Building large home versus townhouses to sell for profit

[kathyarthur03]

Hi,
I am a newbie and currently deciding whether to proceed with a townhouse development versus a large home purely to sell for profit and then do it again. Townhouses in the suburb I'm looking at sell for $800-$900K and the initial land purchase price is $900K. When I do the numbers, they don't look that good. Yet if I was to buy the land, spend $500K building a nice 5 bedroom 5 bathroom volume builders home, I should be able to sell for at least $1.7m +. I always thought that townhouses were more feasible, however the numbers actually look better with one large home. Am I missing something? Any guidance would be greatly appreciated. I am going to buy under a partnership, registered for GST as I'm doing this with a family member.

 

[serendip]

This is really interesting and something I'm contemplating myself. Well, similar anyway. I've not done any developing yet so will be interested to see replies from more experienced developers. One thing that comes to mind is that with a $1.7M house people are going to have certain expectations with finishes, which may not be met by the standard finishes offered by the builder. I guess I'm saying the costs may be higher to get the necessary finish quality to achieve your desired end result.

Be watching with interest

 

[sanj]

Assuming the figures you've quoted are correct, there still isn't enough profit in the deal.

Once all costs are considered you may make 50k each if you're lucky and that's also assuming no cost blowouts

not worth it imo

 

[kathyarthur03]

Hi Serendip,
I am being rather conservative with my figures. If I was going to use a smaller builder and provide nicer finishes, I am confident that I could reach the $2m+ mark, however given it will be my first one, my preference is to use a volume builder and add abit of bling via nicer light fittings, wider door trims etc. They can obviously build it a lot quicker. A friend of mine recently did the same thing with a volume builder and still reached $1.9m.

 

[kathyarthur03]

Assuming the figures you've quoted are correct, there still isn't enough profit in the deal.

Once all costs are considered you may make 50k each if you're lucky and that's also assuming no cost blowouts

not worth it imo

Hi Sanj,
Thanks. What sort of profit should I be chasing to consider it feasible?

 

[westminster]

Hi Sanj,
Thanks. What sort of profit should I be chasing to consider it feasible?

20% is the minimum most people target based on good conservative figures. In that end of the market it can be riskier and more effected by consumer confidence.

But sometimes it is easier/more profit to do less than more.

 

[hematite]

Tax is also a major consideration in the way you develop. GST can take out a huge chunk of profits if you need to sell.

 

[MRCCON]

Tax is also a major consideration in the way you develop. GST can take out a huge chunk of profits if you need to sell.

Exactly, you are paying GST on the new townhouses vs tax free if you intend on living in the single one for the required time.

 

[ulvit]

Ive seen two blocks next to each other sell for $600k each
Both knock down.

One put two units on it - sold for $650k each
One put one dwelling on is - sold for 1.3mill

Both developments were of medium quality.

The single dwelling on a block had 5 bathrooms (includes ensuites for 4 beds),
and 1 kitchen - just comparing what went into both projects

Single dwelling did not have to go through townplanning, or pay an contribution fees or other fees relating to the townplanning But still had a similar outcome in profit. Something to consider. The only con is that you can't liquidate this investment any further - ie sell one, keep one