Subdividing

Discussion in 'Investment Strategy' started by Kingjangals, 19th Jan, 2019.

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  1. Kingjangals

    Kingjangals New Member

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    I'm a first home buyer and I dont really know much about property investing I dont want the first home buyers grant and to be stuck paying something for 30 years and not being able to make much profit on it over time I really want to go into this with a investors mindset so I was thinking of buying a big property and building 3 houses/units on it.... is the way to go for postitive cashflow what would the cost of this be and would a first loan cover it and would the rent generated from the units cover the mortgage if not what can I do to make that happen and what steps should I take and what are the best way to prepare and what should I expect
     
  2. thatbum

    thatbum Well-Known Member

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    Honestly I think you're much more likely to lose money trying to buy something to develop, rather than just a "normal" house... and the reason? Well the subdivisable property will have it factored into the price, and if you don't know what you're doing, its very easy to overpay and/or fail to develop the property to its proper potential.

    No need to try and run before you can walk. Fortunately, you've found the right forums to learn more about property investing and even developing if that's what you want to get into. Spend a few months around here reading some of the new and old threads and you'll learn plenty in that time.

    There's lots of Perth based investors and developers on here too.
     
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  3. Sackie

    Sackie Well-Known Member Premium Member

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    You're wanting to jump off a 20 storey building and fly without having developed wings first. Needless to point out the obvious likely result of doing that.

    Best thing you can do now is educate yourself . Learn the basics from the ground up. Cycles, Due Diligence, obvious pitfalls/mistakes, how to build a team, risk and how to assess it. etc

    Imo a large amount of poor decisions made by 'investors' is simply due to a lack of basic investing knowledge. And why ? Well...too many ppl are too lazy to spend the time and effort to learn their craft.
     
  4. Shogun

    Shogun Well-Known Member

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    RealEstate. com has lots of examples of developers currently losing money in Perth.
    A few minutes searching finds 31 a, b & c Munja Way, Nollamara, WA 6061
    Over 600k of buildings there, easy $400k plus for land

    bank interest $980k at 4.5% is $44 000
    about $285 per unit per week just for interest repayments
    plus other costs. You might get $300 to $330 a week rent at the moment lots of supply in that area

    Other threads on here just search to find
    WA - Would this development have made a profit?
     
    Last edited: 20th Jan, 2019
  5. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    If you really really really want to do this and you do the things above then I would start WAYYYYYY smaller.
    You say you don't want to use the FHOG but this might be the perfect time to do it. What if you looked for a house you could retain and sell the rear block off or build behind.
    There are lots of things you need to learn first as the others have said but I can confirm that 90% of the triplex sites in Perth don't give enough profit for me to even look at. Yes my standards might be higher than yours but those standards are part of my risk management and developing carries a lot of risk.
     
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  6. albanga

    albanga Well-Known Member

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    Honestly who is to blame for everyone thinking developing 3 townhouses is something that can be done in your sleep?

    Not having a go at OP But Seriously someone somewhere has something to answer for.
     
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  7. Brendon

    Brendon Well-Known Member

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    I work on a lot of these developments in Melbourne and I think the market has just been doing a lot of the heavy lifting for the last 5+ years.
    The development may not have added up but 2 years later (getting permits and building) and all of a sudden you've made a profit and are a "property developer". When you really just got lucky.

    A lot of people don't actually reveal all the numbers either, interest, selling costs etc, so it seems like they've made a nice profit unless you dig a little deeper.

    The other thing I see a bit is builder developers who really would have only made money because they built it. It's still a profit and often a good job to send their crew to inbetween jobs but it's definitely not the same as an armchair developer.
     
  8. Otie

    Otie Well-Known Member

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    I am always doing numbers in my head and thinking the same thing. I only see it in the normal growth same outcome had they done nothing sometimes.
     
  9. Kingjangals

    Kingjangals New Member

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    So there isnt much profit to be made subdividing and building why do so many people do it? When you drive through some areas in perth and you see people have done it everywhere? is it good to do if you plan on holding it and using the extra rent to pay the mortgage and over time have more equity then sell or wont the rent cover the repayments
     
  10. Kingjangals

    Kingjangals New Member

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    Alot of people are doing it through perth....having 3 units paying rent instead of one house paying rent sounds good in theory
     
  11. David Shih

    David Shih Mortgage Broker Business Member

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    As others have mentioned, you really need to learn how to walk before you can run.
    Subdivision/development can seem profitable but there are way too many factors that you cannot control, so even the experienced investors could be burnt by it and make a loss.

    As an alternative I would suggest you educate yourself through reading this forum, ask questions and focus on learning how to identify undervalued properties and add-value through lower risk techniques such as cosmetic renovations. That will train you to have the investor mindset and get some experience first :)

    Later on when you have more asset base & capital and can afford to take bigger risk then look at more advanced techniques such as subdivision/development of units/townhouses. Also to get yourself familiar with the construction/development process, perhaps look at building a granny flat (subject to your DD makes sense - don't build for the sake of building) which is one of the simplest form of construction.

    Cheers,
    David
     
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  12. The Y-man

    The Y-man Moderator Staff Member

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    A lot of people start cafes too :)..... point being just because everyone is doing it doesn't mean it makes you lots of money.

    Here's the thing: if 3 units are better than 1 house for rental income, why not just buy 3 units instead of 1 house? Incidentally that's how we started off (NOT saying it is the best way - but just giving an example of what can be done) - we bought many small units instead of houses because of liquidity, capital requirements, geographical risk spreading (for example you could buy the 3 units in different suburbs / cities)

    The Y-man
     
  13. The Y-man

    The Y-man Moderator Staff Member

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    As a starter step, how about going into a share of larger scale developers already in the business? No loans necessary, small outlay etc

    The Y-man
     
  14. Sackie

    Sackie Well-Known Member Premium Member

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    @Kingjangals from reading your posts in this thread, you are your own biggest risk factor atm. If you're serious about this then start from the beginning and work your way up. Takes time, patience and alot of effort (and money)..AND even having done all that ...far from guarantees you'll make money when you develop . Its simply not as easy as some make it appear to be to walk away with a decent profit which is adjusted for risk. But if your one of the rare few newbies who is very serious about it - start from the beginning .
     
  15. Shogun

    Shogun Well-Known Member

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  16. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Yes people have done it everywhere but most of them won't have done it in the last 2 years. The number of people developing/building in Perth is about half what it used to be due to the current market being soooooooo low.
    Most people develop in rising or strong markets and even then they may stuff it up because they buy near the peak and by the time their project is finished 2 years later the prices have dropped considerably and they now have a massive mortgage and low rents which don't cover it.

    BTW have you consider your serviceability and amount of deposit you'd need to do a project like this? Even if you went for a cheapie area you are looking at least at a $1m project which requires around $200k deposit/funds and good income to service it.