Brisbane - 3 Townhouse development site hunt

[YPG]

WARNING! LONG POST! POSSIBILITY OF BOREDOM!

Hey Guys,

Very determined to undertake a small scale development in Brisbane this year. Basically find a 600sqm site, LMR zoned, flood free, with or without a house for demolition that is not within a Demo control precinct or any other notable constraints. Ideally the purchase price for the site will be in the range of 475-525k and the cost for construction for three turnkey 3bed 2 bath townhouses around 475-525k. Overall I am looking for a 25-35%+ return. So hopefully costs of around 1 million with end products worth 1.4 mil+ with rent from each around $450-550. Options could be to sell one and keep 2 or even keep all three. Does anybody think it is a safer option to sell one to pay down debt and keep two and therefore not as much exposure in 1 place? I have read/heard before that developing is a great way to create cash flow neutral or positive so therefore the best option might be to hold all and let the rent make bank repayments and accrue in an IO offset account so that I can use this cash again to repeat.

I really want to start an property investing strategy where small developments become my forte. Basically duplex and townhouse projects at an affordable level. Being a town planner and just starting to study a cert IV in residential drafting online at nights and spare time I feel I could be well suited to this as effectively I could see the development process through and save a lot of fees by doing myself. So far I have outlined Brisbane as the area for my first project as this is where I currently feel most comfortable and understand the best due to living there for a number of years. I feel that brisbane is still relatively affordable for every day people and although not at the standard as melbourne and sydney I feel there is definetly room for prices to increase once it picks up. I also feel with the flat market now could be a good time to buy, develop and hold for better times to come.

I want to make duplex's/townhouses my own strength because I find them to most attractive from other developments because:
- townhouses still have significant land component and still feel like "houses" compared to apartments/units as they can have courtyards, etc.
- smaller complexes without pools/common areas and therefore lower body corporate fees
- increasing number of retirees downsizing for future demand
- increasing number of smaller households for future demand
- opportunities in good locations close to CBDs
- less risk and money output than large scale developments
- much simpler development process and conditions
- affordable and diverse housing choice for community creating demand

Although I am only 21 and this will be the first project - I have a real desire to learn as much as I can and become my own expert on these small scale developments and maybe one day be able to mentor others into the process. I understand that the only way for this to happen is to get experience. So hopefully my first works out and approximately every 2 years I can start a new one. This may be a bit ambitious but this is my goal!

As mentioned above here are a few dot points that I am considering for a suitable site:
- 600 sqm site minimum
- LMR zoning for 3 townhouses with all 100-110 GFA approx
- House/vacant land - with no DCP
- no major constraints
- flood free
- as close to Brisbane CBD as possible 4-7km radius = ideal
- not directly adjacent to train line to improve desirability and avoid any special acoustic requirements, etc.
- access to public transport (400-1000m walk able catchment to train station ideal)
- close to restaurants/shops/parks and other facilities
- close to schools
- similar small scale developments in the area - however no oversupply
- 15m+ frontage
- relatively flat land
- outstanding design of floorplans incorporating many of the minor changes that can really make a difference to rental return, eg. interal laundry cupboards.
- no large obstructing trees where there may be issues with removing (contact aborist beforehand - conditions to sale)

The goal is to buy to develop - not to buy and hold and develop some time in the future. I want to manufacture the capital now. Having a house can be useful for holding costs during process however if left vacant there will be no need for a demolition (10k or so).

There is also the issue of a body corporate - I have absolutely no idea how these are set up when you develop your own site and what are the key things to consider, I will look into this shortly, if anybody has any advice it would be greatly appreciated.

Here are 5 sites that I have narrowed down and think show potential (in order of most potential) with a few dot points on each. If anybody has any comments on these, the area, anything else in the post or any other tips/criticisms/etc. then please let me know.

1. http://www.realestate.com.au/property-house-qld-morningside-107681926
- this by far is the choice with most potential
- listing price already what I would consider below market value (479k)
- DA already in place - saves risk of not receiving DA + interest during DA process
- clever design
- within walking distance to train station
- 5km from CBD
- rough estimations of 1 mill with 1.4mil product returning $1450 rent per week
- slight slope to street - which I heard is desirable for drainage etc.
- fair bit of supply of new townhouses in the morningside area listed atm... however all listed for high values 500-650k


2. http://www.realestate.com.au/property-residential+land-qld-greenslopes-200140521
- land already vacant
- flat land
- mature/attractive trees along boundaries (check if any issues)
- slightly longer walk to train station around 1km
- close to woollongabba and surrounding facilities
- site price unknown? offer 450-500k?
- no need for demolition


3. http://www.realestate.com.au/property-house-qld-windsor-108324851
- slightly larger block 678m therefore allowing slightly larger town houses 115sqm compared to 100.
- house for holidng costs during DA process (5 bed 2 bath is pretty rare)
- wide frontage
- walking distance to train station


4. http://www.realestate.com.au/property-house-qld-newmarket-109181326
- listed too expensive as is - would need a significant discount.
- don't know much about newmarket however it has access to the train station and is within 5km of city. I think I read in API sometime that one of the experts picked newmarket as a good area for development? maybe feb issue? not sure
- slight slope to road - drainage?
- odd shape of block - possible issues with designing for 3 townhouse
-

5. http://www.realestate.com.au/property-house-qld-newmarket-109400306
- same comments above about newmarket
- would also need significant discount on asking price 510-530k down from 550.
- flat block
- located close to shops
- slightly further distance to train

I appreciate the time you have spent to read such a long and roughly structured post.

Cheers, YPG

 

[Cam1]

The following property is well outside the 7km radius of Brisbane but appears to fit all of your other criteria. However, there is already DA approval for 4 townhouses & the asking price is about 50% less than the properties you have listed. There is a small shopping centre under construction about 200m away in Brisbane Rd.

http://www.realestate.com.au/property-residential+land-qld-redbank-200014146

 

[JWR]

Very ambitious YPG!

Not that I know much about developing but what I do know is that the costs always blow out and the resale value may not be there when you need it.

My idea is to instead buy a development block that is cash neutral at least with the intention of developing down the track when I have a clue of what to do and some money.

PM Aaron C and he will help

 

[tcocaro]

WARNING! LONG POST! POSSIBILITY OF BOREDOM!

Hey Guys,

Very determined to undertake a small scale development in Brisbane this year.

without trying to sound conceited may I suggest (if you havent already) trying to build 1x dwelling first. If you cannot make a $ from one sale you will loose a ton on a duplex+. This being said ill try to stick to responding to your post as I am sure you scoffed at this first comment

Basically find a 600sqm site, LMR zoned, flood free, with or without a house for demolition that is not within a Demo control precinct or any other notable constraints. Ideally the purchase price for the site will be in the range of 475-525k and the cost for construction for three turnkey 3bed 2 bath townhouses around 475-525k.

Basically this is the planning minimum requirements for a development site in the Brisbane LGA. There are heaps of sites that meet this requirement e.g. http://www.realestate.com.au/property-house-qld-everton+park-107599290
The next part of your question is the key.

Overall I am looking for a 25-35%+ return. So hopefully costs of around 1 million with end products worth 1.4 mil+ with rent from each around $450-550.

Dream on. When you find this site, please let me know ill pay you 50k just for finding it and develop it myself. No pure developer (i.e. not builder\developer) is making 25-35% profit margins on small sites they dont exist. Your estimate for total cost of 1m is also not reasonable. You yourself state $500k land value. So are you expecting to build, DA, fees, interest a duplex? for $500k. build alone will be $450k leaving you $50k for everything else and this is on a duplex, a 3x townhouse site will be much more.

Rental return of $450+ means a decent build\size of townhouse further make such estimates unrealistic.

Options could be to sell one and keep 2 or even keep all three. Does anybody think it is a safer option to sell one to pay down debt and keep two and therefore not as much exposure in 1 place? I have read/heard before that developing is a great way to create cash flow neutral or positive so therefore the best option might be to hold all and let the rent make bank repayments and accrue in an IO offset account so that I can use this cash again to repeat.

At the start keeping any units is pointless if you plan to develop further into the near future. The reason being a "commercial loan" will allow a maximum take-out of 80% meaning 20% of your equity i.e. your profit is trapped. This means you have less money to invest in your next development.

I really want to start an property investing strategy where small developments become my forte. Basically duplex and townhouse projects at an affordable level. Being a town planner and just starting to study a cert IV in residential drafting online at nights and spare time I feel I could be well suited to this as effectively I could see the development process through and save a lot of fees by doing myself. So far I have outlined Brisbane as the area for my first project as this is where I currently feel most comfortable and understand the best due to living there for a number of years. I feel that brisbane is still relatively affordable for every day people and although not at the standard as melbourne and sydney I feel there is definetly room for prices to increase once it picks up. I also feel with the flat market now could be a good time to buy, develop and hold for better times to come.

Agree with everything you have to say here and commend you on immersing yourself in what your plannning to do. However if you are indeed a town planner simply ask some of your clients if they have ever found a site as you are looking for namely, next to nothing to build, simple, small and somehow 25% profit

I want to make duplex's/townhouses my own strength because I find them to most attractive from other developments because:
- townhouses still have significant land component and still feel like "houses" compared to apartments/units as they can have courtyards, etc.
- smaller complexes without pools/common areas and therefore lower body corporate fees
- increasing number of retirees downsizing for future demand
- increasing number of smaller households for future demand
- opportunities in good locations close to CBDs
- less risk and money output than large scale developments
- much simpler development process and conditions
- affordable and diverse housing choice for community creating demand

Regardless if your logic is correct the longterm trends you point out will have next to nill affect to your development of 24 months from start to finish. Your strategy should be based on your own capacity in terms of experience and financial ability it is for this reason you have no choice but to start small.

Although I am only 21 and this will be the first project - I have a real desire to learn as much as I can and become my own expert on these small scale developments and maybe one day be able to mentor others into the process. I understand that the only way for this to happen is to get experience. So hopefully my first works out and approximately every 2 years I can start a new one. This may be a bit ambitious but this is my goal!

I wish you the best of luck. Your first project will take a while, trust me. You will struggle to finance it, develop it, find it etc however atleast your starting off with a fairly reasistic time-frame of 2 years. My prediction you will get DA, you will settle and then struggle to finance the build. Perhaps speak to some financiers first and ask them how much they expect you to put in as equity, I think you will be shocked. There is no 90% loans in commercial land and even if you try to wing your first as a resi-loan e.g. a duplex you will still have to put a minimum 10% of a build+land of 1.1m i.e. 110k+all fees\expense e.g. stamp, interest etc. It will cost you minimum 250k by the time your done, getting dizzy?

As mentioned above here are a few dot points that I am considering for a suitable site:
- 600 sqm site minimumagreed
- LMR zoning for 3 townhouses with all 100-110 GFA approx spot on
- House/vacant land - with no DCPDCP doesnt matter so long as the property is post 1946. Also if the house is existing you maybe able to turn it into a SUD and reduce your upfront costs by selling it off first and developing the back\side
- no major constraints just remember the more dead simple the site the more unlikely you are to find it. Most agents have their fav developer\builder they work with most sell the day they hit the market especially ones as per your search criteria
- flood free agreed
- as close to Brisbane CBD as possible 4-7km radius = idealMoorooka and nothing else given your budget, I strongly suggest widening this search
- not directly adjacent to train line to improve desirability and avoid any special acoustic requirements, etc.your call, acoustic requirements are minimal in the overall scheme of things
- access to public transport (400-1000m walk able catchment to train station ideal)Ideal is 200m so you can hit 60% GFA
- close to restaurants/shops/parks and other facilitieshahah you mean you dont want to be next to the electrical substation?
- close to schoolssee above
- similar small scale developments in the area - however no oversupply A trouble with you budget e.g. Zillmere
- 15m+ frontage technically 16m but yes 15m can wing it
- relatively flat land
- outstanding design of floorplans incorporating many of the minor changes that can really make a difference to rental return, eg. interal laundry cupboards.
- no large obstructing trees where there may be issues with removing (contact aborist beforehand - conditions to sale)yep

The goal is to buy to develop - not to buy and hold and develop some time in the future. I want to manufacture the capital now. Having a house can be useful for holding costs during process however if left vacant there will be no need for a demolition (10k or so). agreed

There is also the issue of a body corporate - I have absolutely no idea how these are set up when you develop your own site and what are the key things to consider, I will look into this shortly, if anybody has any advice it would be greatly appreciated.Any strata corp will guide you through this for free as they want the body corp fees at the end of it - once you have a site come back to me and ill suggest a really good mob but really just pick any they all do it for no charge.

Here are 5 sites that I have narrowed down and think show potential (in order of most potential) with a few dot points on each. If anybody has any comments on these, the area, anything else in the post or any other tips/criticisms/etc. then please let me know.

I wont review your suggested sites but Agree with #1 but you will never ever get 25% for this site. Land+Construction 1.2m once you factor in contributions, 50k interest min, Agent\Marketing 45k, misc 50k total cost 1.35m or $450k per th, sale price? $470? $480? - If you think I am being to cautious with my costing then dont worry your bank will do the same and not finance it. Also I know exactly this site because I was looking to buy across the rd from a lunatic who wanted a motza - as Mathew he was selling that site too, 2 years ago. The site is right next to the railway lines, with a hideous acoustic barrier. If you think I am being to cautious then minus 100k from the costs under this scenario do you even come close to 20%?

1. http://www.realestate.com.au/property-house-qld-morningside-107681926
- this by far is the choice with most potential
- listing price already what I would consider below market value (479k)
- DA already in place - saves risk of not receiving DA + interest during DA process
- clever design
- within walking distance to train station
- 5km from CBD
- rough estimations of 1 mill with 1.4mil product returning $1450 rent per week
- slight slope to street - which I heard is desirable for drainage etc.
- fair bit of supply of new townhouses in the morningside area listed atm... however all listed for high values 500-650k


2. http://www.realestate.com.au/property-residential+land-qld-greenslopes-200140521
- land already vacant
- flat land
- mature/attractive trees along boundaries (check if any issues)
- slightly longer walk to train station around 1km
- close to woollongabba and surrounding facilities
- site price unknown? offer 450-500k?
- no need for demolition


3. http://www.realestate.com.au/property-house-qld-windsor-108324851
- slightly larger block 678m therefore allowing slightly larger town houses 115sqm compared to 100.
- house for holidng costs during DA process (5 bed 2 bath is pretty rare)
- wide frontage
- walking distance to train station


4. http://www.realestate.com.au/property-house-qld-newmarket-109181326
- listed too expensive as is - would need a significant discount.
- don't know much about newmarket however it has access to the train station and is within 5km of city. I think I read in API sometime that one of the experts picked newmarket as a good area for development? maybe feb issue? not sure
- slight slope to road - drainage?
- odd shape of block - possible issues with designing for 3 townhouse
-

5. http://www.realestate.com.au/property-house-qld-newmarket-109400306
- same comments above about newmarket
- would also need significant discount on asking price 510-530k down from 550.
- flat block
- located close to shops
- slightly further distance to train

I appreciate the time you have spent to read such a long and roughly structured post.

Cheers, YPG

Remember these comments arent designed to discourage you they are designed to make you reach your goals without finding out the hard way that no matter how many BS get rich mentoring circus shows are out there saying the opposite developing isnt easy or cheap

 

[JWR]

Great post tcocaro. That is exactly why I am waiting until I know what I am doing before I start trying to develop!

 

[RPI]

2 single unit dwellings on a 600m block may be a better way to start. just a thought

 

[YPG]

Hey tcocaro,

Just wrote a long response and a few more questions but my computer froze... Just before I could submit hah. I don't have to energy to write it again now but I will again in the morning.

Thanks so much for the comments/criticisms and tips and you really sound like you know what you are talking about.

Until tomorrow....

 

[YPG]

2 single unit dwellings on a 600m block may be a better way to start. just a thought

Hey rpi,

Thanks for the post.

My only thought would be - wouldn't you want to use the site in the most efficient way possible? Surely 3 100sqm townhouses would be better than 2 slightly larger. I think peoples vperceptions on size is decreasing as this has been the trend?

Could be wrong, what do you think?

 

[Aaron_C]

Anything you do has to be consistent with the planning laws. It doesn't matter what you think the trends are - that is a question for your real estate agent, NOT planning.

 

[YPG]

Hi Aaron. Perhaps I wasn't clear enough. If the zoning/planning allows 3 dwellings on the site. Why would you not choose to maximise this and only build 2?

 

[Aaron_C]

Hi Aaron. Perhaps I wasn't clear enough. If the zoning/planning allows 3 dwellings on the site. Why would you not choose to maximise this and only build 2?

I am not familiar with the planning laws in your State. But there is a big difference between 'possible 3 dwellings' and actually getting a permit for it. Every site is different, with different frontages, orientation etc. If your block is not shaped properly you may encounter overshadowing/overlooking concerns with the neighbours, even if your land ostensibly allows 3 dwellings on one lot. You are a town planner by trade so I assume you know this already...

 

[YPG]

Yeah. Really annoyed wit myself that my big post reply got deleted but. I was going to say in it. I am
Only first year full time employment and where I work I work mainly with engineers and other planners on big contracts with government agencies. I have had very limited exposure to property development. We have Been soing a lot of transport planning and joba relating to mining industry. However this is what I wish I educate myself on and I guess the experience will just take time.

Valid point about possible 3 dwellings does not necessarily mean definite. As you have mentioned. However if ou look at site 1 in first post the da plans for this site is basically what I would look to replicate. Obviously a rectangular shape, 15-16+ frontage, etc., etc. I am assuming something of this scale would not have issues with building 3.

Again the question - if there were no issues with building 3 (like in site 1) why would you not choose to maximise this and build 2 Aaron ? (assuming not for fundin issues?)

 

[Aaron_C]

Again the question - if there were no issues with building 3 (like in site 1) why would you not choose to maximise this and build 2 Aaron ? (assuming not for fundin issues?)

You would probably encounter less resistance to a 2 lot subdivision rather than a 3 lot subdivision. Plus, if the area prefers larger homes than you may not get the best value from a 3 unit development.

 

[tcocaro]

Yield is key in most situations. The only time you reduce yield is at the extremes low socio economic suburbs and exclusive areas. For instance in an extremely exclusive suburb you will be punished for building very tiny units because people just dont want that. Whereas in a low socio economic suburb you will be punished for building them too large.

For instance in your morningside example, building 3 makes sense. Building 2 doesnt especially in that specific location next to the tracks. Someone looking for a larger more luxurious townhouse wont even get out of their car to look at yours once they see the tracks whereas someone looking for entry level in morningside would.

Yeah. Really annoyed wit myself that my big post reply got deleted but. I was going to say in it. I am
Only first year full time employment and where I work I work mainly with engineers and other planners on big contracts with government agencies. I have had very limited exposure to property development. We have Been soing a lot of transport planning and joba relating to mining industry. However this is what I wish I educate myself on and I guess the experience will just take time.

Valid point about possible 3 dwellings does not necessarily mean definite. As you have mentioned. However if ou look at site 1 in first post the da plans for this site is basically what I would look to replicate. Obviously a rectangular shape, 15-16+ frontage, etc., etc. I am assuming something of this scale would not have issues with building 3.

Again the question - if there were no issues with building 3 (like in site 1) why would you not choose to maximise this and build 2 Aaron ? (assuming not for fundin issues?)

 

[RPI]

2 single unit dwellings have no body corporate, they are often referred to as town homes. no common walls, no shared infrastructure, 2 SUD on a 600 block would look like 2 single houses. Depending on the site you can get a greater profit out of this option, 2x no body corp houses on 300m2 lots can be more attractive. Yes highest use can be best but 2SUD vs 3 multi unit dwellings appeals to a different market. Also, you may find it easier to finance 2 SUD's as they are built as can be built as houses, opens you up to more builders and simpler for your local bank manager to understand. 3 townhouses or units on a 600m site does not give you the economies of scale that 6 units on an 800m2 site would.

 

[UltraProperty]

Construction cost - this seems a bit low, you may need to speak to a builder and show them the plans for better estimations.

Location - stick the inner city areas, the cost to construct a townhouse would be the same whether its in Morningside or Redbank Plains. You may pay a higher land value but cost will be divided by the number of dwellings.

Total Development cost - you need to buy the site as low as possible and this is where the project will make or break. You need to allow for contributions, consultants, and other cost that you may not already know.

Profit - 25-30% is not possible with the current market or the size of the project. Best to look at this area again and be more realistic.

 

[Andrew_A]

Good luck YPG, sounds like you are determined and will go a long way!

Not a bad time to be looking for such blocks in Brisbane perhaps, a few different people I respect are saying that about the present development block market, funding the project will be a challenge.

Your build costs and profits aren't realistic as has been pointed out. Can't comment on your examples specifically even though I would like to. You might learn a lot if you ran every site through these filters though.

1) Floodwise and overland flow reports
2) Flight path noise and considerations
3) Attention specifically to local plan and infrastructure builds, busways and tunnels, wider roads pop up all over the place these days.

Plenty of other things but you need to start with a checklist that will let you eliminate 95% of what you are looking at straight away.

Difficult task sourcing a good site, you are competing against the full time developer who will be at the top of the agents phone list, they want to sell to this person as they will build and list again with them and they don't want to sell to you unless nobody else wants it first.

 

[RPI]

you could also look at a site where there is a nice existing dwelling that would make it too expensive for developers to knock down and do 3 townhouses. Then do change to 2 single unit dwellings and just build 1 extra, and do some renos to existing dwelling if need be. This sort of site will often be advertyised just as a house. just need 600m2 and minimum 17m frontage, Cnr blocks are great for this as will always have at least 1 17m frontage.

 

[benofbrisbane]

Zillmere

Hi Tcocara

You mentioned Zillmere in your post - I am not sure what met by it - I think you met that it was oversupplied. I have looked at the numbers in Zillmere and average days on market for units is only 60 days - when Brisbane average is around 90 and some places such as moorooka are nearly 120. This does not indicate an oversupply to me.

Appreciate your thoughts. Any other thoughts welcome too


My two cents - I think YPG's ideas are good - yes, probably a little under on build and has not considered the other costs that are involved. But if YPG is looking to maybe readjust the old expectations, than there is no reason why it can't be done. Good luck to you. Remember all developers had to start somewhere!!!

Cheers

Ben

 

[YPG]

Alrighties - thanks for all the replies.

1. Clearly my construction costs are out - I have had no experience in this but I have read on this forum and a number of other websites that a a build cost of $1600 per sqm metre is a good indicator of price for a medium quality finish? 1600x315= $504,000. What do people see as a more realistic price per sqm? I guess the smaller the project the less reliable this is as the quantity expensive items in a property increases much quicker in comparison to GFA? eg. 3 kitchens, 6 bathrooms for 315 sqm, etc.

2. Again, it has been pointed out that my profits have been unrealistic haha, perhaps I got a little to excited. I suppose a more realistic expectation would be 15-20%? I don't think I would undertake anything for less than this and would be hoping for the upper side of the scale. However I wanted to ask about the option of holding all townhouses? Wouldn't you then save on marketing/selling/legal fees all associated with selling. If finance dictates that you have to sell sure, but I have been thinking that holding all as long term investments would be smart as developing yourself will provide a much higher yield that hopefully can cover the repayments. I know that maybe you would want to diversify the risk a little incase of some terrible influence in the immediate area? (ie. flooding in Brisbane, better to have only 2 of your townhouses in the complex flooded in stead of 4?)

3. I see finance as a clear obstacle for this as I am only in my first year of full time employment and already have a mortgage for a PPOR of 300k. However, I am soon to come into 500k cash from realising a family trust investment. These are all things I will talk with my new mortgage broker in the coming months. Initial thoughts would be to complete first project with approx 300k cash as deposits and than look to complete 2nd project with the other 200k + equity from first? (I should note that the 200k will be used as a buffer in case of extreme circumstances during project 1 probably in offset account - it is still possible that after project 1 if I feel I do not want to undertake another that this could be invested elsewhere from property for a bit of diversification. I am not looking to retire early and expect at least another 30 years of full time work - and hopefully build my salary up through the years. Therefore assuming I kept all 6 townhouses - once fulling paid off in 20 years there would be a passive income of 150k from these.

4. Am I correct in assuming that developers always buy develop and flip? So they can move on to the next project? Is it really the best option? Or is the option of taking it a lot slower and completing a project say every 4-7 years (and holding the properties) not as profitable? (I think some people will say you might miss out of the CG during the long periods between projects?)

5. As I mentioned before - I'd like to thank all those with planning specific posts as I am still extremely inexperienced due to first year and not even working in the property development arm of town planning. But I am hoping in the coming years there will be more exposure at work and a chance for me to really get a good grip over it. I think the poor property/development market compared to strong mining sector has forced/encouraged a lot of planning consultancies towards the later. Well at least I think my company has.


Thanks again everybody - appreciate the guidance and thoughts