Build 6 townhouses or 10 units?

[Ace in the Hole]

Site is 5km South of Brisbane CBD.

Options are to build 6 x 3 bed townhouses.
Block has dual street frontage so a row of 3 townhouses face one street and another row of 3 townhouses face the other street, ie, all backyards will face each other.

Or, build 10 x 2 bed units (1 bathroom), 3 levels + basement carpark (needs 1m excavation).

Obviously costs will be higher for 10 units, but end valuation and overall rent ruturn will be higher.

Is there any obvious decision or considerations before I investigate projected valuations and rent returns further?
The purpose is to hold on completion for maximum rental yield, and growth too.


Thanks

 

[NigelW]

Hi Ace

I think you've answered your own question. If rental yield is a big consideration 10 properties should, in theory, return more than 6 slightly better ones. If u can fund it and site permits it, I'd go the 10!

Cheers
N

 

[Rixter]

The numbers talk.

 

[MTR]

Site is 5km South of Brisbane CBD.

Options are to build 6 x 3 bed townhouses.
Block has dual street frontage so a row of 3 townhouses face one street and another row of 3 townhouses face the other street, ie, all backyards will face each other.

Or, build 10 x 2 bed units (1 bathroom), 3 levels + basement carpark (needs 1m excavation).

Obviously costs will be higher for 10 units, but end valuation and overall rent ruturn will be higher.

Is there any obvious decision or considerations before I investigate projected valuations and rent returns further?
The purpose is to hold on completion for maximum rental yield, and growth too.


Thanks

Would be interested to know what % you will be making.

Another option if figures stack up is to put plans and permits together and onsell to developer.

I just sold plans and permits for 8 units in Melb to a builder, excellent outcome, no headaches and best of all did not need to chase finance, difficult in this climate.

Cheers, MTR

 

[NigelW]

Well done MTR. Without wanting to pry, would you be willing to provide some round numbers or at least percentages for how the deal worked out including holding costs, development contributions, consultants' fees etc?

Would be instructive for us all.

Thanks
N.

 

[oracle]

Are you planning to hold on to some properties after building?

If the answer is Yes. Then think long term as an investor which type of properties will be in great demand and therefore better capital growth?

1) 3 Bed townhouses with some land and only 6 so more boutique.
2) 2 Bed apartments with no land and 10 of them.

Cheers,
Oracle.

 

[Player]

Hey Ace,

Decisions, decisions.........that's a quality problem you have there

As you state you are keeping them, what is the demographic like there? It's 5 km to a metro CBD, and if it's walking distance to a train, assuming the numbers stack up for you, I would want 10 employees (just in case any go on strike) to hedge vacancies rather than six. Never having dealth with a basement (albeit your is only one metre of excavation), perhaps allow a contingency there for any unexpected findings.

Also look at what your return is in terms of gross realisation and actual costs and see what works out better in percentage terms. Whilst you are not selling them, you still want the better of the assets that will capture your manufactured equity (profit), not just the yield. I would use todays numbers both for rents and actual end values.

Congratulations on holding such a potential project.

 

[Ace in the Hole]

Thanks for the comments guys.
Some things to think about there and more research into figures for the 2 options required.

I'm kind of leaning towards the 6 more boutique style townhouses for now.
Kind of prefer quality over quantity, of couse, the figures still have to work out well.
Rental return is important, but cashflow is not an issue, so I suppose growth really is the priority here.

Currently doing another 5 townhouse development near this one, build to hold also.

MTR, not really looking to sell, as I'd rather accumulate than trade for profit at the moment.

The 6 townhouse/10 unit site will be self funded, so finance is not an issue.

Thanks

 

[Rixter]

Ace, a wise cricketer said to me many years ago, it doesn't matter if you played the perfect innings without a rash shot made or you lashed out & were dropped 3 times along the way, the runs in the score book still look the same. For us as investors that score book is our net worth.

Food for thought.

 

[Ace in the Hole]

Ace, a wise cricketer said to me many years ago, it doesn't matter if you played the perfect innings without a rash shot made or you lashed out & were dropped 3 times along the way, the runs in the score book still look the same. For us as investors that score book is our net worth.

Food for thought.

Good advice.

Not really one to over analyse myself, I generally go by feel and rarely calculate anything accurately on paper before making decisions.
If you make a mistake, you learn and adjust on the next one.
Had a pretty good run lately and would be more like the erratic cricketer in your example, rather than the steady, safe and secure one.
More fun that way, but still feel in total control.

End result may be the same no matter which strategy you use.
Of course, one would want to maximise returns while minimising risks wherever possible.

Thanks

 

[oracle]

The purpose is to hold on completion for maximum rental yield, and growth too.

Sorry missed this part.

I'm kind of leaning towards the 6 more boutique style townhouses for now.
Kind of prefer quality over quantity, of couse, the figures still have to work out well.
Rental return is important, but cashflow is not an issue, so I suppose growth really is the priority here.

I think you should do well with the 6 townhouses CG wise compared to 10 units in the long run.

Cheers,
Oracle.

 

[craigb]

10 units = ten other family incomes ., 6 will always only be six other incomes .

 

[oracle]

10 units = ten other family incomes ., 6 will always only be six other incomes .

Craig, you also got to remember it will cost him more to build 10 units. So for eg. if 6 TH will cost 2mil and 10 units 3mil to build. What sort of CG can he expect from 2 bed / 1 bath unit compared to 3 Bed / 2 Bath TH with land?

He can use the 1mil and go and buy 2 or 3 TH.

The argument is what is the return he can expect long term on the money he is about to invest in this venture?

Cheers,
Oracle.

 

[RPI]

If you are looking at resale then a consideration may be townhomes rather than town houses. With your layout there would be no place that has to share a driveway, although under the rules 2 can share one. This would allow them to be townhomes, formally referred to in the cityplan as single unit dwellings. That means no body corp, they are each on their own freehold title (basically anyway) and an agent would advertise as such. These tend to get a significantly higher sale price, or they did when I was doing resi.

good luck

 

[MTR]

Well done MTR. Without wanting to pry, would you be willing to provide some round numbers or at least percentages for how the deal worked out including holding costs, development contributions, consultants' fees etc?

Would be instructive for us all.

Thanks
N.

Hi Nigel
purchased in Melb (Broadmeadows), about 15km from Melb. This area is on the nose with locals. Council pro-active and symphatetic to developers, easy to get plans and permits over the line. Many developers jumping into this area and it has experienced hugh capital growth over the last 24 months.

I paid $597K for maisonette (1200sqm2 block), $paid 20K for architect to put plans and permits together and sold for $904K in just over 12 months.

Had both properties rented at $280pw each during this period.

Sold to builder, did not place on the market, just got my RE agent to forward plans and permits to various builders for bites. Paid 1.4% fees selling costs to RE agent.

For what it is worth I believe there are still great opportunities for investors to purchase in Broadmeadows NOW as the market has stalled.

I would be looking at 3 unit site on 700 sqm2 block, you would now possibly pay around $400K renting at $320 pw. I think this is cheap and long term I believe you will see continued growth.

Cheers, MTR

 

[tcocaro]

Your question is concerning.. firstly because any experienced (even slightly) developer would know the answer to your question and second you dont provide sufficient detail to even begin to answer your question in the first place.

MDC is the name of the game i.e. profit so the answer should be simple which option acheives the best return?

You need to do feasibilities for both options and compare the two.

Max yield isnt always the best use of a site for instance some suburbs may not want 2b/1b and only accept 2b/2b or they value more highly value townhouses etc.

Further more what can you afford? Perhaps you dont have the financial resources to carry 10x units through to the end compared to 6x townhouses.

In addition you might be able to stage the townhouse development 3/3 allowing you to build half now and half later spreading cost\risk etc and making financing easier. Especially if this is a corner block. Also there maybe an existing dwelling onsite you might partition off as a SUD in order to reduce your peak debt.

In short the answer to your question is do some more research, costings etc because I feel once you do that you will have the answer to your question. No point in me saying, I think 10x units is the better option because that means very little.

Either way, good luck with your proposed development.

Site is 5km South of Brisbane CBD.

Options are to build 6 x 3 bed townhouses.
Block has dual street frontage so a row of 3 townhouses face one street and another row of 3 townhouses face the other street, ie, all backyards will face each other.

Or, build 10 x 2 bed units (1 bathroom), 3 levels + basement carpark (needs 1m excavation).

Obviously costs will be higher for 10 units, but end valuation and overall rent ruturn will be higher.

Is there any obvious decision or considerations before I investigate projected valuations and rent returns further?
The purpose is to hold on completion for maximum rental yield, and growth too.


Thanks

 

[oc1]

Generally the more you fit the better however Research and determine what your market wants and fill the demand. That would be your main indication. As tcocaro said, there are too many other variables to consider.

 

[Ace in the Hole]

If you are looking at resale then a consideration may be townhomes rather than town houses. With your layout there would be no place that has to share a driveway, although under the rules 2 can share one. This would allow them to be townhomes, formally referred to in the cityplan as single unit dwellings. That means no body corp, they are each on their own freehold title (basically anyway) and an agent would advertise as such. These tend to get a significantly higher sale price, or they did when I was doing resi.

good luck

Hi RPI,

I'm not 100% sure of the terminology, but the plan is to make the 6 townhouses freehold, does that mean they are called townhomes?
I know about the driveway situation, I think you can have a limit of 2 driveways per streetfront.
This will work, as the 3 townhouses/townhomes per streetfront can share the 2 driveways for access in and out.

Does this mean they would be regarded as townhomes?

I'm kind of tending towards this to also take full advantage of the block which has 2 street frontages.

Thanks

 

[Ace in the Hole]

Your question is concerning.. firstly because any experienced (even slightly) developer would know the answer to your question and second you dont provide sufficient detail to even begin to answer your question in the first place.
I'm not an experienced developer as yet.
I have a project manager taking care of this project for me, I'm in Sydney, he's local in Brisbane.
I'll post up a case study of my 2 current projects when I have more figures, both are already in progress in planning stages.
I'm very confident of achieving good results.

MDC is the name of the game i.e. profit so the answer should be simple which option acheives the best return?
I have no idea what MDC means?

You need to do feasibilities for both options and compare the two.
Yes, this is in process, my project manager is working on it now.
For my own learning, I thought to post the question here to see what other experienced members may think about it.

Max yield isnt always the best use of a site for instance some suburbs may not want 2b/1b and only accept 2b/2b or they value more highly value townhouses etc.
Will consider this too when we have more accurate figures/feasibility.

Further more what can you afford? Perhaps you dont have the financial resources to carry 10x units through to the end compared to 6x townhouses.
Can self fund either option.

In addition you might be able to stage the townhouse development 3/3 allowing you to build half now and half later spreading cost\risk etc and making financing easier. Especially if this is a corner block. Also there maybe an existing dwelling onsite you might partition off as a SUD in order to reduce your peak debt.
Will consider this for future developments if required.

In short the answer to your question is do some more research, costings etc because I feel once you do that you will have the answer to your question. No point in me saying, I think 10x units is the better option because that means very little.

Either way, good luck with your proposed development.

tcocaro,

Thanks for your advise.
I value your opinion as I understand you are very experienced in this field.
Learning new things every day.

Much appreciated.

 

[ok180]

Ace,

If your going to keep them you'll probably get a better return out of the units, especially because you'll own the lot there will be no strata. At the end of the day it's the land that appreciates, so it doesn't matter how you slice it up.

Having said that, 6 townhouses would be 40% less tenant headaches.