Development feasibility

I'll try one last time.

If you are going through all the effort of fingind a site, getting plans approved, subdividing, finding a builder, going through the entire building phase etc for the same amount of profit (ie $0) as you would get if you were to simply buy an investment property that is ready to go then you might as well just buy a property on the market.

Why go through all the headache if there is no profit? what is the advantage of taking all that risk?

I dont think you are taking into account possibility of losing money here.
 
I'll try one last time.

If you are going through all the effort of fingind a site, getting plans approved, subdividing, finding a builder, going through the entire building phase etc for the same amount of profit (ie $0) as you would get if you were to simply buy an investment property that is ready to go then you might as well just buy a property on the market.

Why go through all the headache if there is no profit? what is the advantage of taking all that risk?

I dont think you are taking into account possibility of losing money here.

If they are both going to give me the same amount of profit, i'd say the headaches are all worth it when i end up having 2 properties instead of 1. By the way, are ALL developments headache free? Also, I thought that properties are appreciating assets. So whether i choose to construct 2 houses, or simply buy one and live in it, they both have the same effect - assets that are increasing in value. The ends are the same, it's just the means are different.

When you say losing money, are you talking about holding costs? If so, isn't that a given?

If i can afford the loan, what is wrong with what i'm proposing?
 
If they are both going to give me the same amount of profit, i'd say the headaches are all worth it when i end up having 2 properties instead of 1. By the way, are ALL developments headache free? Also, I thought that properties are appreciating assets. So if i choose to construct 2 houses, or simply buy one and live in it, wont they increase in value in the future anyway? The ends is the same, the means are different.

When you say losing money, are you talking about holding costs? If so, isn't that a given?

If i can afford the loan, what is wrong with what i'm proposing?

You will not end up with 2 for the price of 1! You will end up paying the same price for 2 properties that you would have if you bought them on the open market. So there is no reward whatsoever

No, losing money when including holding costs is not a given. If it was all developers would be bankrupt.

You appear to be keen to lose money, i wish you the best, horse to water and all that.
 
You will not end up with 2 for the price of 1! You will end up paying the same price for 2 properties that you would have if you bought them on the open market. So there is no reward whatsoever

No, losing money when including holding costs is not a given. If it was all developers would be bankrupt.

You appear to be keen to lose money, i wish you the best, horse to water and all that.

Since when did i say i'll end up with 2 for the price of 1? You misunderstood. What i was trying to say was that i would rather end up going through all the headaches for 2 constructed properties over the easy road of simply having 1 property. I did not say i'd be ending up with 2 for the price of one.

I'm not keen to lose money at all. I wouldn't be here on this forum if i was. Don't get worked up with my posts (i can tell you are), i'm a novice and i'm here to learn from investment professionals.
 
Since when did i say i'll end up with 2 for the price of 1? You misunderstood. What i was trying to say was that i would rather end up going through all the headaches for 2 constructed properties over the easy road of simply having 1 property. I did not say i'd be ending up with 2 for the price of one.

but you can just buy 2 properties for the same amount of money and have a lot less headaches and take less risk. You would still end up with 2 properties, it will cost you the same and you will have them quicker so what is the point of going through the exercise?

I'm not keen to lose money at all. I wouldn't be here on this forum if i was. Don't get worked up with my posts (i can tell you are), i'm a novice and i'm here to learn from investment professionals.

Then pls, for the love of god, listen to what some of us are saying. At least try to take it in.
 
but you can just buy 2 properties for the same amount of money and have a lot less headaches and take less risk. You would still end up with 2 properties, it will cost you the same and you will have them quicker so what is the point of going through the exercise?

Yes i understand. And you are right.

Then pls, for the love of god, listen to what some of us are saying. At least try to take it in.

Yeah I'm taking it in. Thanks for the advice. It's much appreciated.
 
The upside of this plan ( not getting into profits or not) is that you will have a PPOR that suits you rather than trying to find something established that you like. You can customise it for your individual needs.

On the IP side a new house has the advantages of good depreciation and nice new appliances with warranties which should last a while and need less maintenance.

One potential downside I see is not everyone wants to live next to their tenants and not every tenant wants to live next door to their landlord.
 
I went fresh faced into a subdivision. 1000sqm corner block with granny flat for a dual income that would cover holding costs while building. I crunched the numbers over and over and over. Spoke to builders town planners and council. Basically about $150,000 equity seemed realistic at the start.

Once started the money starts flying out of your wallet and time drags and drags. I had many holdups and problems most if not all could not be planned for. I still walked away with a good profit but half of what was expected and it was hard worked for. To go in with a small margin would have killed me.

Cheers
 
The upside of this plan ( not getting into profits or not) is that you will have a PPOR that suits you rather than trying to find something established that you like. You can customise it for your individual needs.

On the IP side a new house has the advantages of good depreciation and nice new appliances with warranties which should last a while and need less maintenance.

That is definitely an upside. Instead of living in a rundown house which i would probably have to renovate, i will have one that suits my taste and brand spanking new as well.

One potential downside I see is not everyone wants to live next to their tenants and not every tenant wants to live next door to their landlord.

This is not a problem with me at all. Living next to tenants is a plus for me. I wouldn't let them know that i'm the owner either.
 
I went fresh faced into a subdivision. 1000sqm corner block with granny flat for a dual income that would cover holding costs while building. I crunched the numbers over and over and over. Spoke to builders town planners and council. Basically about $150,000 equity seemed realistic at the start.

Once started the money starts flying out of your wallet and time drags and drags. I had many holdups and problems most if not all could not be planned for. I still walked away with a good profit but half of what was expected and it was hard worked for. To go in with a small margin would have killed me.

Cheers

Thanks for the feedback devo. It's good to hear from someone who's actually done something similar. So the property you purchased had a house and a granny flat on there and the backyard was big enough to subdivide and build on? Did you sell the newly built house? Also, if you dont mind me asking, what were your numbers?
 
emjay68, it's as simple as deciding whether you want to make money or not. The issue is the possibility of losing everything.

Spending money is fun and easy, making a profit is hard work.
 
emjay68, it's as simple as deciding whether you want to make money or not. The issue is the possibility of losing everything.

Spending money is fun and easy, making a profit is hard work.

I do want to make money, but it doesn't need to be immediate. Is my strategy of building 2 houses from a subdivision and keeping the houses and renting one out too much of a pipe dream? I still don't see the linkage between my intention of keeping the houses and making a profit.
 
The problem here is your planing to fail. The deal has to have enough fat in it so that you dont LOOSE money. You need a deal that will have a 30% profit margin from the start so that when suprises pop up you still walk away with a 20% profit.

If you plan a development with next to 0% profit you Know what will happen? which everyone is telling you.

You will end up with 2 houses for the price of 2 and a half. you wont be able to move forward or even sell any untill the market jumps. Not a good position to be in at all.

Think about it very very carefully.

cheers
 
This is a very very bad plan. I'm looking at buying a property early next week which will be a splitter block. Total cost to get 2 newly renovated properties = $586 000. Total rental price = $860 per week. Total selling price = $795 000.

I would NEVER buy something, take on a HEAP of risk to do it up, and then have the place worth just as much as I paid for it. Why would you?

It's like saying, hey you can pay $5 for a bag of apples, or you can pay $5 to do your own farming and get a bag of apples, however of course if you choose to do your own farming, if it rains too much or doesn't rain enough, you may end up with no apples. Why would you take on the risk when best case scenario you get it for the price it would cost without the risk?

And why would take on a project which doesn't give you a profit, when there are splitter blocks out there that will give you a profit?

In any case I can already see a cost that you aren't taking into account. You should allow $50 000 for costs to split the block, you aren't allowing anough. Once you are up for headworks plus running new sewage etc... you won't have much change from $50 000. And I hope you've already looked into the location of the sewage lines otherwise you could end up spending another $25 000 running the lines across a road or you may have to rely on permission to access lines from next door, etc... Anyway lots and lots of areas for your costs to blow out :) Good luck...
 
Say i purchase a run down property for 250k with a 50k deposit. I demolish it (15k) and subdivide it (25k). So my loan would be 200k and i have already spent 40k out of my own pocket to subdivide it. Then i build house #1 on the first half of the block using a loan extension which costs 200k. This increases my total loan to 400k. Then i get the entire 2 blocks valued and it comes back at:

- 350k for house #1
- 150k for the vacant half of the block

I think for a start you need to look at whether the original purchase is a fair buy. You have to assess the intrinsic value of the land if you will be knocking a place down and the eqity gain from creating a second lot.
eg: Here you are paying 250k for an old house and land. You need to make sure the value of the land alone is close to 250k. Otherwise you are going backward trying to make up the loss in demo and old house val. This is where you can lose equity very quickly if you misjudge the values.
In your above example the figures don't stack up for me. You are paying 270k odd for the land minus the house and you rekon the vacant half (when created) will only be worth 150k. You have either paid too much for the site or undervalued the vacant lot. I have determined that when I strata title dual occ lots in my area the 2nd lot created values fairly close to the original lot once a house is put upon it.
Example:

a)
Original lot - 250k
Build 2 houses + subdivide - 250k

Total - 500k
Value - 700k

b)
Original lot - 250k
Build 1 house - 100k

Total - 350k
Value - 370k


I'm looking at one deal currently with existing house on 950sqm corner block. I know if it were a vacant block it would be worth around 250k. The house alone is probably worth 100k. I have offerred 335k. At this price I will end up paying around 350k with stamp duty, legals and a cosmetic touch up. I am purchasing around market value though I end up with a dual occupancy site and will profit 150k -170k by building the second house and strata titleing the property.

Extreme Example

Say in the above case I demolish the house worth 100k. I would eat up vitually all of my profit. This is an extreme example just to show how profit/potential equity can be lost. ie: why knock down 100k worth of house you just paid for and build a 150k house. In reality the 150k house has cost you 250k + demo costs.

Look hard at intrinsic vals and don't pay much for a house you have to knock down unless the profit margins stack up.

You are trying to get ahead in life so do the due diligence for you and your family's sake. And the most important thing is to ensure the site CAN be subdivided! Your profit lies in creating an additional house site that can be either rented or sold on. :)
 
I agree totally with the other posters here.

Lets try another angle. Look at the opportunity cost of what you are looking at doing, compared with spending the same amount of money on a project which would have $200k higher value on completion.

If you find the deal with $200k equity in it, this is a much better deal for you.

A developer's mentality is different. You make sure that you make a profit regardless of any future price movements (either up or down).

Also a bank will see the deal differently with no profit margin in it and require you to put a significantly larger amount of money into it. This is literally money from your pocket that could have been put to better use.

If you are certain that your market will increase in value in time, leverage into more deals by recycling the created equity in each development, to go into the next deal. You can then use an initial deposit multiple times to get into a large portfolio.
 
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