Adding Value through building

[tomoe]

Im looking at purchasing a block of land with DA approval to build a house or two small units for the express purpose of selling it as soon as its built. Now I know this sounds like a weird question but to what extend does going through the process of building add value? E.g. If an identical house is on the market in the same area for say 500k, with all other factors being the same. How much below market could I expect to build for > Ie how much could I expect my margin to be.

I know there is alot of factors involved here, like how quickly I could flip the property, how well I deal with an negotiate with developers etc etc etc. But im not looking for an exact answer. Lets use the market/sale price of 500k as starting point.

Thank you

 

[tomoe]

re the number 500k above. Thats was assuming I build 1 house on the plot of land (500k is total sale price for house and land)...

 

[Rooster]

re the number 500k above. Thats was assuming I build 1 house on the plot of land (500k is total sale price for house and land)...

I would generally work on 20%.

Given you wanted an estimated sale price of $500k, I would want construction and associated expenses to cost no more than about $415k.

You definitely need to know your target market well and have consistent comparable examples to work with.

Cheers

Rooster

 

[tomoe]

Thanks 20% is exactly around the margin I was considering

But ultimately I guess what I am really asking is how realistic is it to expect to complete a build 85k below market on a 500k house(we are assumign 500k is market price). I am also assuming I am purchasing the land at market price (not a bargain) . Therefore ultimately the reason I am making money is from the building processes itself. So its it reasonable to expect that much of a margin from building alone.

Thanks

 

[Minx]

I suppose it's all about finding a builder to build what you want for the price that you want. If you are building just one house, you can look at project builders who are generally more affordable when it comes to cost.

I would suggest you research the houses in the area in terms of finishing, inclusions etc and consider building something similar.

 

[.toe]

Thanks 20% is exactly around the margin I was considering

But ultimately I guess what I am really asking is how realistic is it to expect to complete a build 85k below market on a 500k house(we are assumign 500k is market price). I am also assuming I am purchasing the land at market price (not a bargain) . Therefore ultimately the reason I am making money is from the building processes itself. So its it reasonable to expect that much of a margin from building alone.

Thanks

Asking this question is one thing, but the question in my mind is, if you got a negative answer, would it stop you from hitting the phones and finding out your own answer?

 

[willair]

Thanks 20% is exactly around the margin I was considering

But ultimately I guess what I am really asking is how realistic is it to expect to complete a build 85k below market on a 500k house(we are assumign 500k is market price). I am also assuming I am purchasing the land at market price (not a bargain) . Therefore ultimately the reason I am making money is from the building processes itself. So its it reasonable to expect that much of a margin from building alone.

Thanks

For a person starting out with this idea and as information is costly to obtain and you make the money from several areas,not only the House
another way would be to target all the sales data for the area,do the numbers on land sales and new builds and see how everything at the end sales price,..


BTW,anyone working on a 20% flat-line profit first time developer might end in the other side of the balance sheets by 20%,sometimes it's better to buy something already built,rented,then spend up too 6-18 months trying to build something and deal with all the different mindsets from the builders-council staff-legal set-up work comp,roadworks,the list is endless-then the Real Estate agent ,just don't run in blind,because after you employ all these people everyone takes a slice of the pie, then the "ATO" will also want their slice ,you are the one left holding the canand what 's left..willair..

 

[tomoe]

Thanks for responses so far

1. Willair - Can you tell me where do I find the sales data?
2. How about if I just build a house from a house and land package. I assume the process would be much easier - mom and dads do it all the time, But I woudl also assume the fact that im doing the building would mean the end product should be built below market cost and I should have a reasonable margin...?

 

[Rooster]

Thanks for responses so far

1. Willair - Can you tell me where do I find the sales data?
2. How about if I just build a house from a house and land package. I assume the process would be much easier - mom and dads do it all the time, But I woudl also assume the fact that im doing the building would mean the end product should be built below market cost and I should have a reasonable margin...?

What's your plan Tomoe? Is it to build and then on sell?

Mum and Dads may build house and land packages all the time but the results are rarely spectacular.

From experience, sourcing land yourself and building a house on it beats a house and land package every time.

Most house and land packages where i build are usually marketed at about a $40k premium to what it costs me to build.

If you can source your land at a good price then you will be one step ahead of the game. Make sure it is flat and requires the absolute minimum of cutting, filling or retaining.

Again, sourcing your land is the key.

Goodluck

Rooster

 

[tomoe]

Basically im looking to build and onsell asap

Since im new to the game I thoughht maybe I could eek out a decent profit
if I strike up the right relationship with a developer. That way the turn around time would be quicker( I think) - all the permit and council issues would already be done and ready to go. Naturally Id be paying a premium for this. But I would assume that going through the build from scratch does present intrinsic value so the final product should below normal market sales prices in the area....How much so is really the question mark ?

Although I wonder, if you were to do it all yourself(hence technically you are the developer), how long does it normally take from when you start paying interest to when construction is finished. What can I do to minimize the delays caused by counsil and city planning etc.

Other than counsil/permit issues. Is there anything else id have to be very careful of that can blowout project timeline?

Basically im looking at a timeline so that once interest starts ticking, the house is built in no more than 6 months from then...

Appreciate the help here.

 

[Minx]

It's almost like how long is a piece of string. Your from Melbourne so I'm assuming you are planning on doing this in Melbourne.
What suburbs are you looking at doing this exactly?

Personally I would stay away from new estates as, let's just say for example you buy a house and land package in say Mernda. Now there is an abundance of land there and for the same price or cheaper people can select their own builder, inclusions etc and only pay stamp duty on the land. Personally I wouldn't touch those new areas with a ten foot pole.

As Rooster mentioned, project builders are cheaper but the quality of their product is pretty poor. None the less, this may still work for you depending on the area. Project built homes won't work in high end areas such as Balwyn, Camberwell etc.

Also, you need to identify what you can bring that can make you a decent profit. Do you have contacts? Can you do a JV? Do you know any builders? These contacts may help with achieving decent margins.