Develop existing or buy and hold new?

[mumbai]

Background:
PPOR - 430K + 30K (equity for IP#1)

IP#1 - Loan 360K + 120K (equity for IP#2)
Rent: $22421 pa gross

IP#3 - Loan 370K
Rent: 21900 pa gross

Income - 85K and savings 30k.

IP#1 is an existing house on 556sqm and believe it can be demolished and torrens subdivided into 2 lots. My next door neighbour has exact same size and type of land as mine and is currently getting redeveloped.

A 3 bedder townhouse sells for around 575k-600K at the moment.

His DA tracking displays this:
"Demolition of existing structures; construction of an attached 2 storey dual occupancy and Torrens subdivision into 2 lots.
Determination Details: Def Com Delegated"

I am not able to contact the neighbour to get the details on cost and plans.
I have not done any development before, but have been reading the posts related to it.

I will be tapping equity from PPOR. I am tossing between -
- Buying IP#3
OR
- Redeveloping IP#1

What sort of approx costs am I looking at to build two 3 bedders with average finishes?
Based on the info above, do you guys suggest going ahead with the redevelopment or buying another IP?

What other factors should I be looking into?

 

[mumbai]

Any suggestions?
In the meantime, I am actively looking interstate (Perth, Brisbane and Vic) for next IP.

 

[thatbum]

Well they are quite different strategies really. Depends what you are trying to achieve long term.

Might be a good idea to learn a lot more about development before trying one by yourself though.

 

[MTR]

Hi R
Find out how much it costs to build, average spec per sqm, I would be contacting a few builders

I suspect you may make more money if you subdivide and build?? This is generally the case in Perth, but you are in Syd so don't know??

Also timeframe, sometimes even if profit is slightly higher to build it may take 12 months to build, more effort as opposed to flipping blocks in 3 months, smaller profit, however you move on to another deal and you are cashed up. In a rising market this can work well.

I would look at various scenarios and the costings, establish which is the best in terms of profit and whether you can fund the deal/s. Do not jump into any developments if cash is lean

Refer below, work out profits from each scenario and what you can/can not afford to fund


A. Selling 1 lot/block and building on the other... profits??
B. Building on 2 lots profits?
C. Selling 2 lots profits??
D. Don't develop, in some cases land is scarce and better to sell and take profit

Also, if you want to pursue the strategy of developing it may be wise to play in your backyard first to obtain experience before sourcing outside your State.

Cheers
MTR

 

[mumbai]

Hi R
Find out how much it costs to build, average spec per sqm, I would be contacting a few builders

I suspect you may make more money if you subdivide and build?? This is generally the case in Perth, but you are in Syd so don't know??

Also timeframe, sometimes even if profit is slightly higher to build it may take 12 months to build, more effort as opposed to flipping blocks in 3 months, smaller profit, however you move on to another deal and you are cashed up. In a rising market this can work well.

I would look at various scenarios and the costings, establish which is the best in terms of profit and whether you can fund the deal/s. Do not jump into any developments if cash is lean

Refer below, work out profits from each scenario and what you can/can not afford to fund


A. Selling 1 lot/block and building on the other... profits??
B. Building on 2 lots profits?
C. Selling 2 lots profits??
D. Don't develop, in some cases land is scarce and better to sell and take profit

Also, if you want to pursue the strategy of developing it may be wise to play in your backyard first to obtain experience before sourcing outside your State.

Cheers
MTR

Thanks MTR. I guess I will stick to buying and holding in the meantime.

 

[MTR]

Why so? Cash flow??

 

[mumbai]

Why so? Cash flow??

As mentioned above, I have 30K savings only. Wife will be on maternity leave for a year after 3 months (unpaid). So, single income. Not much experience with development.

And as you mentioned, I might get a good, if not better, profit by selling the IP (later) than developing it.

 

[mflying]

i suppose you are in holroyod council.

if you have current required frontage and willingness to development.. you will reap good rewards.

here is bit of numbers here and there (dont quote me for exact figures)

$15K plans and permits
$13K Council Contribution
$5K Council CR@P Fee
$600K for duplex (turn key)
$5K For subdiviosn
$10k for demo
$20K holding cost

---------------------
$670K (give and take)
+
$480K (inc your equity)

__________

$1.150 M


+20% margin

$230K profit



To achieve above you need to sell each one for $$668k.. in current market it is very achievable.. i know local agent sold duplex in south wenty for $730K with multiple offer.

 

[MTR]

Nice work, mflying.

Certainly worth developing once rajn builds up some equity.

 

[LoneWolf]

$15K plans and permits

Is this the market price for plans and permit?

I may need to do this service for my block soon

 

[mumbai]

i suppose you are in holroyod council.

if you have current required frontage and willingness to development.. you will reap good rewards.

here is bit of numbers here and there (dont quote me for exact figures)

$15K plans and permits
$13K Council Contribution
$5K Council CR@P Fee
$600K for duplex (turn key)
$5K For subdiviosn
$10k for demo
$20K holding cost

---------------------
$670K (give and take)
+
$480K (inc your equity)

__________

$1.150 M


+20% margin

$230K profit



To achieve above you need to sell each one for $$668k.. in current market it is very achievable.. i know local agent sold duplex in south wenty for $730K with multiple offer.

Great detail mflying. Thanks for that.
Getting the plans, permits and DA will be my goal for this FY.

 

[mflying]

Great detail mflying. Thanks for that.
Getting the plans, permits and DA will be my goal for this FY.

sounds good! PM me if you need any help!

Good Luck!

 

[HD_ACE]

i suppose you are in holroyod council.

if you have current required frontage and willingness to development.. you will reap good rewards.

here is bit of numbers here and there (dont quote me for exact figures)

$15K plans and permits
$13K Council Contribution
$5K Council CR@P Fee
$600K for duplex (turn key)
$5K For subdiviosn
$10k for demo
$20K holding cost

---------------------
$670K (give and take)
+
$480K (inc your equity)

__________

$1.150 M


+20% margin

$230K profit



To achieve above you need to sell each one for $$668k.. in current market it is very achievable.. i know local agent sold duplex in south wenty for $730K with multiple offer.

Dont forget to include

- selling costs and advertising
- CGT or Income tax
- GST

These can take a big bite of the pie.

 

[mumbai]

Thanks HD_ACE. I will consider that as well.

 

[MTR]

and of course if you hold and just access equity you don't pay any of these. GST need to hold for 5 years. I always get my account to view costings and various scenarios.

 

[mflying]

Is this the market price for plans and permit?

I may need to do this service for my block soon

$8000 for drafty
$1500 for survey
$500 for landscape design
$1500 storm water engineer
$2000 structural engineerr
$1500-$2000 council application fee

That's just rough calculation.

 

[mumbai]

Nice work, mflying.

Certainly worth developing once rajn builds up some equity.

I have been looking to buy another IP, both interstate and in Sydney, but unable to finalise one yet. Offers are rejected at some places and yields are pretty bad at others.

I should be able to extract 120K equity from my PPOR and probably another 75k from IP2 if need be.

If I sell my IP#1 right now as it is, I may probably make 120k-150K profit. And based on mflying's calculation, I could make 230K profit on developing two duplexes and selling it both.

Is it still advisable to develop? Or just hold on to that IP?