Buy land and Build

[Evad]

Hi all.
There is a block of land I am looking at buying in hope to build a house on it and possibly rent or onsell.

Could anyone elaborate on any possible strategy and the process, maybe things to watch out for as this will be my first time?

I am thinking, Buy the land and build the house. Sounds simple.
I have funding for around 300K and if I got the land for say 150K and then the house cost 150K to build then I could either rent it or live in it.

Can anyone recommend a house building company? What are some of the possible problems that may occur when employing these guys to build a house IE JG Gardener or someone like that?

Is there a finance structure to have in place EG: paying loan once works are complete? Will I have 2 separate loans? For house and land? Will this require two separate deposits?

Insurances? Anything to worry the council about?

Any help will be greatly appreciated by someone who has done this before.
Thanks in advance

 

[ColonialBoy]

A mate recommended Dixon Homes to me, you can change their designs & the cost is immediately calculated, unlike most builders.
http://www.dixonhomes.com.au/plansearch/designsprices.asp


And of course apply for http://www.osr.qld.gov.au/client-group/first-home-buyer/index.shtml

 

[Philip Thomas]

Developing a Vacant Lot

Evad,

Its an excellent idea buying land and developing it. However, there are quite a few things you need to look into before you commit to buying the vacant parcel of land.

1. In the area that you are considering to purchase the vacant land, what is the market demanding? i.e. What are the demographic characteristics of your market segment & what are the local residential trends?
2. Who will use the final end product?
3. What will they pay for the use or ownership of final end product?
4. What is currently competing with what you propose to produce & at what price?
5. How will you fund the hold of the property through the Development Application & the construction period?
6. How will you finance the development (i.e. initial mortgage then construction mortgage)?
7. In your area what is the Development / Construction Approval time & what is the build time?
8. What is the optimum lot configuration for what you plan to build that best meets market demand?
9. What is permissible on the site in terms of zoning & site limitations?
10. Is the Return on Investment or profit you will make after taking out purchases, DA approvals, taxes, holding costs, sales commission acceptable to you & your lending party?

If you do your homework thoroughly Real Estate Development can be very beneficial. Keep in mind that maintaining cashflow through out the development is essential to reach a point where you can realise a profit.

To answer there questions talk to Council planners, local real estate agents, people in the area, go to open houses, check for sale & especially properties sold in your target area & also follow rental demand. Also tack to local architects, builders & project home builders to get ideas on costs, process & timeframes.

If you can make settlement a condition of obtaining Development Approval, that would certainly help your cash flow & bottom line.

Development is very exciting & can be very rewarding. Do your homework well & it will be both.

What you are doing is fantastic.

Philip

 

[Evad]

Thanks for the replies people I really do appreciate it.

Philip wow lots of information there. I will have to work though each point in my head at home and answer these for myself, thanks again.

The area where the land is placed is actually right next door to me and is a corner block of around 850Sqm. Do I require a DA to build a house regardless of where or when it is?
The area is nice enough and close to all amenities.
I had 3 options for the end product. Either move into it and rent my unit next door. Sell for a profit and use the realised gain to reduce debt on my PPOR or just rent it out and stay where I am.

I think rent would be reasonable as long as it didn’t cost too much to complete the project.

There are a few places up for sale in Townsville at the moment but a lot of them seem to stay or have been on the market for a while Hence the current climate.

Number 5 – I don’t know. How do I do that? I have minimal disposable income at the moment. I just know I got to try.Is this why people have a LOC to see them through the unexpected costs of a job like this?

I wouldn’t know the Construction or DA approval time here as I have never done this before. I will have to ring people and ask some questions.

Number 8 – Because is a corner block it has potential. IE 2 units separate driveways. One reasonable house or small one with large yard to keep construction costs down.

Will have to ask about zoning but it has previously been divided with a fence built in between from around 1600Sqm and a house on the other side so I would think that the zoning is residential. Again don’t know much about this stuff.

My ROI. I would love to be able to work this out but I really don’t know my costs. I guess that is why I have asked using this thread. I kind of want to be able to spend maybe 300k all up but that is just land and house complete. Don’t know how realistic this is and doesnt even include any other costs.

That DA approval condition is very good and something I will put to the RE.
This all seems so daunting and I don’t know where to start really.

It is not I can’t – It is How can I?
Thank you so much for your help.

 

[Philip Thomas]

Thanks for the replies people I really do appreciate it.
Will have to ask about zoning but it has previously been divided with a fence built in between from around 1600Sqm and a house on the other side so I would think that the zoning is residential. Again don’t know much about this stuff.

This is your first step. Call Council & talk to a planner about zoning for the property you are interested in & what the zoning means (what you can build). If the planner you talk to isn’t helpful then call back at another time & speak with a different planner, until you get someone that is really helpful.

This will give you an idea on what you could do with the property. From there you can research the market to identify the demand (& work through the other questions).

Recommend getting an A4 spiral note pad & keep notes on all the people you talk to & the information you find in relation to this property.

There is plenty of talent involved in postings on this site that can help you as you move thought the feasibility.

Philip

 

[Evad]

Thanks again Philip. I will be following your advice.

 

[Shazntaj]

Hi Evad,

Another thing that you do need to consider are site costs that can be upwards of $15K and BASIX costs $10K approx. I believe there is another mandatory cost which I can't quite remember sorry that was $5K. Landscaping (grass, gardens, boundary fences, retaining walls don't come cheap, driveway, light fittings, floor coverings and any optional extras/upgrades/changes that you make. Many small things can easily add up.

 

[Savanna100]

I believe that BASIX is NSW only. It may cost more to implement some of the green features, something that developers arent too happy about these days.

 

[Minx]

I think it depends on where the property is. If it is in a new estate I don't think that it is a good idea. The potential buyer has the opportunity to purchase their own block thus reducing stamp duty and selecting the house they want to the specs they want for cheaper than what potentially would be for sale completed.
In addition I would imagine that the person would rather source their own builder. The whole excitement for a first home builder is doing the colour consultation.
In new estates I have seen it work for those who are the builder, buy a couple of blocks then build spec houses. The prices they sell for are quite competative, they sell either off the plan or mid construction but the bottom line is that the builder makes a min of 20% profit.

I personally know a few builders who purchase sites in blue chip areas and build archit. Designed homes and sell for top dollar. Their strat is to stick to specific areas and no they don't touch new estates. Their customer have an expectation regarding the end result of the product and sticking a house by a project builder in a blue chip area won't cut it from the customer.

 

[craigb]

Evad, its a good idea, but not as romantic as it sounds, beetween council, builders,banks and every thing else that turns the planet, be prepared for frustrating times, as there are very few that make money on there first, so strap your self in your in for a busy time, Good luck!

 

[Philip Thomas]

craigb is right, you may not make a killing on your first development.

But you will learn so much from it that 2nd time around you will.

Philip

 

[RumpledElf]

We're looking to do land and build but the way the timing has worked out we're now stuck for finance for the land part. Bloody annoying. Can't get finance for the construction - let alone sign a building contract - without the land in hand.

And of course now I've got quotes for the building part from several builders I'm in their speed dial so every other day a builder rings to see if I've decided to come and sign up with them yet or not. And if not, we'll call back next week! Grr.

 

[Philip Thomas]

We're looking to do land and build but the way the timing has worked out we're now stuck for finance for the land part. Bloody annoying. Can't get finance for the construction .

RumpledElf

I’m not sure if your issue here is land ownership or construction finance or both.

To secure construction finance, the banks will want to see a building contract from a registered builder. For the initial bank finance negotiations dont get the builder to sign the contract, because if there are issues with finance & you’ve signed a builder then you could be stuck.

You should have no problems securing the loan if you have done your homework & the project stacks up, as long as you can service the construction loan component (& land). It may be worth finding out who your bank uses for valuations & getting them to do a valuation on the completed product. The bank will certainly do this before they issue your construction loan. Then there is no doubt that the amount borrowed has enough equity coverage.

Philip

 

[RumpledElf]

I’m not sure if your issue here is land ownership or construction finance or both.

Land ownership. Its a subdivision, council won't approve a build as a dual occupancy but they will on its own block, so we need to hand over $$ to get the land on its own title. Subdivision $$ is considerably less than the value of the land. Unless you know something I don't and I can get a building contract/finance contract set up on a *pending* subdivision.

Actually the real issue is I need to sell my old house to PAY for everything and haven't exactly advertised it beyond my sig. Taking out an ad in the 'tizer this weekend, hopefully I get thousands of marauding FHBs stomping through the house looking at my half-tiled bathroom this weekend, and all of them want to buy it for squillions of dollars.

 

[Evad]

We're looking to do land and build but the way the timing has worked out we're now stuck for finance for the land part. Bloody annoying. Can't get finance for the construction - let alone sign a building contract - without the land in hand.

I am actually in the same boat. Being on a single income i just cant.. well "how can I? is the correct statement' afford it. I have funding of only around 220k.

Asumeing I can get the land for 150k and the house complete for 150k thats still 300k before anything else. It is a great piece of land (good size and right in the middle of everything) so i might secure it if i can for a good price and then find someone with the money to build the house and split the profit. JV

Also Philip the land is zoned allready residental so does that mean if i do take ownership i can start building straight away and let the buiding company sort all the council stuff out?

 

[craigb]

Thats part of the romance perhaps i may sugest buying somthing older first , renovating to new and adding a bedroom and ensuite, first, this is a better g,tee on the new room and the updated home,

 

[RumpledElf]

Also Philip the land is zoned allready residental so does that mean if i do take ownership i can start building straight away and let the buiding company sort all the council stuff out?

There's sub-zonings under residential that let you subdivide further (or not) and specify how big and where you can build your house.

If its the land next door you might be able to do something sneaky and amalgamate the two and then split it into 3, but this depends REALLY heavily on lots of other factors - if its already been divided in the recent past you've got buckleys to none.

Bottom line: what do you *want* and will owning that land help you accomplish it?

 

[Philip Thomas]

Cost To Complete & Development Feasibility

Its important with all investments to ask questions:

How will this investment increase your net worth?? Is it sustainable (in the short term / long term)?? What time frame would it take to realise a return; 2 years, 3, 5 or more?? Are there other properties / investments that could increase your net worth faster???

Is an investment in a vacant lot with its holding costs & development costs the best use of you capital??

There is no income from the vacant land until you add value of building a residence. There is holding costs including interest, rates & taxes. If you want to add value to the property by building a residence, you need a partner to inject additional capital. To get a partner you need to do a feasibility to show the development would make a profit so there is something to split.

The feasibility addresses the cost of buying the property, paying for the Development Application preparation & fees, building a house & the cost of holding the property during the development period. You also look at the market demand (who would own or rent the property & at what price).

Its good to focus on what you have got & work from the positive. You have an income, you can fund $xx & you have found a potential investment in a high demand area.

Once again; how will this investment increase your net worth & is it sustainable?

Philip