Advice neeed - 3 townhouse development is this feasible?

[Noknee]

Hi All

I would really appreciate any feedback/advice/opinions on whether this is a good idea we have a few investment properties but this will be our first development (SCARY!)

In Adelaide wanting to subdivide and develop a block into 3 townhouses (hopefully sell 1 keep 2)


Land - $430,000
subdivision and demolition - $51,000
planning stuff - $17,000
development approval - $12,000
Construction costs (and external works) - $616,000
contingency - $50,000 ?

Total- $1,176,000

guesstimate would be valued at $450,000 each (total $1,350,000)

keep 2 rented at again guesstimate @$450 a week

This doesn't take into account interest for loans

Can someone please explain to me what the costs involved / tax implications selling one of the town houses?or point me in the right direction as we would try sell it before to assist with construction costs.

I would love to hear other from others that have done developments whether we should go ahead and do this or not? is it feasible and worth doing?

thanks in advance

 

[Brady]

What type of subdivision are you planning on? Strata, community or torrens title. Cost will vary. If you're looking at torrens which is the most preferred cost is approx $33k.

Subdivision should be around $8-12k pending site.

What size townhouse are you looking at, how many sqm, what level of finish.


I would be seeking specific advise from a professional regarding the purchase structure before purchasing. Especially if you're looking to offload one immediately.

 

[Television]

Hi All

I would really appreciate any feedback/advice/opinions on whether this is a good idea we have a few investment properties but this will be our first development (SCARY!)

In Adelaide wanting to subdivide and develop a block into 3 townhouses (hopefully sell 1 keep 2)


Land - $430,000
subdivision and demolition - $51,000
planning stuff - $17,000
development approval - $12,000
Construction costs (and external works) - $616,000
contingency - $50,000 ?

Total- $1,176,000

guesstimate would be valued at $450,000 each (total $1,350,000)

keep 2 rented at again guesstimate @$450 a week

This doesn't take into account interest for loans

Can someone please explain to me what the costs involved / tax implications selling one of the town houses?or point me in the right direction as we would try sell it before to assist with construction costs.

I would love to hear other from others that have done developments whether we should go ahead and do this or not? is it feasible and worth doing?

thanks in advance

First and foremost, I think you're going to have problems selling something off the plan in a development that small. Could be wrong, but that's my gut feel.

LeoT started a thread recently talking about his proposed development and Shahin Afarin offered a lot of solid advice. Maybe try dig that one up?

With regards to your costs, are these quotes from contractors? Do these include authority fees to make new accounts? I'm not 100% certain as I've never done a development, but I believe you'd need to apply for new connections to Water/Sewer Mains & Power? These fees alone can be pretty hefty.

Why not calculate the interest on the loans?

 

[Noknee]

What type of subdivision are you planning on? Strata, community or torrens title. Cost will vary. If you're looking at torrens which is the most preferred cost is approx $33k.

Subdivision should be around $8-12k pending site.

What size townhouse are you looking at, how many sqm, what level of finish.


I would be seeking specific advise from a professional regarding the purchase structure before purchasing. Especially if you're looking to offload one immediately.

Brady would be torrens titled

they would be 2 storey towhouse 3 bed 1 with ensuite bathroom upstairs and powder room (toilet) down stairs I don't know exactly but around 150 sqm

will be high level of finish pretty much turn key ready to roll

 

[Noknee]

First and foremost, I think you're going to have problems selling something off the plan in a development that small. Could be wrong, but that's my gut feel.

LeoT started a thread recently talking about his proposed development and Shahin Afarin offered a lot of solid advice. Maybe try dig that one up?

With regards to your costs, are these quotes from contractors? Do these include authority fees to make new accounts? I'm not 100% certain as I've never done a development, but I believe you'd need to apply for new connections to Water/Sewer Mains & Power? These fees alone can be pretty hefty.

Why not calculate the interest on the loans?

thanks i will try find those threads i am struggling this morning to find stuff i am looking for!

yes these are quotes and includes fees i believe - i think the connection costs are in the subdivision price sorry i am not 100%

 

[sanj]

Margin is very small, 10% and you have a small contingency and haven't taken into acc I until gst or selling fees etc if you do sell. Also as you mentioned hasn't taken into account holding costs.

I personally wouldn't go near it based in those numbers.

If your construction and sale figures are accurate you wouldn't want to be paying more than low 300s I suspect to make the site work but I obviously haven't done the numbers in detail

 

[Scott No Mates]

I'm with sanj - check your end market values for townhouses. What is the market telling that they're worth? If comparables are selling for $500k that's instantly another $150k in your pocket on the development bringing it up to 20% gross profit.

At 10% there's way too much risk unless you are experienced, not subject to finance constraints and can secure a DA before settlement.

 

[Ace in the Hole]

Complete construction costs for 3 x high level finish townhouses seems very low at just over 600k.

Has this been quoted?

 

[sanj]

Complete construction costs for 3 x high level finish townhouses seems very low at just over 600k.

Has this been quoted?

I missed that fact,high level finishes for end value of 450k seems like overkill

 

[wylie]

For the DA we are about to lodge, I was working on $300K per townhouse, ballpark figure.

Having spoken to a young lady who has done a development at Paddington recently, and telling her roughly what we are doing, she suggested we allow more like $360K per townhouse, assuming a reasonably high end spec, stone bench tops etc.

I told her I was allowing $1.5M for the complete build and she said she would be allowing $1.7M .

Ours will be bigger than brand new townhouses in the street, high spec finish, but cramped feeling, which sold for $720K(ish) recently. Ours will be better layout and more spacious.

 

[Television]

For the DA we are about to lodge, I was working on $300K per townhouse, ballpark figure.

Having spoken to a young lady who has done a development at Paddington recently, and telling her roughly what we are doing, she suggested we allow more like $360K per townhouse, assuming a reasonably high end spec, stone bench tops etc.

I told her I was allowing $1.5M for the complete build and she said she would be allowing $1.7M .

Ours will be bigger than brand new townhouses in the street, high spec finish, but cramped feeling, which sold for $720K(ish) recently. Ours will be better layout and more spacious.

360k? What's the GFA of the units?

 

[Noknee]

Margin is very small, 10% and you have a small contingency and haven't taken into acc I until gst or selling fees etc if you do sell. Also as you mentioned hasn't taken into account holding costs.

I personally wouldn't go near it based in those numbers.

If your construction and sale figures are accurate you wouldn't want to be paying more than low 300s I suspect to make the site work but I obviously haven't done the numbers in detail

What are the costs gst if we do sell one Sanj this is what i don't get?

 

[Noknee]

Complete construction costs for 3 x high level finish townhouses seems very low at just over 600k.

Has this been quoted?

Yes has been quoted and that amount


What do you mean by overkill?

 

[Noknee]

also Sanj where did you get 10% from?

with interest as well I still get about 14% but this doesn't include selling one and what the costs associated with that will be!

Cheers

 

[wylie]

360k? What's the GFA of the units?

I found this on the plans -

Proposed GFA
Unit 1 - 115.0m2
Unit 2 - 115.0m2
Unit 3 - 115.7m2
Unit 4 - 122.4m2

Total GFA proposed 468.1m2 - 40.6% of site area.

We asked local letting and sales agents what tenants and buyers would be looking for in this position. The answer was three good sized bedrooms rather than four small bedrooms. We opted for living on the top floor plus main bedroom/ensuite, patio.

Lower level has a second living area with part that can be closed off as a fourth bedroom but initially it will be a media room/living room. There is a bathroom, laundry too and the double garage.

There is a brand new development nearby that feels small due to having four bedrooms and a cramped feeling living/dining/kitchen. I don't want that for rental or for future sale.

The designer says these are pretty big townhouses, more like a small house. I don't understand the measurement figures. I don't even know how big my own house is.

If I use $360K per townhouse plus the figures I know we are up for, then I guess we will possibly reach $1.7M. Scary. The ones nearby sold for just over $700K ($720K(ish) for two of them) so I think if ours "could" be called four bedroom and have a second living area downstairs plus a spacious living area upstairs, I believe we could safely assume finished value for each one of $750K.

I also have to allow $112K for headworks, which apparently gives me nothing but a nice warm feeling .

I'm trying to pull together the other costs, and I thought I had to have them built with a builder and I would pay for a driveway, water connection, power etc, but the town planner has said this all will be quoted by the builder.

I'm confused, but learning as things move forward.

I just prefer to allow a bigger amount and have some change than estimate too low and find myself scratching for money to finish.

We already have been advised we need to lift and move two houses instead of the one house we knew would have to be moved. That just added $50K minimum to the total.

Every time I blink it seems there is another cost.

Bottom line is we hope to keep them all, and as long as the rent covers the loan, I'm happy. A true developer would not have this casual attitude, but I'm not a true developer. I want good quality, easy maintenance and easy to rent for long term income.

I have a big learning curve ahead. (That is... hubby and me, not just me.)

 

[LeoT]

Hi Wylie ,

The obvious concern for me first would be your calculated TDC and then your projected end sales amount...the return %age margin on costs appears to be very low. I'd want to make sure that the project is financially viable before you jump in mate.

Good luck !

 

[LeoT]

The ones nearby sold for just over $700K ($720K(ish) for two of them) so I think if ours "could" be called four bedroom and have a second living area downstairs plus a spacious living area upstairs, I believe we could safely assume finished value for each one of $750K.

So nearby ones sold for 700k for two of them . So 350k each , how do you get yours to be 750k each then....am I missing something ?

Unless you meant nearby sold for 720k each ?

 

[wylie]

The obvious concern for me first would be your calculated TDC and then your projected end sales amount...the return %age margin on costs appears to be very low. I'd want to make sure that the project is financially viable before you jump in mate.

The plan is to hold these. If we have to sell something, it will likely be one of the houses. For this reason, we are not working to a bottom line like a developer would. That doesn't mean we don't need to be careful or watch our spend though. But I'm prepared to spend a little more for easy clean, robust finishes and won't cut any corners because it will be me dealing with any issues down the track once they are rented.

So nearby ones sold for 700k for two of them . So 350k each , how do you get yours to be 750k each then....am I missing something ?

Unless you meant nearby sold for 720k each ?

Two nearby sold for about $720K each. These were nice townhouses but I couldn't have lived in them. Four bedrooms, three bathrooms, but no room for more than a couch and table and chairs in the living area. So, we have opted for three bedrooms, secondary living area downstairs which can be divided into a fourth bedroom or bedroom sized media room/study. Doing that still leaves a small living area downstairs.

We also have at least twice the room upstairs with kitchen in a corner and living and dining rooms off each side. I don't think they will fee cramped at all and much more appealing.

If the cramped ones in the next street sold for $720K(ish) each and another sold just under $700K then I believe our larger living areas would bring us that and more.

I was working on $300K per townhouse build price and cannot find out what other costs we will be up for (and I have tried - but without plans I'm working in the dark). I know I face 4 x $28K council headworks. I know I will have extra cost to dig under the fill in the yard and to retain the block as the townhouses step down a hill.

When I told a developer my $300K per townhouse cost, she said she would allow $360K and had just build three townhouses in Paddington. I said I thought $1.5M would cover everything, and she suggested I make that $1.7M.

At that price, on projected rent figures, we can hold them. Rent will not cover rates, insurance etc. If we get higher rent than projected and/or don't spend $1.7M, then they will put money in our pocket. Either scenario is good.

 

[LeoT]

The plan is to hold these. If we have to sell something, it will likely be one of the houses. For this reason, we are not working to a bottom line like a developer would. That doesn't mean we don't need to be careful or watch our spend though. But I'm prepared to spend a little more for easy clean, robust finishes and won't cut any corners because it will be me dealing with any issues down the track once they are rented.



Two nearby sold for about $720K each. These were nice townhouses but I couldn't have lived in them. Four bedrooms, three bathrooms, but no room for more than a couch and table and chairs in the living area. So, we have opted for three bedrooms, secondary living area downstairs which can be divided into a fourth bedroom or bedroom sized media room/study. Doing that still leaves a small living area downstairs.

We also have at least twice the room upstairs with kitchen in a corner and living and dining rooms off each side. I don't think they will fee cramped at all and much more appealing.

If the cramped ones in the next street sold for $720K(ish) each and another sold just under $700K then I believe our larger living areas would bring us that and more.

I was working on $300K per townhouse build price and cannot find out what other costs we will be up for (and I have tried - but without plans I'm working in the dark). I know I face 4 x $28K council headworks. I know I will have extra cost to dig under the fill in the yard and to retain the block as the townhouses step down a hill.

When I told a developer my $300K per townhouse cost, she said she would allow $360K and had just build three townhouses in Paddington. I said I thought $1.5M would cover everything, and she suggested I make that $1.7M.

At that price, on projected rent figures, we can hold them. Rent will not cover rates, insurance etc. If we get higher rent than projected and/or don't spend $1.7M, then they will put money in our pocket. Either scenario is good.

If your total cost lets say is 1.7m, What is your total projected sales? Getting 750k for one is a much different scenario than for two so im confused (yes Im not the quickest cat here).

So please just tell me a figure for your end sales.

cheers

 

[wylie]

If your total cost lets say is 1.7m, What is your total projected sales? Getting 750k for one is a much different scenario than for two so im confused (yes Im not the quickest cat here).

So please just tell me a figure for your end sales.

cheers

Now you are confusing me . We have no projected sales. We will build and hold. We will have a big debt but rent "should" cover it, even if it doesn't put any money in our pocket initially.

But, if you mean what "could" we sell them for if we planned to sell... then that would be (educated guess) at least $750K each x 4 = $3M. Let's say we get only $700K x 4 = $2.8M.

Assume cost to build all up $1.7M, land is "free" but I've been told the block with DA could be valued around $800K (which is still one thing we may do - just sell the block with the DA).

So, if we get the DA and sell the block for $800K and a builder does the build and spends $1.7M, I guess that gives him a $500K profit. I make that 20% but perhaps it isn't that simple?