, advertisement, referrals. When you know the basics, if you want to get really indepth, read 'the subdivision act users guide', which is provided online and was prepared for surveyors/planners/council officers to understand and apply the planning and subdivision process.

As far as feasibilities, you should create and build your own. Knowing your numbers and how they work together is key. Using someone elses is a shortcut that will hurt you in the long run. As for getting build costs and sub costs, there are heaps of threads on here that have given rough ideas. But i found the sub costs posts on here very misleading, some posters have included some costs, and others have not, possibly attributing some of the sub costs to the build costs. Also the sub costs are very site specific, are services easily connected or not, are there council or service authority contributions required or not etc. Getting a site you are interested in and doing a full feaso on it, speaking to consultants and getting their budgets, that is the best way to learn the costs.

Build up your general development knowledge, easier said then done! I would suggest reading the development and legal section of this forum daily. This post should have probably been in the development section. I cant tell you how much ive learnt from this forum. Use the search function, most development topics get discussed at some stage.

There are some great podcasts, specifically 'the property developer podcast' by a melb based developer, who started the podcast because he found developing lonely and wanted to share the journey. 'The constructive finance podcast' by dan holden, who is a gun commercial finance guy who interviews other developers and consultants. 'The property couch' by two guys that are brokers/buyers agents, they are great for general property knowledge and can be funny. If anyone knows any others please post, i would love to add another development podcast.

There are some development meetup groups in melb, become a member on 'meetup' and do a search for property development and you'll see a few.

Good luck and looking forward to seeing how it goes.

 

Thanks @albanga for the information, That makes sense and then at least means once you settle you can really begin on the sub division as you have to money to do so. The aim was to initially hit that 20 percent to avoid LMI but i think it will be to tight and id much rather have some cashbehind me just in case but to also begin the development process. With the market as it is though probably still a year or two before it starts to get to the figures that would be ideal. But i have been working off todays figures in relation to selling to make sure i cover myself for worst case.

Another question would be what kind of ROI do you consider to be feasible ? Ive been told by some 10-15 percent on invested amount others have said minimum at 30 percent (Which i dont see possible on a split block)

Yeah still having contacts from working in real estate in those areas i have a couple of guys that i constantly run blocks by to understand resale prices and cost to ensure they are in demand and possible to achieve. Still always a bit of guess work as the market is unpredictable.

What would be the minimum block i should be looking at? I have been told 800m2 but i have seen discussion with people doing it on around 700m2 ones,

@lixas4 Thanks for the reply i appreciate you taking the time to give me some information and almost laying out a process that i need to investigate. It definitely helps me.
I have been researching this forum like a bible and the amount that i have learnt and even extended on the information i had is incredible and have made it a staple to my daily routine.
I must admit all the factors that come in this development process, even finding a block is quite overwhelming as being the first you dont want to get it wrong. But this website is definitely helping me.

Working in the planning department at work has given me a pretty good understanding on the process but i will definitely purchase that book to further investigate as obviously the more i know the easier life will be.

I have just bookmarked those podcasts so i will give them a listen moving forward.

I guess the one issue i am having and this being a personal one is trying to tell my brain that bigger doesnt mean better. Once i can get my brain around that it will definitely make this an easier process.

 

I tend to use 20% but will go as low as 15% if the deal is in an area which has extremely good markers for picking up in value and I (or my clients) intend to hold it. That 20% is after all costs including holding interest but doesn't include GST or tax as that can vary a lot from entity/structure/year

Bigger is definitely not always better and that can be in a literal sense as well. In Perth you can buy a triplex block about 15-20km out of the CBD and build 3 villas on it for around $1.2m. Or you can take that $1.2m and turn it into
1. retain and build behind 3km away from city (around 650-700sqm site)
2. build a duplex on a 400-500sqm block 2km from city
3. build 3 apartments on a 249sqm block 1km from the city

All cost around the same amount but many people assume when they want to become a developer that it means doing a triplex somewhere when the reality is that they could buy into a much better location if they let go of that belief and go with something smaller or different. The added bonus is that the areas closer to the city tend to rise faster and be more immune to market downturns. The cost to build a more bluish chip product is not that much more than the outer burbs. It's maybe $20k worth of upgrades to get the right specification level - better kitchens, higher ceilings, full height tiling etc.

 

Thank you for that, Ill try and model my purchase into that 20 percent margin. That has definitely instilled a bit of confidence moving forward as i understand what i really should be looking for.

Wow that has summed it up incredibly well for me, and makes a heap of sense. I might even look closer to the city for a smaller block of land with the same potential because the smaller the work needed for the same profit line the better.

I guess i then need to understand what minimum land requirements are needed to achieve these kind of returns in there retrospective suburbs.
Its exciting because it has opened up a magnitude of different options but stressful as i want to to make sure i pick the right one.

I would say though, lf i attend on using this as a ppor whilst i develop i would almost be exclusively looking for option 2 wouldnt i ?

I could always buy the land and rent but then you would almost be servicing double, The land and the rent which i dont think is viable for me.

 

Putting aside risk profile ( assuming developing is within yours) , you need to have a good understanding of what finance is available to you because that will determine what kind of project and areas you can look at. That's the first thing to sort out imo.

Then hone in on areas that are within your finance parameters. Then determine what kind of stock sells within the those areas. Then determine if there is development/profit potential in the areas your focusing on .
This is where understanding how to do a BOE is essential.

 

PPOR and CGT and GST and developing are complex areas. In all scenarios there will be some CGT (or income tax) and GST on whatever isn't your PPOR. This is another topic to get your head around. Look up terry_w tax tips and find the one on developing your PPOR.

 

Hey Mate,
Regarding profitability then @Westminster is spot on the money with 20%. I’m not a property developer but have friends that are and they won’t even look at a deal that doesn’t start above a 20%.

As for block size then it totally depends what you plan to do with the site but if I were you I wouldn’t be doing anything above a 650 and just do a retain and rear build.

These are by far the best and safest strategy for a beginner. You have so many exit points and still have the opportunity to learn so much.

When I say exit points I mean ways to exit the deal pending on how it’s tracking, resources, timing, other opportunities. Etc

Say you do a retain and subdivide. These are just some of your options:
1 - Can’t get DA. Renovate and sell the existing.
2 - Get DA. Sell existing home and new vacant block with plans.
3 - Get DA. Renovate and sell existing home, sell new vacant land.
4 - Get DA. Build rear townhouse, sell both houses
5 - Get DA. Sell front house (potentially CGT free if you live in it for a period of time) and move into the rear. Look to sell down the road again CGT free (see an accountant).
6,7,8,9 - Variations of all these but instead of selling, retain the properties as investments. Pull equity and go again.

This versus knock down and attempt to build 3 where if it turns south your done for. This may be OK if your a developer or have a heap of cash but you have no experience and very little money. Start small and go from there.