Western Sydney Duplex Development Online Diary

Wow thats some serious excavation, almost the size of underground garage. Is this for stormwater? Great job so far

 

Hi i'm totally newbie here, just wandering how is financing work here, so at the Total costs: $2,535,740 how much cash in hand do you need and what sort of loan to get from the bank

I'm trying to get hands on maybe my first development so any input would be appreciated

 

The lender will generally lend on the lower of the land plus construction or the as is valuation (2 dwellings on a single title). It doesn't matter if you have approval for subdivision.

So if the end values are say approximately $3,100,000 (as noted in the OP) then the valuer would shade it by approximately 20% meaning that the valuation would be approximately $2,480,000 and the lender would lend 80% of this amount so thats a total loan amount of $1,984,000.

So if you purchased the land for $1,250,000 then at 80% thats a loan of $1,000,000 for the land and $984,000 for construction. You would need to fund the balance.

However best for the OP so provide you the actual figures in terms of what the valuer has come back with, etc as when dealing with valuers and dealing which such high figures there is a great room for variance in numbers.

 

Thanks Shahin
Does this construction loan goes to the borrower or the builder.
If it goes to the builder then all the Stamp Duty,
Legal and loan fees, DA Fees, Easement Fees, Holding Cost
All add up close to 400k are all out of pocket
Plus 20% deposit to buy the land, all up need more than 600k.
Probably I need to look at something much smaller scale, anyone have a good suggestion, looking at around 200k cash in hand only.
Sorry this might be a little off topic

 

I think its probably best you set up a new thread as we don't want to derail this thread. Req the mods and they may be able to set it up.

I think its best you first start talking to some experienced investors and then go from there. Not all developments require an easement so that particular fee may not be applicable to you and its part of the DD you do on site selection.

The construction loan is purely for the construction and not soft costs such as DA. You need to foot the shortfall and then the lender kicks in their contributions. The builder will invoice you and then you send the invoice to the lender and they pay the builder.

I dont think you can do much with $200,000 in Sydney if that's your total contribution towards a project including soft costs. You may need to look at regional.

 

Hi @Tenex , this is a fantastic post and thank you for sharing. Very interesting to see all the ups and downs from going through council to construction. Wondering if you had an update on the overall project and if your building costs are what you expected to date?

 

We are almost finishing the roughing (I think by next week) and we are going to have gyprock the week after followed by tiles and timber flooring

We also have the final part of the connection of storm water easement very soon which will get us closer to be able to initiate the paperwork. It should have been done by now but we were delayed a bit.

I have uploaded some photos of the facade, the back, the inwall toilet systems and massive skylights (1900 by 700) we have 5 of those through out

Kitchen has also been ordered and measured and hopefully installed by second week of Jan.

Birck is being washed and should finish by early next week, garage doors will be in soon as well.

I will try to get as much of the landscaping done through the December and January as well.

I would say at some point in Feb, maybe towards the end of Feb we should be fully ready to hit the market God willing.

I will attempt and update as much as possible. I am looking forward to a successful delivery as we have spent good time and effort in making sure that we think things through.

 

Nearly done and ready to go to market just a few final finishes. I will however post photos after a sale has been made for personal reasons but I can say that both units look a lot nicer than many other houses in our area so we should be able to do good marketing and get a good sale price.

On that note, I have been watching the royal commission outcomes and you cant help buy cringe at the level of sheer stupidity (for the lack of better word) in this country.

For years banks, specially big banks have done whatever they wanted and got away with it and rather than creating a stronger dispute resolution system to deal with these issues for consumer, the big recommendation is to get people to pay the brokers.

I nearly fell off my chair laughing. A first home buyer that has to pay all kinds of fees like stamp duty, deposit, legal and bank fees now is also required to pay for their broking services.

We need a royal commission to save us from the royal commissions.

 

Good luck with your sales mate.

Re RC, a complete joke from beginning to end as i knew it would be.

Mbs are the scapegoats, consumers worse off with less options if brokers go or having to folk out cash up front.

Best bit? Banks will rake in a larger share of business from the loans market Lol

You couldn't make that **** up!

 

@D.Matta

Just realized I have not answered you. I have been very busy, didnt mean to ignore you.

With regards to costs, I have a spreadsheet to track it and obviously it will be a very detailed update if I shared everything.

But because I have a very direct control over everything including trades and suppliers and I shop around and haggle the hell out of them, for the most part I have kept it to what I had anticipated.

Having said that, I have upgraded in parts and therefore overall I am spending a bit more than I had personally budgeted for it and there are a number of reasons behind it including the price I am after and how fast I am after it as I already have approval to hunt my next project.

I am not your traditional developer that goes off of contracts and budgets though. Majority of my negotiations are verbal although I keep track of everything at the same time and there are times that I pay more than I had negotiated because I know overall I am still getting a very good deal.

I will try and update again.

 

@Tenex
Excellent post. Truly inspiring for wanna be developers and experienced folks. I am sure learning from this project would help you do even better in your next venture.

I see you acquired land when the market was at its peak in sydney then you had to deal with easement issue which costed you time and money.

Was your contingency fund enough to cover the unexpected? If not, how much did that eat into your net profit?

Are you targeting to achieve same sale figure that you anticipated when you started or ready to compromise based on current market situation?

What if you don't sell and rent it out instead and use equity to fund your next project? I am sure you must have done the calculation just wanted to hear your thoughts.

 

@property_geek

Good questions, let me answer you this way.

When I purchased this land in early 2017 I did my due diligence and I had confirmation from local government, during the cooling off period, that there are alternatives than having to pay other 2 properties to go through them. They went back on their word even though I offered them solutions that were better and logical. Obviously you cant cater for that.

Moreover my sale price predictions were based on supply and demand and I stand by those predictions as would many wealthy and well-researched companies that bought land nearby.

Right now we are in an era where you have, State government ruling out almost all potential overseas buyers with higher stamp duty

APRA going as hard as they can at squeezing credit across the board

RBA that arrogantly refused to take interest rates down to zero when they should have and is only just now realizing the mess they are in. Folks on here were predicting 6%+ interest rates 2 years ago and I was probably the only one saying interest rates as they were are too expensive for our economy.

Anyway given the above, we are headed for a recession. Not just in property but across the board specially the part about credit squeeze which means borrowing money to do anything (including credit cards) is going to be a lot harder. Unless if they do something (and I doubt they would) we are going to see less and less inflation and more and more tightening of spending.

Obviously while I could predict supply and demand, I couldn't predict the rest and as such I have to now readjust my expectations of sale price.

Rental option that you have mentioned has been suggested to me by friends and I have had a thought about it. Frankly the way I see it, we are in an environment that assets, any kind of asset for that matter, is going to lose value. So staying liquid is the way to go. Add to that land tax and other expenses, it just isn't worth keeping and the way things are going, property will continue to go down.

Add to all the above that we have 2 big elections in NSW and federal this year and imagine what could happen if labour is elected.

Fortunately I have the cashflow to support myself through finishing and selling. I do have an approval to buy my next site but for now I will be sitting tight and focused on my own full time job and also the selling of this property.

 

Unless it's in writing ( and trying to get council to write their own name in an email is mission enough) council's word is worth less than Bad Boy Billies promises.

 

That is very true, there is not much that anyone can do on it they do as they please. But it appears at least that the sales in the area are picking back up and the group numbers are increasing, I suspect if we do have a rate reduction we may see some form of stablization of pricing across Sydney in general and in hotspots such as Parramatta in particular.

 

Quick update, we had a few issues with painters and some of the other trades which is a long story however I have managed to bring it all together and we went to market just over a month ago.

So far we have had a few offers (5 I think) for sale for one of the duplexes however non that I would consider.

I had still advertised the other duplex for rent (despite the fact we wanted to sell that one as well) and it appears we may have secured a tenant for 2 years at $1000 per week while we still have negotiated with the tenant that we will be selling the property while leased.

Given the liberals managed to stay in power and recent APRA and RBA changes (they finally woke up) I anticipate we should get offers at or about what we are looking for.

I will try to update again but for now we are expanding our advertising horizons as well.

Btw, does anyone here knows much about how depreciation works when a brand-new property is rented, do you get a larger depreciation on it?

 

Hi Tenex, I am new to propertychat.

Great post of the huge amount of work (and pain I am sure) that you went through for this duplex development. Honestly I have learnt a lot from reading your post and is still digesting a lot of it.

Did you end up selling any of the duplexes in the end? The market has picked up the last couple of weeks so my guess is it’s looking good?

I am sure you already found the answers already since this post was three months ago. I am an accountant and can answer your question in relation to depreciation (please also do your research as this is not advice). Depreciation from fixtures and fittings (division 40) can be depreciated using accelerated method (diminishing value, higher in earlier years and less over the year, imagine a curve), or the prime cost method (straight line, flat amount each year). For capital works/construction cost (division 43), this is depreciated over 40 years using straight line only. Also any amount deducted for capital works will need to be deducted to your property’s cost base when you sell it. Since this is your build, it would be possible for you to just create your own depreciation since you have been tracking your costs, but getting a depreciation report using a quantity surveyor could also work.

As for me, I am now in the feasibility stage of building a pair of 4 bedroom duplexes in my own PPOR, which is in the city of Ryde.

My current block has 20.5m frontage but is built on a slope downwards towards the rear, sitting on just less than 600sqm. With so many unknowns, my budget is now sitting at 900k to 1m, and with the sale price of 1.4 to 1.6m in the area, was hoping to live in one and sell the other eventually.

This would be my first development project and everything seems very daunting to be honest, but like you said the reward seems to be worth the risks.

From your post, Stormwater sounds like the biggest and potentially most expensive issue! My house is just next to a reserve/park with only one neighbour on one side, but apparently there aren’t any stormwater pipes anywhere around the neighbourhood, so now I am a bit confused as to what next steps are. Builders that I have talked to don’t seem to be saying the same thing, some have said it appears to be ok as it’s next to a reserve, others are saying there is no way they can build without access to stormwater pipes. Funnily enough there are more and more duplexes built around my street, so I am not sure who to trust. I am thinking of asking the council for advice so hopefully they can point me in the right direction. What are you thoughts to this approach so early in the process?

N

 

Hi Nathan

Thank you for your advise on accounting and depreciation.

I did sell one and have rented the other property. The one I sold was for a small profit and the one I am keeping will be for bigger profit and I will try to update when I get around to it.

With Ryde, your best bet is to speak with local government. You need to find out if your property is flood affected as most of them in Ryde are flood affected then, if it is, by how much.

Usually from a stormwater point of view they may either make you approach your neighbor and get easement from them and if they deny, they may accept this and give you an exemption.

However depending on how you are flood affected, another area of local government, cant remember their name, may not let you go ahead as they may see this as a hazard.

Ryde is usually a bit more open with regards to their stormwater so book an appointment with them and find out. If you see there is a way, hire a good storm water engineer who knows that area and has had good success with ryde to do your design.

The site sounds smaller but you are lucky you got that much of frontage on it.

 

@Nathanf2000 - welcome to the forum.

Not sure what its like in NSW, but in vic the engineers i work with sometimes use parks/reserves to run services (drainage/sewerage) through. Have you spoken to an engineer?

I wouldnt suggest talking to council/authorities yourself about services. I regularly find the staff members at councils and service authorities say things that sound like fact that are actually more their opinion, and that they arent the decisionmaker. And later when the decision is made by the appropriate person, the result is not what you were previously told. Its not that the staff are intentionally trying to lead you astray, its actually the opposite, they are trying to be helpful, its just a lack of knowledge or experience on their behalf. Thats why your private consultants who specialise in their area are the best person to speak to council/authorities, because they know the officers that make the decisions and can get transferred to them directly to discuss the issue.

Good luck

 

Hi Nathan

My client who is also located in Ryde was in a very similar situation back in 2017. After taking down his brief, I designed a duplex for him and now he is in a very strong position financially. His total build cost was around the $1m mark but that was a 530sqm duplex with 9 bed/5.5 bath/3 garage. I know he ended up living in one and rent out the other quite quickly, pulling in $1150 in rent/wk. At that time, duplexes in the area was selling for $1.7m so it provided a great indication that the completed project would be high confidence and struggle to be anything less than $3m total value. We also managed to get DA approval quite quickly and had the duplex built in less than 10 months so holding costs for my client was kept to minimal.

Another of my client in Ryde who is in construction now have similar land properties as you do - sloping to rear and backing a reserve. Stormwater did not cause any dramas for us and we got everything approved very quickly too. Her project is also around the $1m mark, but the neighbour next door sold for just shy of $3m during the peak, which gave plenty of confidence to my client as her project has so much more to offer.

Happy for you to get in touch and I can pass their details to you so you can hear their story.