Just bought a development site in Sydney!

[WashingtonBrown]

Ok ok JoannaK...

Yes probably a wet mop.....

In my defence Joanna....u can probably appreciate....

How many times developers have sat in our office and explained how

a. Cheaply they can build things &
b. How quickly they can.

So sorry for being somewhat tarnished.....BUT it comes with the JOB!!!

Hope u r well.

 

[kissfan]

Well done Michael.

Like the others here, look forward to following the progress.

When are you thinking about starting the construction of the townhouses? (No rest for the wicked you know).

Regards
Marty

 

[Corsa]

Firstly well done Michael! All your hard work and perserverance has paid off and I am glad that you have found a deal that meets your criteria and it sounds like a great project to get started with with lots of topside and minimised or managed risk.

Also well done to your mentors you have mentioned, another reason I love this site so much is the willingness of people to give to others to help and mentor and that is such a wonderful gift to give others.

Seriously, some have bagged Michael as a "Gunna". All talk with no results.

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.

I made a couple of comments at the time about Michael getting a bit overwhelmed by the numbers in front of him and seemed to be moving into analysis paralisis territory and encouraged him to view the numbers as objectively as he could without some of the negatives of a property bringing fear into his decision making. Remember, not living in the state of each somersoft member, most of us can only go by what we read and picture from the contributions people make on this site to enable us to provide some advice and opinions on what people should do.

But on the plus side, either which way or path Michael has taken he really has done a great job of getting to this point and he should be looked upon as a role model by other Somersoft forum members.

All the best Michael and keep us informed of your progress.

Best wishes

Corsa

 

[thefirstbruce]

Great to hear Michael. I am especially glad you got something close to home.
The experience you acquire on this project will allow you to repeat a lot less stressfully next time, you'll have all your contacts in place, and you'll know the local council regulations, you'll be taken more seriously by local REAs, and you'll be able to gauge the investment and rental market more acutely via experience with your own holdings.
..... If you'd bought in Brissy or wherever, you wouldn't have been able to repeat repeat as comfortably

Would be interested to know what structure you set up to buy and develop under.

Hope you can afford to hold the three. GST is a real gotcha.

Re GST, am sure Peter and Joanna will keep you up to speed on all that, and will interested in how you approach it (margin scheme, input tax) If you try and avoid paying GST, you can't claim it off up front expenses....etc...

Are there any advantages to moving into one as PPOR, prior to selling it? No GST payable on sale of PPOR.

I remember reading something about GST dying after 5 years???? Here it is:
http://law.ato.gov.au/atolaw/view.htm?locid='GST/GSTR20033/NAT/ATO'

"14. In addition, the GST Act provides that where residential premises are sold after five or more years of being rented continuously, they are not new residential premises and the sale, therefore, is an input taxed supply. An entity that is intending to rent out the residential premises is not entitled to claim input tax credits in respect of construction and acquisition costs of those premises.F7"

Good on you Michael.... Makes time spent on Somersoft seem all the more worthwhile. ANd I trust your wife is as comfortable with this one as you are...

 

[Macca]

Gee,

Now we can say we new him when !!

Your sheer determination is an excellent example of a newbie taking the time to learn and then put it in to practice.

It also highlights what a great resource this place is and what a wonderful bunch of people we have accumulated on Somersoft.

Bloody bewdy mate

 

[sue78]

Well done Michael!!

The numbers look good but there's a lot of work ahead of you. After this, you'll probably despise building but it's well worth it.

Out of curiosity, would you consider selling one or two to reduce the loan and keeping the others?

That's what I would do as then I would be neutrally geared and have more equity to shop around for more opportunities.

Either way, it's a winner

 

[ani]

Sounds a great buy Much better than the Brissie one!

Good luck with the build.

 

[MJK]

Michael,

I'd just like to add my congratulations. You've been after this elusive one for a while. Well done.

Regards,

MJK

 

[WashingtonBrown]

Hi Michael

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.

Nice to meet you!!!!

In relation to your answer number 1....yes i have...we deal this these projects day in day out. And i perhaps i didnt word it right - but thats how i work it out in MY head in relation to the area and the land.

As for keeping them ....fair enough....BUT a bank may include these items in the funding table.

Banks tend to work on the drop dead principal - and will include these items....in case they need to sell. That said - i dont know your personal relationship...but its quite common...and more so the valuer will include these items.

As for keeping them...you may wish to hold them for 5 years....in that case i believe you wont have to pay GST when u do actually sell them...this will add 2% nett yield. However, as i am simple QS, you should check that with your acct. and your position. But lots of clients are holding stock - obviously because they cant sell them.

Now in terms of cashflow.....You WILL GET HUGE depreciation on these properties...which will help!!!! (If u use the right firm!!)

And yes excavating and adding a basement will add substantial cost...and my gut feel on three townhouses....would be probably not worth it.

BUt i am sure you will do your due diligence on this.

All the best and not trying to dampen your mood....from experience its best no things up front.

Regards

 

[WashingtonBrown]

Nice to meet you!!!!

All the best and not trying to dampen your mood....from experience its best no things up front.

Regards

Time to go to bed...long day.

Thats KNOW things up front!!

Goodnight

 

[Bill.L]

Hi all,

Michael, I will add my congrats here as well..

Don't fret about the posts talking about the costs of development. As the owner of the property, just the prospect of development being possible will add value to the property during the next boom. Just imagine having an approval with the council for a development when the next boom takes place, selling the property at that time will probably lead to a handsome profit. Of course a revaluation at that time will be good as well.

Basically you don't have to develop, just install the thought in others at the time to realize the potential.

bye

 

[Glebe]

That's excellent stuff Michael, congratulations. I'm envious about 700sq metres for $700k, wish I could do that around my way. I'd love for you to keep a development thread going, I'd learn alot from it, I'm sure many people would.

All the best,

Glebe.

 

[see_change]

Michael

Congratulations on taking the plunge as well.

One of the dilemas will be where to pitch it in the market place . Is the location one that would take a more upmarket approach, or do you want to keep you costs down and aim at a lower level. Both can work , but certainly something to think about . As your planing on keeping them , it would be worth while getting some feedback from local PM's on the relative demand for different layouts / number of garages etc and standards of finisheing. That can make a significant difference in the costing.

My initial reaction was the same as wb , 450 sounds low, and if you're thinking of excavating to put parking underground... We havn't done that , But I know how much detention pits can cost and they're not cheep.

Would need to know if they're rock far under as well.

And the fun now begins....

BTW , our observation is that builders in Sydney are already quietier , so now is probably not a bad time to be building from that point of view.

See Change

 

[lizzie]

yes I was working on 100m2 footprint as a rough guide, and $1500/m2 for the costings.

i'll pull my head back in ... i thought you were talking $450k to build all three - at $150k each. but now that you've said $450k each to build i'll rephrase what i said ...

sounds like you've calculated in an excellent buffer. i was working on $1200/m2 for a double storied job (as advised by several builders) so $1500 should give you a very nice, quality few places.

please please please do a thread like skaters - and keep us imformed regardless of how many years it takes.

 

[AndyB]

Congratulations Micheal,
I am also signing contract today on land suitable for dual occ, 2 off 3 Bed Townhouse. I have sketched up some suitable floorplans and now in the process of making sure everything will satisfy council requirements. My site sounds a lot easier ie vacant level block, however I am sure there will also be challenging times ahead. Have you thought much about wether you will build torrens title etc? Are they going to be attached dwellings?

Regards
Andrew

 

[WashingtonBrown]

Now im confused....

i'll pull my head back in ... i thought you were talking $450k to build all three - at $150k each. but now that you've said $450k each to build i'll rephrase what i said ...

sounds like you've calculated in an excellent buffer. i was working on $1200/m2 for a double storied job (as advised by several builders) so $1500 should give you a very nice, quality few places.

please please please do a thread like skaters - and keep us imformed regardless of how many years it takes.

If its a 100 m2 footprint - and they are two stories....and assuming lets say the 2nd floor is 80% of the ground floor - how is not going to cost well in excess 250k? Assuming your $1500m2 is correct.

Very rarely - if ever - does someone estimate based upon the ground floor area only.

Regards

 

[Twitch]

I've recently had a feasibility done by Metropole for a 2 * 2 storey townhouse with SLUG development.

- Construction cost was $1,250/m2 (2005 cost)
- Floor area per townhouse was 185m2 (I think they were 3BR, 2 Bath)

So with building escalation costs and a late 2007 construction commencement the estimated cost was ~$245k per townhouse.

These were Melbourne costs, so Michaels $1,500 per m2 is probably right for Sydney. You should also add another 5% or so for every year after 2007 that construction is due to start.

Therefore under $250k for a 3x2 townhouse is not realistic, more like $300k I would guess. This assumes a non-project home so one way to perhaps do it cheaper would be a project home design and build.

 

[asdf]

As for keeping them...you may wish to hold them for 5 years....in that case i believe you wont have to pay GST when u do actually sell them...this will add 2% nett yield. However, as i am simple QS, you should check that with your acct. and your position. But lots of clients are holding stock - obviously because they cant sell them.

Firstly, well played Michael. I thank you for your sincere and frank openess with your ideas and thought process in this forum.

Regarding the GST issue, if you have to hold for 5 years and you can't rent them, isn't that going to be a bit of an issue for the cash flow? I suppose the ATO is perhaps just saying if you want to claim your GST for building cost plus margin scheme the land, then you can't just wait 5 years and sell it thereafter and escape GST on the higher sale price. Anyone know a way we can eat our cake too?

 

[MichaelW]

If its a 100 m2 footprint - and they are two stories....and assuming lets say the 2nd floor is 80% of the ground floor - how is not going to cost well in excess 250k? Assuming your $1500m2 is correct.

Tyron,

Only time will tell just how much it ends up costing, but I used $1500/m2 as a guide to allow a little bit of a buffer in the numbers. Admittedly I should have added the upstairs floor space to the footprint to come up with the total sqaures built when calculating the cost, but I've still got a fair bit of buffer factored in.

Here's a link to some duplex costings at Valley Homes in Maitland. I don't think I'll get costings this good for where I'm building and what I intend to build, but they do demonstrate that you can build townhouses for less than $1000/m2.

http://www.valleyhomes.com.au/products.php?action=viewProduct&id=41&sub=2

The Sands 278m2 $989/m2 Total cost $275,000
Marlin 436m2 $819/m2 Total cost $357,500
Tomaree 420m2 $854/m2 Total cost $359,000

I've probably under-estimated my build cost at $450K for three, but will post in detail as I progress through the design and quoting stage so everyone here can see the actual results achieved. If it stretches to $600K for three them I've still got a very healthy profit margin at completion. Lets wait and see what the actual costings come back at.

Just want to say another round of thanks to everyone that's posted and PM'd and kudos'd me for this result. It is genuinely heartening to get that level of support from a host of forumites that I have had the pleasure of getting to know personally over the last 18months or so. Somersoft truly is the best property resource in Australia!

Thanks again,
Michael.

 

[WashingtonBrown]

Regarding the GST issue, if you have to hold for 5 years and you can't rent them, isn't that going to be a bit of an issue for the cash flow? I suppose the ATO is perhaps just saying if you want to claim your GST for building cost plus margin scheme the land, then you can't just wait 5 years and sell it thereafter and escape GST on the higher sale price. Anyone know a way we can eat our cake too?

Who said you cant rent them?

Just a QS - check with the acct fraternity.

Regards