Dev block in Belmont Perth - pls check my figures and tell me if I am mad or not.

[Tulamalula]

I want a development block to develop in the future - 2-3 years. The agent says this one will go around high 6 early 7s. Everything I have seen in the area that is current zoned for development is over $700K - so I am assuming $720K - though will probably go for more. I feel if I don't take the plunge now, even if its negatively geared,

http://www.realestate.com.au/property-house-wa-belmont-115856927

Here are my figures.

To purchase
Purchase price = 720,000
Stamp duty= 28,685
Legals = 2,000
Total purchase price= 750,685


Monthly outgoings
Loan 4.88% - interest only = 2970
rates - pa 2,000/year = 103
PM@50 per week = 216
land lord?s insurances 100 per month = 100
home insurance = 100 per month =100
Total outgoing per month= $3,489

Monthly income
$480 week=$2,080

Out of pocket per month $1,409 - which we can easily afford

actual out of pocket around $700 month when tax adjusted

Have I missed anything other than maintenance.

Plan would be to hold and rent initially 2-3 years even 5 years. Build up equity in this house and in PPoR in Maylands. We're paying P and I on PPor and making more than minimum payments.

I know others say go IO on PPoR - I just can't get my head around that at this stage as both hubby and me have been brought up to pay off your debts as soon as possible.

Comments welcome please!

(this is all based on hubby's income securing the loan, I also earn 3-5K month, but its irregular, but still money there for emergencies.

 

[thatbum]

Uh, wheres the part of your calculations with the exit strategy?

You've just put the part where you lose money every month!

 

[Tulamalula]

The losing per month part is called negative gearing. Der.

Exit strategy is eventually develop,, and hold if possible, this is a blue chip area these days and this same property wont' be selling for $720k in 3 years time, more like a mill. given how hot Belmont is.

 

[westminster]

How much will it cost to develop and what can you develop on it?

I suspect there is no chance of a profit now so how much growth would there need to be to develop and hold its own?

It's not a strategy that I'd do but it has some merit if it's a really good location, excellent block and you are prepared for things like job loss, council changes (the new council amalgamations)

 

[stumpie]

The losing per month part is called negative gearing. Der.

Exit strategy is eventually develop,, and hold if possible, this is a blue chip area these days and this same property wont' be selling for $720k in 3 years time, more like a mill. given how hot Belmont is.

if you use 6.25% instead of 4.88% are you able to manage this exposure?

perhaps try looking in other suburbs like in lynwood?where the opportunity exist but with less outlay.

http://www.realestate.com.au/property-house-wa-lynwood-115775747

 

[perthguy]

if you use 6.25% instead of 4.88% are you able to manage this exposure?

perhaps try looking in other suburbs like in lynwood?where the opportunity exist but with less outlay.

http://www.realestate.com.au/property-house-wa-lynwood-115775747

I saw that. What a dump! But really, in real estate terms... dump means heaps of potential. You would have to make sure it's structurally sound but if it is it could be a great buy. I can't get my head around 5x1 though. My priority would be to work out how to conjure up another bathroom.

 

[Tulamalula]

Jerry, yes, we have $3-4Kmonth disposable income, plus my earnings.

Lynwood, well it's not Belmont so CG? Also that house is unrentable, and I am not ready to develop immediately, so aware of holding costs,

Westminster it's zoned R20/50/100 - rents go up, mortgages stay the same.

 

[Tano]

Missing Water Rates of ~ 1500
Why do you need home insurance if you have landlord insurance?

Theres also about $300 worth of tax accountants fees if you dont do your own tax.

Also you need to budget a little for repairs and maintainence.

 

[thatbum]

Westminster it's zoned R20/50/100 - rents go up, mortgages stay the same.

I'm always of the view that if you're buying development land, you need you have a fairly good idea of how to develop it. Otherwise you're just taking a very big gamble as to what its actual value is.

Doubly so if you're holding it longer term - highest and best use etc.

Do you know how the R20/50/100 works in that area?

 

[perthguy]

It's really important to try to work out what you can develop on the block. For example, if you are looking at 1x1, 2x1 and 2x2 apartments, consider whether there will be any demand for them in 2 years time. If you have a look at the listings in the area, there are a lot of these on the market and recently sold off the plan. Consider whether there are too many under construction and whether this will cause a glut by the time you want to develop. Also, how many can you develop, what would be the rent and could you afford to keep them once you have built them? The house is in a brilliant location, so if your numbers stack up it could be a good buy.

 

[westminster]

Jerry, yes, we have $3-4Kmonth disposable income, plus my earnings.

Lynwood, well it's not Belmont so CG? Also that house is unrentable, and I am not ready to develop immediately, so aware of holding costs,

Westminster it's zoned R20/50/100 - rents go up, mortgages stay the same.

Alas mortgages do not stay the same. We are at bottom or near bottom of interest rates but you can fix - just not at the rate you quoted.

R20/R50/R100 is an interesting mix. That is generally used for apartments and 700sqm block is not very apartment friendly

You need to find out from council what the requirements are for the R50/100 as they could be VERY onerous.

What if the requirement is to build apartments? or only double storey? or retain front house and only develop rear? or demolish front house and develop whole lot (bad if you want to retain) or anything which won't make a profit

 

[perthguy]

You need to find out from council what the requirements are for the R50/100 as they could be VERY onerous.

What if the requirement is to build apartments? or only double storey? or retain front house and only develop rear? or demolish front house and develop whole lot (bad if you want to retain) or anything which won't make a profit

It will be in the scheme and/or a local planning policy. Without looking it up, my guess would be: a) must demolish the existing house b) minimum of two story

http://www.belmont.wa.gov.au/Servic...t Sheet Town Centre Frame Additional Uses.pdf

 

[Tulamalula]

I have that document open right now Perthguy, also Local Planning Scheme 15

A cosmetic reno on the house would hike up the rent a bit, am also checking out retain and build 2 behind if allowed. I'm not really keen on knocking down perfectly good houses, though Perthguy, that one in Lynwood, ugh, needs a bulldozer.

i went through this one yesterday - they want around $600K. House is very pokey, 3 bedrooms not 2, would take $80-$100k renos, it's unrentable at present.

http://www.realestate.com.au/property-house-wa-dianella-113157143

could reno the front, subdivide and sell off back block, or sell off house for around 550K and develop the back and hold.

 

[D.T.]

The losing per month part is called negative gearing. Der.

Exit strategy is eventually develop,, and hold if possible, this is a blue chip area these days and this same property wont' be selling for $720k in 3 years time, more like a mill. given how hot Belmont is.

But the exit strategy is how you make money, der.

You've only listed year 1 holding costs, how long will you hold it for? Will costs increase in subsequent years if rent changes, interest changes, maintenance changes?

Wheres your feasibility on retaining and building or bulldozing and building? How many places can you build on it and how much will they cost each? What will they be worth afterwards, to either keep & rent or to sell?

 

[perthguy]

You've only listed year 1 holding costs, how long will you hold it for? Will costs increase in subsequent years if rent changes, interest changes, maintenance changes?

Council rates will go up, water rates will go up, interest rates are likely to increase.

 

[Tulamalula]

True, but there are good CG in Belmont, and a reason I don't want to go any further out. the house has cosmetic reno potential for higher rental returns. I need to go work out some more numbers, and read through those documents ... at least I've settled on not only a city but an area now. If this was Brisbane it would be so much easier for me, but I need to be in the city I am investing in if I am thinking development down the track, so that limits me to Perth.

Anyway the good news is that as an owner builder on our PPoR we haven't overcapitalised and if we sold in a hurry we would make a good return ... this time round with investment I am NOT picking up a hammer, paint brush, floor sander, 40 kilos of floor sander dragged into the house in 40 degrees was not fun.

Thanks to everyone who chips in, i learn so much with every answer to every post. Am on a steep learning curve here, and as a newbie to investing (though experienced with making money on property in the past) everyone's input is just fantastic!!!

 

[HD_ACE]

Take a step back for a minute.
Firstly, I would suggest not paying a premium for the higher zoning. Your going to loose money by buying an r20/50/100 zoned property to build duplex or triplex on. They are priced because of the amount of apartments that can be built on them.

I suggest looking for r20 r25 r30. or r40 in other areas. Where the price isnt as high for the same outcome. This will cater to your retain and build, duplex or triplex developments.

2ndly 18-24 months ago you could buy these sites in belmont for 450k-500 k. Same potential as now. Now 700-800k. Do you think it can keep going? Belmonts gone stupid and you need to plan properly and have an exit strategey and not just say it will be worth over 1mill in 2 years because there will be a correction at some point.

This means you should be doing a feasibility on the development now, making sure the numbers work before jumping in. This means researching comparable sold properties to which you will develop to get the values and margins and all costs associated with development ie demo subdivision approvals etc etc.

This way you have safe gaurded your future even if you plan to hold for a while.
I think belmont will be one of the first to start a correction when the time comes so just make sure you plan before you jump.

Hope this helps

Cheers

 

[thatbum]

Take a step back for a minute.
Firstly, I would suggest not paying a premium for the higher zoning. Your going to loose money by buying an r20/50/100 zoned property to build duplex or triplex on. They are priced because of the amount of apartments that can be built on them.

I suggest looking for r20 r25 r30. or r40 in other areas. Where the price isnt as high for the same outcome. This will cater to your retain and build, duplex or triplex developments.

2ndly 18-24 months ago you could buy these sites in belmont for 450k-500 k. Same potential as now. Now 700-800k. Do you think it can keep going? Belmonts gone stupid and you need to plan properly and have an exit strategey and not just say it will be worth over 1mill in 2 years because there will be a correction at some point.

This means you should be doing a feasibility on the development now, making sure the numbers work before jumping in. This means researching comparable sold properties to which you will develop to get the values and margins and all costs associated with development ie demo subdivision approvals etc etc.

+1. Put what I was thinking better than I could.

And some very sage advice from someone who knows the Belmont area very well.

 

[perthguy]

2ndly 18-24 months ago you could buy these sites in belmont for 450k-500 k. Same potential as now. Now 700-800k. Do you think it can keep going? Belmonts gone stupid and you need to plan properly and have an exit strategey and not just say it will be worth over 1mill in 2 years because there will be a correction at some point.

As someone who is looking for a dev site in the City of Belmont, I agree with this. I have watched prices rise and rise but I won't be paying current prices for these blocks. I'm more interested in R20 than R100 for what I am planning.

 

[Tulamalula]

HD Ace, thanks for bringing me back down to earth. I am completely off the idea now, and need to get back to basics, and the original plan which is retain and build behind (potentially, but not necessary and a long way into the future if zoning changed, which would be a bonus but not an expectation), small reno and rent and hold.

How do you see the prices of Belmont on older houses (1960s) on 850sqm, not being marketed as development sites. There are a few closer to the Redcliffe border that would come up a treat with a cosmetic reno. Big blocks will be harder to come by in the future with all the infill going on, so I thought there may be a market in the future - when all the developments blocks have been picked up and turned into boxes of people living on top of each other, for those who want a big back yard.

I drove around Belmont the other day and was amazed by the developments - so much going on! Surely there will be a glut of units, townhouses and villas some day soon.