Developing 101

[pier1]

Build (pardon the pun) a quality relationship with a builder and have a look at GMP with shared savings.
Gross Maximum Price (locks the builder into a fixed price), the shared savings (choose your levels 50/50, 60/40 etc. whatever suits and is agreeable) pushes your builder to do the best they can, as like the name implies, they share in the savings.

For example your chosen builders says they can build your 3 storey walk up for $1,998,00 with 50/50 shared savings.
Your builder works hard on his subcontractors and final cost is $1,900,00 a $98,000 saving of which you get $49,000 and they keep $49,000.
Win/win.

 

[oc1]

So I see Council still trying to get their act together on this....

Yep, only a handful got through. The rest are still sorting it out.

 

[flash4]

hi oscar
brilliant thread
my question for anyone here is related to finding the site
how does one find a profitable site and what is a good way to search for them? I have been to many auctions and the price is well beyond what my numbers are telling me ( I am confident my numbers are correct after a lot of research). Do people generally find these properties off the market?

 

[oc1]

hi oscar
brilliant thread
my question for anyone here is related to finding the site
how does one find a profitable site and what is a good way to search for them? I have been to many auctions and the price is well beyond what my numbers are telling me ( I am confident my numbers are correct after a lot of research). Do people generally find these properties off the market?

Not every area is profitable to develop and not every developer/development makes money. Start by chatting to some developers that ARE making money.

Oscar

 

[hobo]

oc1, thinking back to when you first started looking at/doing developments, how did you work out what building design / apartment layout would work best on the block?

Did you engage a draftsman or someone, to help you work out the best design/layout for your first project, or had you already gathered ideas enough that you knew what you wanted to build from the start?

Cheers

 

[oc1]

oc1, thinking back to when you first started looking at/doing developments, how did you work out what building design / apartment layout would work best on the block?

Did you engage a draftsman or someone, to help you work out the best design/layout for your first project, or had you already gathered ideas enough that you knew what you wanted to build from the start?

Cheers

When i look back at the first few i developed they were all underdeveloped. Still made a profit but would make more with my knowledge now if i had my time again. The more you know the better, just like anything. The first draftsman i used was a referral from a local builder. Wasn't a bad designer but some designer/architects/consultants are more knowledgeable and more aggressive than others. I came across another designer and saw how the rules can be interpreted differently. I then spent more and more time looking at every development plan I can get my hands on, making friends with people in the industry, picking their brains etc etc. It's addictive, remember Over time the knowledge increases.

 

[hobo]

Thanks oc1, appreciate the reply.

I will continue my learning process for a while yet, then. We are a little way from being ready for our first development project yet, but it is on the horizon.

 

[flash4]

Not every area is profitable to develop and not every developer/development makes money. Start by chatting to some developers that ARE making money.

Oscar

thanks oc1
now to find some profitable developers!

 

[albanga]

Great thread thanks Oscar!
I am about to become a first time developer, subdividing my current property, building at the rear and then renovating the front to try and create some equity. I have all my drawings and council approval and have now put the build out to tender and just had a couple of questions.

1 - when getting quotes, should you be chasing up builders or should they be chasing you? I have spoken to and mailed 7 builders my plans and 3/7 have not even bothered to respond? Is this common? Is it my responsibility to be harassing the builders or would you take this as a sign they might not be very interested in my small development?

2 - Do you change the build based on your strategy to either sell or hold? Reason I ask is I am still unsure which direction I will take and wanted to know if I should be considering anything for the build? For example using different materials that are more resilient in a rental.

3 - I am currently reading anything I can get my hands on regarding development/property. Is there any particular books that you found particularly helpful? Or perhaps even a building/construction book worth picking up?

Thanks in advance! And thanks again for the great thread.

 

[Blair007]

thanks oc1
now to find some profitable developers!

Id get in touch with oscar if i was you.

He's helping me with a development project in melbourne. Im based in perth - i wouldn't know where to start with an interstate project without his help

 

[Vanders]

Great thread.
My husband and I are also increasing our knowledge prior to purchasing our next IP for a development. So I would also appreciate any recommendations for any books/ebooks?
We have done some basic figures and we were initially looking finding a property for a subdivision with two townhouses but are now thinking 3 townhouses would increase the profit margin considerably.
Is this what others have found?

 

[flash4]

Great thread.
My husband and I are also increasing our knowledge prior to purchasing our next IP for a development. So I would also appreciate any recommendations for any books/ebooks?
We have done some basic figures and we were initially looking finding a property for a subdivision with two townhouses but are now thinking 3 townhouses would increase the profit margin considerably.
Is this what others have found?

vanders, i have found the same thing and that is what prompted me to ask on this thread on how people go about finding properties
because i am sure profits can be made with 2 buildings as opposed to 3

 

[shorty]

Secondly, how do developers finance a loan during the period of construction and subdivision? Obviously the loan can be paid out at the point you sell the dwellings but if you borrow say $1m for TDC, how do developers fund the interest on this?

This is a very good question. As a potential developer I'd also be interested in the answer to this.

 

[albanga]

This is a very good question. As a potential developer I'd also be interested in the answer to this.

From my understanding there are a few finance options for development but the most common is a staged construction loan. What this means is the finance is paid to the builder in portions as opposed to one lump sum.

For example if the development cost was 1 million then the first part of the development may be site works which costs 150,000. This amount would be paid to the builder and you will only have to pay intetest on that component. Stage 2 might be framing and so on.

This means you are not immediately paying interest on 1 million but only really at the end when your about to sell. Keep in mind all developers would only use an interest only loan so payments are not as high as a normal mortgage on say your PPOR.

There are other considerations as well such as selling off the plan and using the deposit money as cash flow, having investors in your development and so on. There are many available methods to ensure you have cash flow during the development.

If you are just talking about going it alone, building as then selling it after completion (speculative I think this strategy is called) then you really need to ensure you have done your maths. I for example am doing this and have ensured my wife and I income can cover an additional 200k max loan. I've also saved 15k into a safety account in case say my wife gets pregenant and I myself am servicing it until sold or rented.

I am a total novice but I would think all larger developments with multiple apartments/units would sell of the plan. Each one would be a 10% desposit which would cover the massive loans. Smaller duplex, triplex developments would not use this strategy as much (I don't see much selling of the plan) so would no doubt have a good bankroll to ensure they service the loan. The more and more developments you do, the bigger your bank roll would be (if your good and they are successful) and hence the bigger projects you could take on.

 

[oc1]

Great thread thanks Oscar!
I am about to become a first time developer, subdividing my current property, building at the rear and then renovating the front to try and create some equity. I have all my drawings and council approval and have now put the build out to tender and just had a couple of questions.

1 - when getting quotes, should you be chasing up builders or should they be chasing you? I have spoken to and mailed 7 builders my plans and 3/7 have not even bothered to respond? Is this common? Is it my responsibility to be harassing the builders or would you take this as a sign they might not be very interested in my small development?

2 - Do you change the build based on your strategy to either sell or hold? Reason I ask is I am still unsure which direction I will take and wanted to know if I should be considering anything for the build? For example using different materials that are more resilient in a rental.

3 - I am currently reading anything I can get my hands on regarding development/property. Is there any particular books that you found particularly helpful? Or perhaps even a building/construction book worth picking up?

Thanks in advance! And thanks again for the great thread.

Could be a mixture of builders being busy, not a big enough job or something they don't take on.

Since your permit is approved you can only play around with the internal materials. External is out unless you go back to council for an amendment. And yes you should use materials based on whether you are selling or renting.

I couldn't find anything to read years ago. Developing can be State specific so getting the finer details can be hard i would imagine.

 

[Michael_X]

Thanks Oscar for sharing your knowledge - great thread!

 

[serendip]

• The cost of construction (including contingencies and demolition)
• Planning/DA fees and all council contributions including subdivision
• Your selling costs (agent fees, title fees, legal fees)

I wonder if those who've been there / done that could break down these items a bit more, or point out resources to help break it down. In a case of I don't know what I don't know I'm struggling to work out how much it is going to cost me to get to build stage. General items to consider would be great, if you want specifics i'm looking at:

200sqm block, flat, corner block sewer line running just inside the back fence
small duplex to comply with .75 FSR - probably 2 2 1, maybe 2 1 1
considering roof top terrace for open space

 

[psylink]

I do have a PDF version but can't "legally" share it until September.

Oscar

Good timing to notice this thread then! Time to share Oscar?