Apartments - feasibility, where do I begin

[MTR]

Hi All

Am just looking at options at the moment, am hoping to secure a property this week, R40, 762 sqm which I think may be excellent for apartments due to the proximity to a major shopping centre and demand.

Not really sure where to begin. Real estate agent mentioned the possibility of building 6 apartments. Would building costs be approximately $1800 per sqm??

Could those with experience in this area give me some idea on what I need to look at.

Thanks

MTR

 

[Mitch1]

Hi MTR, currently looking at this myself in Brissy. Got 2 tentative quotes from builders and for apartments/units that is about right as suspended slabs increase the cost by about $300-$400 per sqm. Townhouses come in at about $1300-$1400. I am working my figures out on $1800 for Bessa block with suspended slabs to turnkey finish and adding some cushioning on top. Was also told there is little difference betweent the block and pre cast concrete. (Except possibly build time, but depends on who you use?) Have not made a decision yet though as depending on Wether or not I can get a higher GFA than I currently have will make the decision between the unit/townhouse build.

 

[MTR]

Hi Mitch1

Thanks for this. I plan to contact my builder if I do secure the property as he is now starting to build this product. I am in Perth.

Most of the developments in this area are 3x2 villas, which generally sell anywhere from $540K-650K. I could really see 2 bedder/apartments flying out the door at around $400-420K, due to lower entry level and proximity to the city.

What I also like very much is the fact that there are no apartments in this area, I have no competition. I have noticed over the last 2 years there are too many apartments going up and now we are seeing an over supply in certain areas. Do you have same scenario happening in Brissy??

Cheers
MTR

 

[Mitch1]

Depends on the area really. If zoning allows for higher density then developers are going to maximise with units/apartments and utilise the height for their zoning which you can't do obviously in resi. Low/med density, character areas etc. here.
I also am finding it depends on what the council like for your area regardless of their own criteria. If you have a lot of townhouses around my thought would be is this where council want to go and is fighting that doable? Given developers want to maximise, are they being restricted due to the direction of where council want to go!
My agent said no demo and convert to 4 units. Town planner said demo using criteria and now I am going to try and push for higher GFA. Agent has tried to buy back from me since demo approval. Needless to say I am leaning heavily on the planner and his expertise!

 

[westminster]

MTR I use $2000/m2, you might get away with less than that due to spec level but see if you can make it work at that.

so.....

(762 x 0.6) x 2000 = $ 914,400

Remembering that the more apartments, ie more 1 bedders, the more expensive it gets. Bedrooms are cheap - bathrooms and kitchens aren't.

I'd say it would be 6-7 of 2x2 bedroom apartments. You could mix it up and do 1, 2 and 3 bedders

Take home message is that it will cost approx $300k more than a triplex on it in this instance.

I recall this conversation awhile back where you didn't want to do apartments because no one else was. I see you have come to the dark side where you WANT to do it because no one else is

 

[sanj]

Really hard to say without knowing more. 2k is a fair ballpark but you could easily end up at 2.3k/sqm as well based on design, fire safety requirements, spec level etc.

 

[Mitch1]

Have got to take the glass half full approach on this, even at 2.3k the end result of 6-7 units is considerably more profitable than 3x2 br villa's. Even taking into account the additional cost to build.
Guess it all comes down to ability to service commercial (?) loan/waiting on approval etc would have thought fire safety specs to be inclusive in even an $1800 quote? Building spec has to meet the market , so absolutely this has to be seriously considered, if it's high end it is def going to push up the bathroom/kitchen and final finish end and the cost per sqm.

Plus, if it is on a busy road, noise report, extra consideration/cost in build to meet the acceptable decibel will all add up.

 

[MTR]

Depends on the area really. If zoning allows for higher density then developers are going to maximise with units/apartments and utilise the height for their zoning which you can't do obviously in resi. Low/med density, character areas etc. here.
I also am finding it depends on what the council like for your area regardless of their own criteria. If you have a lot of townhouses around my thought would be is this where council want to go and is fighting that doable? Given developers want to maximise, are they being restricted due to the direction of where council want to go!
My agent said no demo and convert to 4 units. Town planner said demo using criteria and now I am going to try and push for higher GFA. Agent has tried to buy back from me since demo approval. Needless to say I am leaning heavily on the planner and his expertise!

Hi Mitch
Good points you have raised.
Most of the area have townhouses purely due to zoning which does not permit.

The higher density zoning is only around/close to the major commercial strip. Not sure what council's view is regarding apartments, but I suspect it will be positive from research so far.

Not sure how long a project like this will take?? This also needs to be considered amongst other things... Finance??? That is the big one.

Thanks
MTR

 

[sanj]

Mitch I'm not sure how you can say it will be a lot more profitable without looking at any figures.

Re fire safety, it also depends on the individual site and design. For one I'm doing at the moment the changes required/alternative solutions have ended up costing around 50k or over 100/sqm just to comply with fire safety requirements. This is a bit more than normal due to how tight the site is but it shows how variable these costs can be.

 

[MTR]

Really hard to say without knowing more. 2k is a fair ballpark but you could easily end up at 2.3k/sqm as well based on design, fire safety requirements, spec level etc.

Yes, I think its just guess work at the moment, but at least its a start and I can get some idea from my builder

thanks

 

[Mamaof3]

Hey MTR,

We've just been through this exercise with a rezoning of a metro area in Adelaide and the council encouraging apartments so we thought yay, on a 700m2 block instead of being able to build 3 townhouses we could get 6-8 apartments but when we actually got pricing based on prelim plans we had drawn up, the build costs just ate away all the 'extra' profit we thought we'd make.

$1800/m2 would be a very basic apartment build and doesn't allow for much else in terms of contingencies, just keep in mind everything is on a more complicated level when it comes to apartments such as engineering (the quote came in alot more than a standard construction footing report).

On the surface being able to put more homes on a site might make you think oh yeah, that must mean more profit but thats not necessarily the case.

Also, being the first lot of apartments to be built in the area you don't have any direct comparable sales to base your resale prices on so just be careful to do your homework as you'll almost be setting a precedence and you wouldn't want to get this off the mark otherwise your margins could go

 

[MTR]

MTR I use $2000/m2, you might get away with less than that due to spec level but see if you can make it work at that.

so.....

(762 x 0.6) x 2000 = $ 914,400

Remembering that the more apartments, ie more 1 bedders, the more expensive it gets. Bedrooms are cheap - bathrooms and kitchens aren't.

I'd say it would be 6-7 of 2x2 bedroom apartments. You could mix it up and do 1, 2 and 3 bedders

Take home message is that it will cost approx $300k more than a triplex on it in this instance.

I recall this conversation awhile back where you didn't want to do apartments because no one else was. I see you have come to the dark side where you WANT to do it because no one else is

Hi Myf

Not anti apartments what so ever, its just where I am at.
I prefer to build villas/units only because its easier to finance and shorter time frame.

I think this particular site I am trying to secure would be an excellent site for apartments, if the figures are good then I think I should pursue this avenue. I just need all the stars to line up at the moment.

MTR

 

[INVSTOR]

I was surprised how quickly new apartments sell in Bassendean, I'm sure Bayswater would have the same result. This was the first one built with two larger complexes built since. http://www.bassendean.wa.gov.au/7_info_feedback/briefings/no84-Jan2012/84_page2.html
http://www.bassendeanmeansbusiness.com.au/2012/06/28-million-investment-in-old-perth-road/

Add
http://aaltoproperty.com.au/pdf/Project Summary - Wilson Street, Bassendean (NRAS)-2012.pdf
Other interesting projects
http://www.aaltoproperty.com.au/pastprojects.aspx

 

[MTR]

They look very attractive.

 

[Mitch1]

Mitch I'm not sure how you can say it will be a lot more profitable without looking at any figures.

Re fire safety, it also depends on the individual site and design. For one I'm doing at the moment the changes required/alternative solutions have ended up costing around 50k or over 100/sqm just to comply with fire safety requirements. This is a bit more than normal due to how tight the site is but it shows how variable these costs can be.

Hi sanj, yes, you are definitely right, I do not have all the figures which makes an outcome difficult to predict.

My assumptions are Based on the figures given, 2300 per sqm is I would think, pretty much mid to high end, or mid end with additional costs, such as you have encountered with your own. MTR's site is a reasonable size so unless the frontage is very narrow (or other restrictions due to local planning, incur larger build costs) he possibly doesn't have a tight site and if he is considering units, I am also assuming he has the frontage/size to allow him this option, so yes all based on assumptions.

Using 2.3k cost to build on 6 is 1.05m approx and selling at 400k is 2.4m, more on build and sell est. if he gets 7. (And more if they sell at 420k)
3 villas @650k selling 1.95 as per MTR's post on selling values. Cost to build roughly 630k diff is 1.3 and diff between build and sell on 6 units is 1.46m so it isn't much, but does come down to will units sell at that price with no real market info. Or will they sell for more due to low supply. It's all a risk and comes down to is it a risk you can afford to take.

I do not know purchase price, loan amount, interest rate secured or length of time servicing loan before approval or drawdown time limits etc but end result I would have thought is still going to be more profitable to build 6-7 units over 3 town houses.

Unfortunately, no one can ultimately predict end cost or profit until the process has begun and of course the market at time of sale, I really am not attempting to do this only Suggest that the homework is done on the site before purchase, the costs are added, plus decent cushioning for blow outs in build process and the ability to service a loan beyond the anticipated timeframe if council look for continuous changes to the plans.

sorry to hear you had that blow out on your costs. These are certainly areas I need to increase the budget so that it can withstand the unknown and hope to god it doesn't happen!

 

[MTR]

I think it will definitely be more profitable to build apartments. The townhouses end value will be more like $550K as they will be smaller than the norm, due to the number on the block, hope that makes sense.

I am a SHE not a HE.... Its a 'mans' world, sort of in the investing game.

 

[Mitch1]

Oops Sorry Ms. MTR, I too am a she

 

[INVSTOR]

I think we need little Male/female signs next to our names.

 

[MTR]

Oops Sorry Ms. MTR, I too am a she

.... and I thought with a name like Mitch got to be a male

 

[Mitch1]

Thank my grandmother for that nickname.... It's actually Michelle and I gave up reminding the family of that years ago!

Invstor.... Like the symbol