Just bought a development site in Sydney!

OK, This time I really bought one!

I’ve just exchanged contracts on a Multi-Unit Housing zoned site in Sydney’s Northern Beaches for a tad under $700K. Its got an existing weather board house on it that will rent for about $530pw, but the real bonus is the zoning. Its zoned MUH and I've read the council development controls in detail so know that we can put 3 townhouses on it. I've also confirmed this with council. It was originally on the market at $770K but I managed to drag it down to $690K with a bit of clever negotiation and assisted by the flat Sydney market.

Up front I’ve got to say a huge thanks to JoannaK for helping me with the residual land valuation and also doing a fully worked development feasibility study for me! And all out of her own generosity to a fellow forumite!! That was absolutely invaluable in reassuring me that my own calculations stacked up and I was on to a winner with this one. I’ve also got to thank Peter147 for his input on the development potential and options too. He’s actually driven past the site with me and given me his personal thoughts (whilst he was driving my MX-5 for a bit of a joy ride I should add).

This purchase is the culmination of 18 months of research and a few well documented false starts. I’ve personally learnt so much from this forum in my time here and as a result am very comfortable signing away that sort of money for a deal that I know will reap significant benefit in years to come.

Here’s a really quick breakdown of the potential of the deal:

Land: $690K (including weatherboard house)
Stamp Duty: $27K
Consultants: $60K
Rates and Taxes: $20K
Develop 3x2 bed townhouses: $450K
Borrowing interest: $90K
Contingency Buffer: $100K
Valuation on completion: $1.8M

That valuation is conservative with 2 bed townhouses fetching $650K in this suburb, but I’ve allowed $600K. Even allowing for the contingency buffer I’ve still got the potential to realise a profit of $400K or thereabouts upon completion. These numbers are still a little bit rubbery but are conservative and I’ll post details on the actual development costs as I progress the project. In fact I’m considering a new “The Somersoft Development” thread, akin to Skater’s reno thread, whereby I share the whole development process from acquisition of the site to completion and leasing of the completed properties. Might leave me exposed to some pretty embarrassing mistakes being made public, but at least it should be a great source of reference material for anyone considering doing likewise.

Thanks also to all my “mentors”, you know who you are! Bill L, Pitt St, See Change, Jacque, TheFirstBruce, HandyAndy, Karina etc etc. This site IS its members, and all of you have been of enormous assistance to me in my burgeoning property career.

Cheers,
Mike.

That is wonderful news! Tried to give you kudos but I can't until I spread it around some more...

Congrats Mate,

I'm sure it'll be a great experience and come out well. More parties to come! Woohoo!

Cheers, Barracuda

Great news.Good on you.
I look forward to the many "chapters" on you project.
cheers yadreamin

good on you for having a go!

How did you arrive at a figure of 90k interest? If the project is to take roughly 3 years from start to finish surely you would be up for much more than this?

Hi Mike,

Sounds like you have put in a lot of effort so far - good luck with the project. I look forward to your future postings.

Do plan on holding and renting the units or selling all/some on completion?

Cheers,

Bazza

Congratulations. The potential upside seems very good, and the timing for the Sydney market seems about right too. Well done.

Michael,

MichaelWhyte said:

Consultants: $60K

Click to expand...

What was/is this for ?

MichaelWhyte said:

Develop 3x2 bed townhouses: $450K

Click to expand...

$150k per townhouse sounds quite cheap, are you possibly undervaluing the development costs, over estimating the selling price for cheap units. or a bit of both.

Dan

Thats great news...

Many congrats - you will have to change the little calculation down the end of your email! You may achieve your 2015 date sooner!

I must say though, and hate to sound like a wet mop, but will you be able to build a product that will sell for $650k for $150k? Especially if you are not building them yourself?

Also - on your calculations i couldnt see GST or sales and mkt costs? But i am sure u would have allowed for these....


Regards

Congratulations Michael.

And being a good mate I will do the design free*

(* in exchange for the red toy)

Seriously, some have bagged Michael as a "Gunna". All talk with no results. But I can assure you (knowing Michael as a personal friend) he is someone who is simply upfront and honest about his investments and thus an asset to Somersoft.

Some confuse false starts with inaction but anyone who has actually developed knows that site wise: you think about heaps, look at a lot, offer on less and actually buy only a few. That is the process and anyone who invests $700k in land alone is serious.

Now the next stage begins.

Well done, Peter & Anne

Dan

The $60k for Consultants will be spent on

Planner
Archtiect/Building Designer
Surveyor
Engineer
Landscape Architect / Designer

About right for what he is proposing.

I do think the $150k each construction is light in Sydney but on the plus side he is getting into the market at the right time.

Whilst Builders are busy now they willsoon be starting to run out of work in Sydney and in 12 months a few could be willing to barter to keep cashflow.

An efficient design and market targeting will fine tune this figure.

Peter 147

Tyron, you're such a wet mop!

Michael,

Very inspiring stuff and congratulations! From all accounts it is a lengthy process but keep the light at the end of the tunnel in focus. And to JoannaK, I am a little awe struck with your genorosity in helping out. Good on you and it must be a great feeling to know you are part of someone's dreams!!

All the very best to you both!!!!

Dos

Congrats Michael. Well done.
Hows the fingernails?
And a big Congrats to Joannak and Frosty Pete.

Well done Micheal

Now all the really hard work starts.

Also a pat on the back for JoannaK and Peter147, although it seems that bribery was involved with Peter

Cheers

"HOORAH for Mike"

congratulations michael - and i will follow every step of your progress with baited breath and wild interest.

i must admit i agree that development costs might be a little low as, after speaking to a couple of recommended low cost/high finish builders, the figures come out at around $1200/m2 for a double storied joint. this includes everything from driveways to water tanks, landscaping to letterboxes, as well as all the actual building and fitout - so $145k ea would only be a 120m2 joint. is this right?

hmmm - i guess it is about right. i'm personally looking at around 140-150m2 for my three, but i can fit a little more space.

Hey guys,

Thanks heaps for all the postive support! Its a big step for us and will no doubt pose some challenges along the way but I reckon we're up for it.

Lizzie, yes I was working on 100m2 footprint as a rough guide, and $1500/m2 for the costings. The site is only 680m2 and the maximum we can develop is 50% of that. So, 3x100m2 makes for 300m2 site coverage. I will actually try and get them a bit bigger than that (113m2 max) so their resale (or revalue in this case) is as high as possible. I checked with council and I can excavate if I want to as well to put parking underneath and two stories on top. That will add some cost, but will be an option I'll consider. So long as my maximum height is 8.5m from the original ground level and max two stories then I'm within council guidelines.

I actually do intend to try and hold all three at completion and not sell any down. If my total costs are around the $1.4M mark and I'm holding three at completion renting for $500pw each then my yield is up around the 5.6% odd mark which is not too tardy from a cash flow perspective. Then I've got the benefit of $1.8M of property growing for me that I paid $1.4M for, and at a yield of 5.6% on my costs.

I agree though that the $450K build cost might be a bit low, but I'll know more when I shop some plans around and see what interest I get from builders. That's a wee bit down the track yet, but I'll post my results every step of the way.

Cheers,
Michael.

Congrats - Look forward to the updates

WashingtonBrown said:

I must say though, and hate to sound like a wet mop, but will you be able to build a product that will sell for $650k for $150k? Especially if you are not building them yourself?

Also - on your calculations i couldnt see GST or sales and mkt costs? But i am sure u would have allowed for these....

Click to expand...

Tyron,

You haven't factored the land component in that valuation at completion. In effect the land is worth around $250K each plus the $150K build cost plus the $50K of additional costs that I outlined makes a total cost of around $450K each. And, yes, I've done a fair bit of homework on how much they're selling for in this location and $600K-$650K is comfortable.

Sales and Marketing haven't been included because I plan on holding them on completion. My cash flow should support a yield of 5.6% on completion. If I need to sell one or two then I will, but hopefully I can build and hold.

Cheers,
Michael.