Building 2 Units

[allsuccess]

Hi all,
These are my initial thoughts on building 2 units.

I've bought an IP in 2012 - 380K, including purchase costs.
500m2 land. Corner Block. It was a dual occupancy (had a common property) but I removed it via re-subdivision. During this process, the surveyor said, "You might be able to put two units here". So, I'm trying to see if it's worth it. Property is in Ringwood VIC.

Attached spreadsheet has the calculations.
I have not considered negative gear tax benefits and depreciation of new units into this mix.

Bottom line for me is;
Current - 1 property with 70K equity
New - 2 properties with 263K equity

Some risks (there may be more)
- Land size may be too small to build 2 units
- Infrastructure issues (e.g. sewage connections goes along the back property to connect to the main sewer due to prior subdivision). So, they might not allow 2 new units connect to it due to the volume.

So, here are the numbers and would greatly appreciative hear your thoughts.

Per square meter cost to build $1,200.00 per m2
Interest Rate 5.00%
Rent - New Unit 1 (PW) $500.00
Rent - New Unit 1 (PW) $500.00
Net rent as a percentage 75.00%
Depretiation % 2.00%
Number of weeks rented 52
Building Size (Unit 1 + 2) 360 m2 (so, 180m2 each)
Construction Time 0.75 years (9 months)

Item Cost
Property Value (Now) $450,000.00
Demolition $20,000.00
Building Cost $432,000
Holding costs $14,250.00
Planning Permits $20,000.00

Total $936,250.00

Completion Value - Each Unit $600,000.00

Current Property Purchased Price (Including Purchase Costs) 380,000.00
Current Property Rent (PW) 330.00

Current Cash Flow (PW) -117.88 (negatively geared)
Current Equity 70,000.00
Re-Development Cash Flow (2 IPs) (PW) -150.24 (negatively geared)
Re-Development (2 IPs) Equity 263,750.00

 

[Aaron_C]

I would say your cost to build of $1,200 per sqm sounds low even for Ringwood as you have to factor in stuff like landscaping, common driveways and just general finishings.

 

[esdarch]

With 500sqm block, total areas for both unit is 300sqm at 60% coverage. You may think about double storey and recalculate building cost.

 

[oc1]

With 500sqm block, total areas for both unit is 300sqm at 60% coverage. You may think about double storey and recalculate building cost.

And different POS requirements. Depending on current setbacks, location of trees, light poles etc you may not get two dwellings.

 

[gooner2014]

Is the property under your personal name or trust?

 

[gooner2014]

also it appears you have 'holding cost' on purchase but no interest on building cost.

are you paying with cash ?

 

[allsuccess]

Thanks all for your replies.

gooner2014
- It's under my name.
- That's a mistake, I have to include building costs (interest) into the holding costs.
- Not paying with cash (may be one day ).

Oscar,
- There are few trees in the property (see the attached pic), which may put a stop to this :-(

I'm going to ring the council and get some initial thoughts.

 

[allsuccess]

Spoke to the council (Town Planner and an Engineer).

From the outset, there's no issues subdividing (2 lot subdivision) and building two units. However, as usual, it needs to comply with council/Res Code 1 requirements.

The other thing is, sewage/storm water connects to the main system via back property as this property doesn't have any easement on the border. So, I may have to put a detention system .

Probably not worth the effort/cost.