What is the Minimum Profit Margin to expect in a duplex developments?

Hi, I’m looking to buy a block of land to build a duplex in NSW, and sell both after completion. The expected time frame is 12-15 months from settlement to settlement. Total costs incl interest is $1m, expected net profit is 80k or 8%. My required cash contribution will be 350k, so return on cash is 22%. Is this return too low or still acceptable in this kind of development? What should be the minimum % return on total costs and/or your own cash?

 

too low. a small blow out in costs or delays can wipe this out.

 

would wanna be at 30% gross profit to cover you for contingencies and tax.

Could be taxable supply because you are building new stock to sell, if you have to pay GST could mean profit is 0, are you doing this within a company structure?

 

Too low for me. Is that nett profit taking into consideration GST?
I'd want to see 20% profit before taxes.

 

Honestly 8% variation in prices could happen on any given day (given a few conditions) so that margin is definitely tight - 20-30% is probably the right amount

Maybe you could share more details on your proposal and maybe could provide tweaks that may be able to improve margin

Suburb or locality
What you intend to build (size and single or double storey)

Are you buying released land or existing neighbour hood?

 

With right tax planning you shouldn't have to loose out all profit due to tax. Register GST and apply margin scheme if the intention is to sell

There are a few costs that wont be recovered (govt fees mainly) but if thats the tightness of margin it probably wasn't the best idea to develop

 

Too low for sure

every development I have completed has always gone slightly over budget. Some things are completely out of your control ie how long it takes to sell??? This will increase holding costs

 

This is actually a duplex package offered by a builder, it’s like House & Land package, I’ll not need to lodge DA etc, the builder does all. I’ve consulted with my accountant that GST will not be payable but cannot claim either. It’s under Trust.

 

Thanks for replies...This is actually a duplex package offered by a builder in a new land release estate near Newcastle NSW.
It’s similar to a House & Land package. I’ll not need to lodge DA and do tendering etc as the builder does it all.
My accountant advised GST will not be payable but cannot claim either.
It’s a max. 26 week construction period with ‘liquidated damage clause’ in the build contract which is $120 per day for delays.
So I guess this type of deal suits an investor more than a developer, there is not much hands on work to do apart from putting funds in...
I also wanted to know as an investor, how would you guys think with 22% return on your own cash within a 14 months period in this deal? Thanks

 

Can you post up your calculations so we can find the 8% for you now?

 

8% for the right project might be acceptable but you'd need to have strong confidence in the feasibility and that there are very little risk or variables. General rule is to aim for 20% including contingencies.

It sounds like the supply side of the project has that (i.e. the build contract etc) but I'd be looking at the demand side of the project as it does not take much for that 8% to disappear into 0% or even a negative if you get your timing wrong.

Specifically I'd be concerned about the nature/location of the product. Are there a bunch of other duplex builds in this estate/development? Do other people have the same idea to build for profit? Is there a large market (buyers) for the product? What is going to make yours different from others on the market?

Hope this helps

 

Sounds like an even worse deal. The builder is making all the money here.

If you want to make money, you need to take control of more of the steps in the development process....

 

If it was being built in an area surrounded by new builds, I'd be reluctant to risk it.
I wish you the best of luck though, and please let us know how you go.

 

If you are buying from a builder than they have made all their profit from selling it to you, and you take the risk that the market will be there to catch you when you go to sell.

Hard avoid.

I feel like I know where these would be, pretty much the whole area is side by side duplexes
I'm from the area, if you want to PM me I can take some location photos for you.