Brisbane - Mock development initial feasibility - advice please

[DMY]

Hi all,

I was wondering if I could get some feedback for the following mock development initial feasibility report for a site in Brisbane. A number of figures are blank/possibly incorrect and I have left some out completely. So if I could get some criticisms/opinions/thoughts I would really appreciate it. My goal is to complete a development such as this within 5 years (probably at a smaller scale/cost).

I really need to gain a better understanding of the costs and the time frames.

My thoughts would be that if I found a site that I liked I would do an initial report like this and if it fitted the criteria then I would look at going into much further details and contacting the appropriate professionals for advice.

I know it is rough but I thought it might be a good place to start and get some excellent knowledge from the members of this forum. I really would appreciate any comments/changes/additions/etc.

Thanks
DMY

 

[DMY]

Mock Development Initial Feasibility Report:
25 Farm Street, Newmarket QLD 4051
http://www.realestate.com.au/property-house-qld-newmarket-112717275
Key features:
• Listing price of $599,000
• 635m2 block with approximately 17m frontage
• Zoned LMR and NOT in DCP
• Level site
• Majority of site cleared of vegetation with first appearance being no significant trees
• Located approximately 5km from the Brisbane CBD
• Located within nice looking street
• Examples of quality 3 storey townhouse developments directly opposite the subject site and further along the street (justifying demand and can be used as justification for similar development for council).
• Existing house has good street appeal and the opportunity for a minor cosmetic renovation to improve value and achieve slightly higher rental return
• Agent does not have site listed as a development site or as a site with significant development potential – rather advertising it as a renovation project targeting a young couple/family.
• 300m from Newmarket train station (13 minute train ride to central station, source translink JP)
• 600-700m from Reading Newmarket shopping centre with coles, medical services, restaurants and entertainment, banks, Australia post, bakery, etc. (http://www.readingnewmarket.com.au/Retail_Directory.htm#.URMDM6V19AU)
• 200m from BCC pool and large open Sedgeley Park

Desired outcomes:
• 20-30% profit
• 80% LVR
• Build 4 townhouses under residential loan (Rolf has said this can be difficult but can sometimes be achieved).
• Retain 2-3 to keep as long term investments, sell 1 or 2 to help with gaining loan and clearing some debt.
• Achieve end result of cash flow neutral/positive investment
• Cash in on what I believe is a great opportunity in the Brisbane residential market within 8km of CBD


Development approval sought:
Option 1:
4x 3 storey 3 bedroom 2 bathroom 2 garage townhouses
175m2 each including external areas = 700m2 total area
Expected end value of each individual unit to be approximately 575-650k
Examples within Brisbane of 3 storey townhouses currently for sale:
http://www.realestate.com.au/property-townhouse-qld-morningside-112375443
http://www.realestate.com.au/property-townhouse-qld-clayfield-112709239
http://www.realestate.com.au/property-townhouse-qld-st+lucia-112391959


Town planning report:
• Expected to be fairly straight forward as clear examples already available in street. Proposal is in line with local plan and planning scheme desired outcomes. Should easily be able to attain 3 storeys as fairly good frontage and within close proximity of train station. 3 storey developments located directly across the road. Just make sure this is done professionally with all accompanying required documents/plans/reports/etc.
• Should be applicable for RiskSmart application (less than 10 dwellings), 30% discount on council application fees, faster application process saving money on holding costs.
• Under new planning scheme total allowable area of 857.25 m2 over 3 levels, proposed 700m2.
• Estimated DA approval time to be 6 months

 

[DMY]

Property Purchase:
Assume purchase price (7% discount from asking price - $40,000): $560,000
Transfer Duty: $19,523.60 (source: RAMS stamp duty calculator)
Legal Fees: ?
Mortgage broker fees:
Total: ?

Development Cost:
Development application: ? (architect, town planner, engineer, lodging)
Valuation Fees?
Development manager: ?
Building costs: Assuming $1,000,000 construction costs ($1428 per m2)
BCC Infrastructure contribution charges: $104,000 (4x 3bed residential development)
Interest: ? (assuming residential loan?)
Total:?

TOTAL COSTS: roughly $1,900,000-$2,000,000
EXPECTED END VALUE: $2,400,000 (600k each if you kept all)

 

[chindonly]

Newby wanna-be developer myself, but looks like a good start.

At first glance, I would also look at including:

- Interest rate sensitivity analysis
- Holding costs
- Survey fees
- Fencing and landscaping costs
- Driveways
- GST (If selling)
- Contingency!
- Demolition costs (asbestos?)
- Agent's fees (If selling)
- Water/sewer/power/stormwater connections


I am sure there are others, and there are other threads on here with more detail....

 

[Mamaof3]

Before you go any further into any of the details regarding numbers etc, one thing that might be worth noting is that it is crucial you check the zoning of your specific site and find out exactly what zone its in, what can and can't be done on that site because a development across the road or next door does not mean that you can do the same thing. Never buy a site on this assumption.

Sorry I haven't read the other posts (didn't have time) so i'll just jot down a few things that come to mind straight away when we're working on our numbers:
-purchase price
-closing costs
-interest rate (depends on type of loan) and LVR
-demolition costs
-land division costs
-rates, taxes,
-RE agent costs (if selling)
-conveyancer costs
-surveyor fees
-fencing
-retaining walls
-common driveway costs (for hammerhead allotments or the like)
-construction costs (MOST Important!). A little bit more or less can make a huge difference. This can also be hard to get an estimate without actual plans and engineering done.
-extra footings allowance
-extras that your builder might not be doing such as paving/landscaping, concreting, fencing, security systems, etc.

Once you've done 1 project its much easier the 2nd time round if you're building a similar thing because at least you have an idea as to build costs. No point me giving you a cost of what it costs us to build because it may be completely different to what yours will end up being.

Hope this helps somewhat!

 

[DMY]

Before you go any further into any of the details regarding numbers etc, one thing that might be worth noting is that it is crucial you check the zoning of your specific site and find out exactly what zone its in, what can and can't be done on that site because a development across the road or next door does not mean that you can do the same thing. Never buy a site on this assumption.
Hope this helps somewhat!

Hi,

Thanks for the post. Checking the zoning of the property is the first thing I would do. I know the zoning is LMR and the same as across the road. Under the new planning scheme it is LMR 2-3 storey precinct. I just meant it will be easier to justify in a planning report to allow the full 3 storeys are there are already examples in the close proximity.

Thanks for the lists of other costs, ill add them to my list.

Cheers

 

[anson_he]

Please read this thread
http://somersoft.com/forums/showthread.php?t=77493&highlight=600m2

 

[RPI]

Hi

I am too busy tonight to answer in detail but will try and remember to get back as this is a great idea for a thread.

Risksmart may take just as long and cost just as much if not more unless you are very careful. Takes longer to get the info in on the front end. If it is a tick and flick type approval great, if RiskSmart identifies any flags it can be not fun to say the least. Some love it though.

I haven't looked at this site other than a cursory yet, but will give you detailed feedback on here when I get a chance. Under the new plan you are in the 2 or 3 storey lmr zone LMR2. I haven't had a look at the local plan for that site which may change what am going to say and if it does please highlight it.

Site cover of 45% = 285.75m2

Your parking needs to be included inside this footprint or otherwise in counts.

If you get 3 storey-
If you are going to have basement parking then you can have your 3 levels =857m2 but that includes balconies.
Basement parking is going to cost at least $1200m2 on top of your building costs. You have the opportunity for semi-basement parking but at $700m2 but you can't go outside the footprint for that. Although allowed, as carparking levels at a max of 1m above NGL do not count as a storey and height limits start at the 1m, you are going to need lifts. I have never seen 4 storey town houses, units with a lift may work. You are going to have to allow for 1 lift in a unit, individual lifts in townhouses. I am not an estate agent but a 4 storey townhouse, even with a complete underground carpark, with only stairs seems painful to me.

This also allows for only 58m2 including verandahs, roofed patios etc for each level of the townhouse. Minimum 9m2 verandah or patio to make a 3 storey townhouse appealing IMHO. So you have a 49m2 floor plate internally. Stairs are included in that also. Proportions may start to look bad.

You also may conflict with setbacks, which then means you are not in the building envelope and that is an issue. This may not be an issue, I haven't mapped the site but just be aware of the building envelope requirements and that they are going to be harder to push under the new plan.

A unit complex may work better design wise. But it is going to be commercial then. 3 units a level so 9 units.

How about fees for body corporate establishment and CMS, off the plan contract if applicable etc. Allow $10K including conveyancing on sale

Town planning fees $3600 to $5400 depending on which way you go.
Council App fees $6700 - $17k depending on which way and whether we can go code or impact
Surveying fees $7-$20k
drafting fees and engineering fees $20-50K
Private building certifier $2500-$18K


Legal fees for entity structures setup on the way in, JV agreements between entities possibly (if you want to keep some you need to be careful to structure it correctly for tax). $6600.

Accounting fees

contingency (work out your number and double it)


What about 3 freehold townhouses, 95m2 floor plates each.

Just some of my quick thoughts without checking figures or maps or local plans or a whole range of stuff.

 

[anson_he]

Hi RPI,

Just want to get some clarification from you. With LMR zoning, GFA is no more 0.5 but we normally can push to 0.6. This site is only 635m2 which gives us max 381m2 to use.

With 381m2 you only get 80m2 internal area so the total size of the proposed townhouse will be somewhere around 95+25 (garage) = 120m2.

That is the max size you can build although you have a large site cover of 285m2 and can build 3 story.

 

[RPI]

Hi Anson.

We were talking about the new city plan 2012.

GFA is not part of the new plan for multi unit dwellings.

Site cover

45 %

so 1000m2 site

45% site cover 450m2 of building per level
2 storey zone
900m2
3 storey zone
1350m2

carparking does not count as a storey if within footprint and under 1m above NGL or underground outside this

 

[anson_he]

Hi RPI,

Thank you very much for your explanation. The new draft plan will be much more generous than the current one using GFA from a developer point of view.

But it is just a draft plan, do you know when BCC is going to approve DA with the new plan?

 

[RPI]

Hi ANson

It is with the state Govt now, It should be in force this year. I would be more than happy to submit a DA on site cover now.

 

[anson_he]

RPI,thanks for your clarifications. Now I have just completed two feasibility studies, one using city plan 2000 and the other using the draft master plan 2012. The difference in profit is huge.

Under city plan 2000, 0.6 GFA of 635m2 gives me 381m2 to build. I could fit 4 three bedroom units in and each of has 95m2 internal living area plus a 25m2 single garage.

1. Site Cost: 600,000
2. Stamp Duty: 20,000
3. Soft Cost (DA, CC & Sec94): 80,000
4. Hard Cost: 216,000 * 4 = 864,000
5. Contingency: 5% * 864,000= 43,200
6. Finance: 20,000
7. Agent: 50,000

Total:1,677,200

End value: 520,000 * 4 =2,080,000

profit with Margin Scheme: 340,000 @ 21% return on investment.

------------------------------------------------------------------------

Under new city plan 2012, Site cover of 45% gives me 285.75m2. I could fit 4 four bedroom townhouse in and each of has 142m2 internal living area plus a 25m2 single garage. It will be a three story building with lowest level for garage and two stories above as actual townhouse.

1. Site Cost: 600,000
2. Stamp Duty: 20,000
3. Soft Cost (DA, CC & Sec94): 80,000
4. Hard Cost: 272,000 * 4 = 1,088,000
5. Contingency: 5% * 1,088,000= 54,400
6. Finance: 20,000
7. Agent: 60,000

Total:1,922,400
End value: 620,000 * 4 =2,480,000
profit with Margin Scheme: 470,000 @ 25% return on investment.

------------------------------------------------------------------------

If we can fit 9 units into the building envelop, with 3 units each floor. The profit will be much higher. Based on the number above, I am happy with 25% return for a small size development like this.

In regards to the last comment, "It is with the state Govt now, It should be in force this year. I would be more than happy to submit a DA on site cover now."


RPI, could you please confirm that the current DA submitted now will be assessed with new city plan 2012?

I am currently doing a 7 townhouses development project in NSW which should complete soon and I am starting to look for next site. Could you please give me your company's contact detail and your name. If possible, could you please roughly describe what kind of services your company provides?

 

[RPI]

Hi Anson

It will not be assessed under the CityPlan 2012

However, it is coming and we can push for it using those things. I am confident of getting it through with those densities. It will be impact assessable, but all the planning staff in Council Know that this is happening and we will argue that this is happening and it is only timing that is the issue. There are somethings I would not push for, particularly the 180m2 freehold lots that are going to be allowed in LMR2. I have seen 9 stories get through on the basis of the draft plan, where the site allowed for 3 under the current one. That was before the plan was as advanced as it is now.

Everyday is closer to the plan coming, if you find a site, put a tight DD clause in the contract and have a pre-lodgment on it. I am confident and would put my professional fees on the line to back up that confidence.

I will always look at theoretical projects on here because it is a great way for people to see what is possible, its just at the moment I have an absolutely enormous legal case that has time critical appeals in it. I am working 20 hours some days. Another week and it will settle down.

 

[anson_he]

Hi RPI,

It sounds great. Now I have more questions regarding the type as well as the scope of the services your company provides after visiting your company's website.

It is quoted for $3600 + GST for muilti-unit development. The planning process starts from site assessment and finishes at construction completion. Does the package including helping client obtain CC and do building tender to select a builder as well as project management? Do you have any good private certifier who can help with strata subdivision and occupation certificate? If possible could you please provide a bit more information about what is included in the package?

In regards to site search, I can get most of the information for the site from the contract and Pricefinder, such as lot size, zoning, flood prone, dimension, frontage width. What I am not very sure is:
1. How can I find the age of the house on the site? I can't demolish a pre-war house in DCP area. None pre-1900 house can be demolished.
2. How can I find if the site is classified as LMR2 or LMR3 in the new plan? the extra one story to build can make a huge difference in profit.
3. How much does BCC chrge for sec94 and long service leave? Is long service leave calculated at 0.35% of construction cost? what about sec94 contribution?
4. From your website, your company has lots of offices in Brisbane. Which office are you based in?

Thanks again for your help.

 

[anson_he]

Hi DMY,

Just want to remind you that most difficulty part of the development is not getting DA approved but getting finance to start the project.

If you build 4 units/townhouses, you could possibly still get residential loan for it. Anything above 4, you have to go through commercial channel. Based on my feasibility study, you will need to at least inject $500K cadh or equity to make the lender happy to consider your application. You will also need to presale a few units to cover at least 50% of the total loan amount. If it is your first time to build, it will become even harder. The current interest from them is around 6.4%. If you choose to use private lender, you might not need to presale any units but the interest rate they charge is 12% plus 2% establishment fee, that is going to kill the project.

 

[RPI]

Anson

I am always happy to answer as many questions about a site in town planning in this forum. I think questions about specific services and whats included are best done not on the forum, as it starts to move away from the informational base of the forum and more towards advertising.

Answers in Red Below

Hi RPI,

It sounds great. Now I have more questions regarding the type as well as the scope of the services your company provides after visiting your company's website.

It is quoted for $3600 + GST for muilti-unit development. The planning process starts from site assessment and finishes at construction completion.Most Planners services finish at planning approval, some do more. Be conscious that many do not charge fixed price up to decision stage, almost as many do. If you are paying hourly rates post submission and your application happens to land on the desk of an "interesting" planner in Council, you could end up paying more than double. Does the package including helping client obtain CC and do building tender to select a builder as well as project management?Some may, sounds more like an architects job. Do you have any good private certifier who can help with strata subdivision and occupation certificate?Gary Holley from Applied Building Approvals is the best I have dealt with, ex builder so is very practical If possible could you please provide a bit more information about what is included in the package?It depends on the planning company, everyone operates very differently to each other

In regards to site search, I can get most of the information for the site from the contract and Pricefinder, such as lot size, zoning, flood prone, dimension, frontage width. What I am not very sure is:
1. How can I find the age of the house on the site? I can't demolish a pre-war house in DCP area. None pre-1900 house can be demolished. pdonline.brisbane.qld.gov.au go to interactive mapping, there is a 1946 aerial photo option, that will let you know.
2. How can I find if the site is classified as LMR2 or LMR3 in the new plan? the extra one story to build can make a huge difference in profit I have done a website brisbanecityplan2012.com.au it will link to the BCC website maps. They are PDF and clunky but you can find your way around.
3. How much does BCC chrge for sec94 and long service leave? Is long service leave calculated at 0.35% of construction cost? what about sec94 contribution?Private cetifiers handle that side of it.
4. From your website, your company has lots of offices in Brisbane. Which office are you based in?Mostly SEO but do have several, don't want to be seen advertising so ring to find out

Thanks again for your help.

 

[DMY]

1. How can I find the age of the house on the site? I can't demolish a pre-war house in DCP area. None pre-1900 house can be demolished.

2. How can I find if the site is classified as LMR2 or LMR3 in the new plan? the extra one story to build can make a huge difference in profit.

1. I find an easy way to do a quick initial check is to go to BCC pdonline interactive mapping. Turn on the layer for 1946 and see if the outline of the house is the same as the 2011 layer. Obviously you need to do more than this to be 100% sure but most often you can see that it was the same house.

2. Have a look at RPI's website www.brisbanecityplan2012.com.au and have a look at the zoning maps for your suburb.

 

[DMY]

Woops my bad, didn't see the response RPI did early this morning

 

[DMY]

Hi DMY,

Just want to remind you that most difficulty part of the development is not getting DA approved but getting finance to start the project.

If you build 4 units/townhouses, you could possibly still get residential loan for it. Anything above 4, you have to go through commercial channel. Based on my feasibility study, you will need to at least inject $500K cadh or equity to make the lender happy to consider your application. You will also need to presale a few units to cover at least 50% of the total loan amount. If it is your first time to build, it will become even harder. The current interest from them is around 6.4%. If you choose to use private lender, you might not need to presale any units but the interest rate they charge is 12% plus 2% establishment fee, that is going to kill the project.

Thanks for the comments anson. Has been interesting reading between you and RPI. I have been bothering RPI with private messages for a few weeks and he has always had to the time to reply in detail.

The reality is I would not be able to do a project worth more than 1,000,000 and would only have enough for 20-25% deposit and even this is a couple of years away. I still feel one of my better options may be to do a 3x 2 bed villas in Toowoomba for half the price (even though there might be over supply issues in future)t. Or purchase a site such as this do a quick reno and rent and wait on it for a couple of years and then try achieve the DA for 9 units or so and then sell it. As I am coming up to the end of my urban planning degree hopefully I will have a better understanding, better contacts and the ability to save some money of DA costs.

If you were to do a development in brisbane it would be awesome to hear about the journey and when you reach different milestones.

Cheers