Building for profit

[tarah]

Hi all,

Is anyone building and holding/selling single homes in Adelaide at the moment and making a decent profit? I have just been thinking after some quick sums you could maybe make $50,000 per single dwelling. Or you could buy in more decent areas with good historical growth, do nothing and make $30,000 - $50,000 CG in a good year?

So far, I have only bought and held, some renos so would appreciate hearing of anyone who builds in Adelaide to hold or sell and makes a profit by doing so. Or maybe someone who builds a few per yr to create an income? I've read that Sue78 does this. Anyone in Adelaide?

Thanks
Tarah

 

[Gools]

Hi Tarah,

Doing our first build in Adelaide at the moment. We bought an ex housing trust property in Windsor Gardens for $315k and have subdivided it.
Putting on courtyard homes. 120sqm + garage for $150k including ducted rc ac.
I expect them to be completed with costs of $330k each + holding costs.
They should be worth something around $380k and rent for $340-$350/week.
Will be holding them for the depreciation benefits and the small outlay for a freestanding dwelling close to the CBD.

I'm much happier building close in to the city where land is more valuable than in the outer Northern or Southern suburbs but paying a little bit more ($330k v $250k for example). The future capital growth should make up for the extra expense.

Gools

 

[tarah]

Thanks Gools. Do you think you will keep building?

Tarah

 

[SupaRex]

@ Gools - Not to be too nosey, but can I ask how you are funding the development? I'd love to do one, but I can't see how I'd be able to finance it. Do you have to have a lot of cash behind you, or is there some other trick?

Cheers,

SupaRex

 

[Gools]

Hi Tarah, that's the plan. Have to wait for the current project to finish first before I can start looking at the next project. I just don't have the disposable income to do too much at any one time.

SupaRex, I have built up a reasonable amount of equity over the last 10 years. Nothing special really. Bought my current PPOR in a decent eastern suburb of Adelaide at 24. This has seen steady growth in its value. I then bought a unit in Wayville (southern edge of the Adelaide CBD) two years ago (at 30) that has had an increase in value of about $80k since. I have just let time do its thing. I don't earn a huge wage so it certainly isn't just a cash deal. There's no hurry, just form your plan of attack and chip away at it slowly. Maybe you can't start doing a development tomorrow but who knows what you'll be able to do in 10 years time if you stick to your plan.

I've always had a bit of a plan to spread the type of property I buy out in regard to both location and type of building.
PPOR- SE suburbs bungalow.
IP1- Inner city unit.
IP2- NE suburbs new courtyard homes.
IP3- Not sure yet. Beachside townhouse maybe??

Gools

 

[quoll]

Hi all,

Is anyone building and holding/selling single homes in Adelaide at the moment and making a decent profit? I have just been thinking after some quick sums you could maybe make $50,000 per single dwelling. Or you could buy in more decent areas with good historical growth, do nothing and make $30,000 - $50,000 CG in a good year?

So far, I have only bought and held, some renos so would appreciate hearing of anyone who builds in Adelaide to hold or sell and makes a profit by doing so. Or maybe someone who builds a few per yr to create an income? I've read that Sue78 does this. Anyone in Adelaide?

Thanks
Tarah

G'day Tarah

I know of a few who are doing OK building 2-8 courtyard homes per year. Making about 15% profit per deal.

You do need to spend time looking for suitable land/old house to start with and each area is different. Financing is probably the most difficult thing once you find a property. But most banks / brokers I've spoken with are happy to lend on the first project. It's only the 3rd and 4th etc that start to get difficult, serviceability hits again.

And most are using a builder to do the work, either the large Fairmont, AV Jennings, etc or small to medium builders, so they only have to deal with the building supervisor for their job.

Cheers
Graeme

 

[tarah]

Thanks Graeme and Gools!

 

[Dazz]

G'day Tarah,

Just thought I'd say thanks for the meal and conversation. It was good to meet you and Rob.

Good luck with your property efforts in Adelaide....you're off to a flying start.

 

[tarah]

Hi Dazz,

Thanks for catching up with us, it was great to meet you!

Hope you find another deal to sink your teeth into soon and hopefully no colourful characters come with it!!

Might see you again (maybe we'll come to Perth)!

Tarah

 

[ArJay]

G'day Tarah

I know of a few who are doing OK building 2-8 courtyard homes per year. Making about 15% profit per deal.

You do need to spend time looking for suitable land/old house to start with and each area is different. Financing is probably the most difficult thing once you find a property. But most banks / brokers I've spoken with are happy to lend on the first project. It's only the 3rd and 4th etc that start to get difficult, serviceability hits again.

And most are using a builder to do the work, either the large Fairmont, AV Jennings, etc or small to medium builders, so they only have to deal with the building supervisor for their job.

Cheers
Graeme

Hey Graeme...

That's a pretty tidy little lurk. Do they split the block and build or do they buy courtyard allotments?

R

 

[tarah]

Delayed thanks Graeme!

Sounds like a great way to make money if you put the effort in finding a good block in a location close to amenities.

Does anyone else build and hold/sell to replace their income fully? I guess you would need to sell a few/yr to prove to the bank you have some sort of income.

Thanks

 

[PI141]

HI Tarah - How is your research going on this project? I am currently in the middle of Neg for a block that I can split - move the house rent it out or sell it and build or put a home on the new block.

My stumbling block is GST on the new block - I am led to believe that if you create something new like a house or block its subject to GST - what is your understanding of this and have you worked a way around it yet??

Thanks
S

 

[firstmillion]

Count me in

Hi,

I have two blocks one each in Windsor Gardens and Clearview which i plan to sub divided and build two houses on it. Keep information flowing. I have looked at Hickinbotham homes so far.

Cheers

 

[Samantha]

Contacting Building Companies

I have a property I want to build a house behind the house. It is a 1012M2 block with house at the front. I do not necessarily want to subdivide but am still researching whether I have to before I build.

Looking for advice from those who have been here, done this - when contacting the builder is there a list of specific questions I should ask to get the best fit for my house?

Are some companies better than the other in Perth - I would like to hear your experiences to help me through this first step.

 

[grossreal]

hi all
couple of ideas
you can do a deal with the builder to fund part or all the build costs
there are lots of ways to do a building contract
d and c
design and construct and then there is turn key
this is where they fund the build and you look after the land
its done on larger projects and can work out well
there are funders that just do duplex site
nab was one of the best and I think they still do them.
the other way is to do a co develop
so you find someone that already wants the other half and you build and split the profit or built in growth
this is what happens in the larger projects with basic presales or investing in groups
you are doing it in small sites but the idea is the same.
if you have an out of 50% of the site then a funder will fund you
so you get some one to split the profit and they are the buyer at the end
one thing I have found is that the small sites have the biggest risk.
funny that
but its because of the scale of the project and the chases of getting a dodggy builder.
and if the builder is wrong then you are in alot of trouble
with the larger sites the builder have to show they can do the job and the banks want tripartate agreements
try to get this from the builder doing your job and if possible check his/hers a and l to make sure they are not going to the pub and not comming back

yes these site are good to train on but the trouble with all training is you have to make alot of mistakes to get it right and the small site show these problems very quickly
I have a lady that has just done one and its about 60%
the build was 1.2 mil and the three houses were 1.5 mil each sale
the bank has pulled the pin
the builder is no where to be seen
and the rectification work is 500k
and to finish is 900k
the site is worth about 400k
and the debt today is 1.2 mil
so she is in a hole for 800k
with nearly the same if not more to finish
now don't let me put you off because for every horror story there is a good one
but tell you what you give me the good one I will match with a horror.
make sure you clean your rose coloured glasses as it not all roses in developing.
it is the highest risk form of business by far
you are doing the following
you are looking at a future price( which you do not know what that is)(its a guess at best)
you are looking at a builder that you have no connection to
to build this thing.
you are asking a bank/funder to give you the money to do this thing
you are hoping upon hope that the time is right and there is no delay's as that cost money and profit
and you are hoping that the market gets better
and on top of all that
you are going to put in about 12 hrs a day on site to make sure it works.
and if any of the above goes wrong in any shape or form its your b-lls on the line.
or as one funder once said I will have your b-lls for toast if this does not work.
is developing fun
can be
but is not an easy market
and you do have to have certain type of risk profile to get it to work
anyone can develop
the question is can you do it for a profit
well not many go into it to make a loss
but alot come out breaking even or making a loss.
if you do fall in that hole pm me
no matter how deep that hole seems there is a way out you just need the light

 

[Gools]

Hi,

I have two blocks one each in Windsor Gardens and Clearview which i plan to sub divided and build two houses on it. Keep information flowing. I have looked at Hickinbotham homes so far.

Cheers

FM, when the time comes take care with the footings costs. Your blocks (like ours) are in one of the more expensive spots for footings. We had quotes from the builders with a difference of nearly $13k per courtyard home. I would be getting the engineering done independently and shopping that around to avoid the builders mark up.

 

[Rob Williams]

HI Tarah - How is your research going on this project? I am currently in the middle of Neg for a block that I can split - move the house rent it out or sell it and build or put a home on the new block.

My stumbling block is GST on the new block - I am led to believe that if you create something new like a house or block its subject to GST - what is your understanding of this and have you worked a way around it yet??

Thanks
S

Tarah's currently in the Himalayas. No phone. No internet. I'm sure she will reply in a couple of weeks when she returns to the real world

 

[PI141]

Thanks Rob - I think I have worked it out - but I wont crash Tarah's post ............

 

[tarah]

Ha ha thanks Rob. Found internet in the guesthouse couldn't stay away from somersoft! Hard trek today but not as hard as your Everest climb, I'm sure!

Hi PI141, did you work it out? I'm not entirely sure, as I haven't built as yet. I think you pay GST if you're business income is $70,000 and above but don't think you'd have to pay if you only did one development to start with while you're still an employee? As far as I know you pay GST at tax time if you added GST to the sale cost of the house when you sold it. Or maybe the altitude is getting to me? Please correct if wrong!

Tarah

 

[PI141]

Well yes and no - I am not all that confident about not having to pay it if its your first one - but even so if it tips you over ( and it will ) into becoming GST reg - what does that mean for the future ?- we become very limited if we are. I am having my solicitor look over this one for me but my understanding is that you could be up for GST


UNLESS you intend to build to hold and rent ( if you change your mind after abit thats ok but as far as the bank is concerned you are holding to rent then no GST is payable

BAN Tax - how not to be a property developer has a good table on pg 15 - it wont cut and paste into here and keep its format so I wont bore you .......

Happy climbing !