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What is more profitable: duplex or triplex development?

Discussion in 'Development' started by theperthurbanist, 31st Aug, 2016.

  1. theperthurbanist

    theperthurbanist Well-Known Member

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    So I know all sites/projects are different / it is all in the Feaso / what scenario stacks up best for one site might not be best for another, BUT, in general with all other things being equal, which is more likely to yield the higher return on investment: a duplex or triplex development project?

    Or is the answer that it depends on the project and neither is inherently more profitable?

    It appears to me that doing more volume has obvious cost savings in terms of:
    *Reduced stamp duty (pay SD once to yield 3 properties) - noting that some of this absorbed by a larger triplex site will cost more and therefore be higher stamp duty than a duplex site in the same area;
    *Potential cost savings from having builder construct more dwellings on the one site. Is this the case?
    *Reduced personal time/effort. Slight increase in time/effort required to research, do feaso, purchase, plan, choose builder, develop, etc for a 30% increase in properties held at end of project = less time per property.
    *Potentially less competition for triplex sites = better value? More mum n dad investors are willing and able to undertake duplex developments therefore might there be more demand for these sites and therefore higher prices?

    FYI is an open question, however in my case I am looking at it in terms of a 'develop to hold/rent' scenario.
     
  2. Scott No Mates

    Scott No Mates Well-Known Member

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    Run a dcf and irr on both scenarios. If you also run a sensitivity analysis +/- 10% on construction cost, end market value & critical path assuming that you already have the land.

    If you are yet to purchase then the sensitivity analysis will be skewed by the acquisition costs ie paying too much for the site is nigh on impossible to recover.
     
  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    depends..............

    terrible answer I know

    Triplex can only be done by a few lenders on resi terms, so may end up being problematic.

    Valuer "In one line" mark downs for a triple will usually be higher - ie lower val to build to.

    for many peops none of these things matter, but for many the soft edges at the margins can make a huge difference to bottom line

    ta
    rolf
     
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  4. Cactus

    Cactus Well-Known Member

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    In my experience yield typically wins out. The more lots and buildings you can create the more money you will make. However underlying land value can effect this. For example if you have to go up as a result and the underlying land value doesn't support double storey then better going with less. At the other end of the spectrum sometimes really high land value areas like Brighton you might make more from delivering a high end dual occ over a mid end triplex.
     
  5. theperthurbanist

    theperthurbanist Well-Known Member

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    I don't own the land, just wondering people's thoughts in general terms. Ie 'as a general rule, do you think there are better margins to be made by developing duplex or triplex developments'.

    In my case I am wondering whether it is worth me stretching my self a little more to aim for a triplex, or if there is no huge benefit over a duplex 'in general' then just stick to that.
     
  6. theperthurbanist

    theperthurbanist Well-Known Member

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    Interesting. I thought lenders were generally comfortable with resi finance for anything up to four or five dwellings (can't remember which one)?
     
  7. theperthurbanist

    theperthurbanist Well-Known Member

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    Sorry for my ignorance @Rolf Latham , but by this do you mean that triplex units are generally valued lower than duplex units? This isn't something I had considered, but it makes sense.
     
  8. Scott No Mates

    Scott No Mates Well-Known Member

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    Run the numbers - pick a suitable site, nominate the buy cost, design, da, tendering costs, build, selling costs, legals, sd and gross realisation. Crank it over a timeframe.
     
  9. Tufan Chakir

    Tufan Chakir Well-Known Member

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    TVery roughly speaking - the building volume will be comparable, as a guess. the land cost divided by three not two, so the cost per unit would be lower for three units. The sale price won't differ significantly, so three units will generally give you a better outcome. The exception is if a premium is charged for two higher level units (ie will the market pay significantly more for two up market higher quality units)
     
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  10. theperthurbanist

    theperthurbanist Well-Known Member

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    Does this assume it is the same site? I am referring to comparing two different sites/projects. Ie say a 700sqm duplex vs a 1050sqm triplex site. Would it be correct to assume that in the same area (all other things being equal) you would pay slightly less for a larger site, and therefore lower land cost per site created?
     
  11. sanj

    sanj Well-Known Member

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    stretch yourself if the numbers make sense to do so, dont if the numbers say not to do so. it's a development, $$ is what matters not the number of units.
     
  12. Perthguy

    Perthguy Well-Known Member

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    I don't think it works like this and I doubt there is a hard and fast rule for duplex vs triplex. It depends on the area, the quality of the existing house (if any), the type of house you build etc.

    @Westminster just bought 50% of a duplex block in Manning WA - Perth Development Sites

    I just bought 50% of a duplex block in Cloverdale.

    The type of house you would build in Manning is going to be completely different to Cloverdale. My purchase cost was around half of the Manning property. My build cost will be less and end value a lot less. I am looking at an end value of maybe $600k and Wilson has a potential end value of more than $1.1 million.

    Sold Price for 9B Crawshaw Crescent Manning WA 6152
     
  13. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Yes, no.... maybe is the answer :)

    Generally it is not more profitable to build a duplex on a triplex site UNLESS the only way it is a triplex site is double storey and you can do single storey duplex and get in and out quicker with less holding costs etc.

    As a rule of thumb it's generally best to fulfill the poptential of a site as the potential is often already factored partly into the price of the block. A R60 block will generally cost more than a R20 block in the same area.

    But if comparing a true duplex against a true triplex then the answer is whatever the feasibility says. If you find a good priced duplex block you will generally be able to get a higher LVR from the bank for your loan and may find it more attractive to you than a triplex especially if you can do side by side duplex with both street frontages - the only way you can do this with a triplex is a corner block or something with around 30m frontage
     
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  14. Perthguy

    Perthguy Well-Known Member

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    I think this is the only reasonable answer. I get the argument that duplex vs triplex, the triplex looks more attractive because the stamp duty, demo costs, clearing, servicing and subdivision costs are split three ways instead of two ways, making these costs cheaper per block. However, in my experience, the triplex will have a smaller land component, which will reduce the end value. The only way to compare is to run the feasibility.
     
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  15. Aconis

    Aconis Well-Known Member

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    Why a higher LVR? Is it because each property has frontage or no common property?
     
  16. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Sorry I meant that a duplex could have a higher LVR than a triplex. So a duplex might get up to around 90LVR whereas a triplex will be around 80LVR
     
  17. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Generally triplexs yield more profit, then retain and build duplex, then build 2 duplex.

    All depends on the deal but thats a very gerneral rule of thumb.
     
  18. Tufan Chakir

    Tufan Chakir Well-Known Member

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    Sorry, I assumed the same site, not two different sites
     
  19. Keentolearn77

    Keentolearn77 Active Member

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    Guess all of the above theories would be similiar if I was looking at triplex vs quadlex (4)????
     
  20. theperthurbanist

    theperthurbanist Well-Known Member

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    Noted.

    Interesting. This is useful info, thanks. As Aconis asked, why the higher LVR? Because a smaller project is less risky or because a street frontage property/no common property is likely to be valued higher?