Advice please - to renovate or develop?

Hi,

I own a 560sqrm block in a good central location in Melbourne.

Currently there are two stand alone buildings on this block. Each building has 2 levels. Each level is 1 x 3 bedroom apartment.

So at the moment there are 4 art-deco apartments on this block.

I could renovate and turn an ok value-add.

But I could potentially build 15 apartments on there (3 levels).

The question is, would a developer go into an agreement where I provide the block, he funds the build and we split the apartments in a fair manner?
 
The question is, would a developer go into an agreement where I provide the block, he funds the build and we split the apartments in a fair manner?

What you're asking is, "Will a developer do a Joint Venture (JV) with me?"

Developers do JV's all the time. In fact many companies are formed for that specific purpose and are sometimes called the "The XYZ - ABC JV Pty Ltd".
 
Hi,

I own a 560sqrm block in a good central location in Melbourne.

Currently there are two stand alone buildings on this block. Each building has 2 levels. Each level is 1 x 3 bedroom apartment.

So at the moment there are 4 art-deco apartments on this block.

I could renovate and turn an ok value-add.

But I could potentially build 15 apartments on there (3 levels).

The question is, would a developer go into an agreement where I provide the block, he funds the build and we split the apartments in a fair manner?

My thoughts are if your skills and experience lay with doing renos and you trust your figures then I would be tempted to go with what know. Even if that means a lower profit.


Naturally a developer will do a deal with you if your land is a good opportunity for profit. How favorable a deal you will get is the big question. When you will see any funds is also an unknown

I had a 9 unit site that I was going to do a deal with a small developer. There was potentially more profit in doing that what however I choose to sell outright as I did not want a lengthy project that I really had no control over. If I had a previous relationship with a developer that I could trust then it may have been a different story.

Interesting the developers cant sell the units either.

http://www.realestate.com.au/cgi-bi...23576556&m=0&ph=0&s=qld&snf=rbs&tm=1255148524


Regards,
 
That's a good point, the trust factor is a big one :)

I guess the profit different between reno and dev is large, $200k vs $1mil. I don't plan to sell so I would be able to revalue and pull out the equity in theory. The duration will be 3 months for a reno vs 2-3 years for a build. So that's a significant period that I need consider.

I want to spend 3-4 weeks exploring the development opportunity before I make a decision whether to develop or reno. My settlement on the block is not until Jan 2010.

Can anyone recommend a melbourne based developer and someone to help with the feasibility analysis? I don't mind paying a couple of $1000 to get the feasibility done upfront.
 
this also depends on a question, ( how big is your wallet) could you finance a project for a year, ???including loss of income,
 
Get a permit and put the property to Auction with the permit in place.

Set the reserve at a price that reflects he profit you would make if you renovate and sell or refinance. (ie current value plus potential profit - not just selling price as you would have to spend $$ and time to renovate).

If there really is more profit in the development you should capture it in the sale price.

Remember profit must reflect the risk.

cheers

RightValue
 
That's a good point, the trust factor is a big one :)

I guess the profit different between reno and dev is large, $200k vs $1mil. I don't plan to sell so I would be able to revalue and pull out the equity in theory. The duration will be 3 months for a reno vs 2-3 years for a build. So that's a significant period that I need consider.

Do some very back sums.

How much is your block worth? Ie your contribution

How much does it costs to built 15 units?. Ie the developers contribution.

I dont know your figures but just guessing 15 units will be maybe 3million. Even if your block is worth 1 million you are still only putting in 33%

33% of 1 million isnt that far the 200k reno profit in your figures. Reno you have total control and still have rental income while you do each unit.

How many projects have you done if that's not a rude question? A 15 unit development is a decent sized project if you are pretty new. A 4 unit reno project is nothing to be sneezed at and neither is 200k of low risk profit.

One other idea for you is do only do a mid spec reno with a view to doing a full scale 15 unit development down the track. That way hopefully you increase cashflow and get some capital gain to help you with your bigger project later.

Again just my personal view. All the best what ever you decide.

Regards,
 
Hi,

well my contribution would be around $2mil. Like you said, the build of 15 units would be around $3mil.

At $600k per apartment, 8 for me and 7 for the builder would be what i'd be hoping for!

Any less than that and it's not worth it :)

So you may have raised a valid point, is there enough in it for the builder to do.

I have not done major build projects so I would need to partner with a highly experienced and recommended builder. I am a project manager by profession but not construction.

Def more profit in dev if I can get a builder to put in the $3mil development cost.
 
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