Advise wanted - Melbourne bayside

[Rolf Schaefer]

Hi,
I do have a client who wants to retire in about 9 yrs time.

They have one owner occupied property and one investment property.

They have about $100K in equity to play with and plenty serviceability (serviceability actually is not an issue at all).

They have the following 2 plans:

Plan A
Step1: Purchase a property with development potential in the Melbourne bayside suburbs of either Hampton, Highett, Cheltenham, Mentone or Parkdale for about $600K at 95% LVR
Step2: Subdivide and get plans and permits in place
Step 3a: Sell as is with plans and permits or
Step 3b: Develop and hold; access equity
Step 4: Sell current owner occupied property and purchase new owner occupied property in Mornington (this is where they want to move to in retirement)
or

Plan B
Step1: Purchase a property with development potential in the Melbourne bayside suburbs of Mornington for about $400K at 95% LVR and purchase a nice 2BR unit/twonhouse for about $200K also at 95% LVR in Frankston area (should benefit from EastLink and Marina); alternatively this one could also be in the Heathmont, Mitcham, Ringwood area (close to Eastlink as well)
Step2: Subdivide and get plans and permits in place
Step 3a: Sell as is with plans and permits or
Step 3b: Develop and hold; access equity
Step 4: Sell current owner occupied property and purchase new owner occupied property in Mornington (this is where they want to move to in retirement)

What is your expert opinion on these 2 plans?

Obviously they'll be getting the finance through me

Thanks for your help and Happy Easter

 

[gsh]

Getting plans and permits and sub dividing etc etc doesnt gurantee a profit.

I see it time and time again that people who go down that path dont look at it from the viewpoint of the new buyer at the end.

They have to do a feasability study and leave something in for the next person.

Example- if they got a permit to sub divide a corner allotment and then on sold the vacant piece of land with a permit they need to ask themselves the following.

1. How much will it cost someone to build the new dwelling on the new title?
2. what will be the cpital improved value of the new dwelling?
3 Having worked out the end value of the new dwelling and subtracting the construction costs ( and fees etc etc) and leaving a 20% margin in there- how much will the site realistic be worth?

 

[Nigel Kibel]

buy to hold

I have over the years renovated properties and turned them over. Today it is difficult to do this. My suggestion is forget development which can be a costly exercise but look for properties that need improvement such as an older style apartment or unit. By renovating the property you will quickly create equity and increase your rental yield.In my view with this type of stratagy you with still achieve your goals. With development you may go to a lot of effort that may or may not work.

 

[gsh]

Yes, I agree with nigel and without trying to sound like someone that thinks he knows everything, the problem these days is with the construction costs.

The construction costs for building have far outstripped the growth in real prices.

In most cases you can buy an established property far less than a new one- ie new inner city apartments.

When this happens someone needs to absorb the 'loss" amd it is all to ofetn nowadays the "land owner", or in this case your client who is looking at adding value by obtaining permits to sub divide.

 

[Nigel Kibel]

development

Also Most people who jump into development have no real idea of what they are doing. so by the time they pay everyone to do the work, including the builder there is often very little if anything for the developer. That is because most people do not do the research but jump in and then wonder why they loose money. They will then come out with a comment like "Sure I lost money but I learnt a lot". Losing money in property can mean losing a lot. If you resaerch and are careful with what you do their is no reason that you should lose money. Remember measure twice cut once.