Development newbie questions

Seeking advice from the forum so I can learn and continue on my investment journey.

After a couple months of reading the forums, going through threads by MichaelW (wow, this was awesome!), Blacky, Westminster and a few others, am thinking of doing a small 4 townhouse development in the 10K Brisbane radius, zoned in on Kedron in particular but am stuck with next steps

Firstly on doing a feasibility, these are the numbers I've come up with based on current prices on re.com. (with my limited understanding)

Have also read up a few DA approvals on BCC's website to get an idea of the DA process.

This will purely be for buy and hold.

Land cost: 600K (~600 - 650sqm LMR site)
Stamp duty and legal: 23K

Construction: 952K (170sqm x 1400 per sqm x 4 units) - is this sufficient?
Consulting costs: 60K (including town planner, surveyor, architect, engineers & certifier)
DA cost: 10K
Infrastructure charges: 81K (27K x 3. Is this correct or do I need to make it 27K x 4 since it's 4 lots in the end?)
Civil Works: 20K (assuming sewer and water access is fairly accessible)
12 months interest: 81K


Total Development Costs: $2056K
End Value: $2160K ($530K per unit)
Margin: 1% http://somersoft.com/forums/images/smilies/frown.gif

Questions:
1. Assuming serviceability is sufficient, is it normal to get 75% LVR on TDC? This required equity of 514K to complete development.
2. What are my gaps with the feasibility? (minus the obvious crappy margins!)
3. Upon identifying the site, would this be the correct next steps for initial DD:
a. Send to Town Planner
b. Site Surveyor

I understand the Town Planner part but can someone please elaborate further re site survey and what we need to look out for?

Fire away, happy to take criticism and feedback.
 
D/A Cost

Dear En. That cost of $10,000 for D/A costs looks tiny to me. Where I am in (mid north coast, NSW) that cost would be around $100,000. Suggest you phone the town planner, or look on the council's web site they might have a table for calculating the D/A costs.
Maybe the next step is to consult a building designer they are familiar with the process.
It looks like you are doing some serious research so keep going with the planning and all the best. JoP
 
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With a margin of 1% without taking into account any contingency costs, delays etc etc, why are you even thinking of doing this development? :eek:

There must be cheaper, lower risk and more profitable ways to get development experience.
 
I would think you'd be paying significantly more than 600k for a site in Kedron? An old renovated house on a standard block would go for that price.

You're correct in that you only pay 3 contribution fees.
 
Thanks Beachgurl for confirming infrastructure charges, that helps :) Have asked some agents with a few listings, a 620sqm site is more like ~$650K, the numbers are for me to get my feasibility due dilligence in order as I go along looking at different sites.

My feel is that for Kedron, if my numbers are right, you'll either need to be a builder or an experienced developer to make a profit?

Disclaimer: This is a learning exercise for me, we know the 1% margin is an automatic no go :)

Back to the questions, anyone able to point me in the right direction or some feedback? Or maybe this needs to go into another section of the forums.

Questions:
1. Assuming serviceability is sufficient, is it normal to get 75% LVR on TDC? Thus required equity of 514K to complete development.
2. What are my gaps with the feasibility? (minus the obvious crappy margins!)
3. Upon identifying the site, would this be the correct next steps for initial DD:
a. Send to Town Planner
b. Site Surveyor

I understand the Town Planner part but can someone please elaborate further re site survey and what we need to look out for?

Happy Easter!
 
Where I am in (mid north coast, NSW) that cost would be around $100,000.

This must include Sec 94 contributions? The OP allowed for infrastructure charges of 81k so this would be comparable.

en_, why don't you begin with something smaller to minimise the risk. Say an existing house with room for a dual occ or granny flat. This may stack up better for a buy, build and hold as well.
 
This must include Sec 94 contributions? The OP allowed for infrastructure charges of 81k so this would be comparable.

en_, why don't you begin with something smaller to minimise the risk. Say an existing house with room for a dual occ or granny flat. This may stack up better for a buy, build and hold as well.

That makes more sense to me.
 
Definitely not a good one to start with, margins are way too close and looking at what you have allowed the budget would certainly be blown!

Look for something smaller and cheaper. Do a couple of dummy ones to see what its like talking to surveyors, town planners, builders, real estate agents etc. Just pick a site from realestate.com.au, get the section 32's off the agent (Vic), jump onto a land information website and go for it, much cheaper option to gain some experience.
 
Besides the obvious 1% which you know means a no go the selection of items looks correct - I can't say if the amounts are correct as I'm not a local.

Doing trial feasos like this is how you work it out. The more you do, the easier it is to spot those gems which are the ones which work.

As to your questions
1. financing for 4 is harder than financing for 3. With 3 you might get 80%, with 4 you are at the mercy of those that do 4 and they swing between 70-80 depending on their mood
2. Gaps might be - contingency (allow 10%), time taken in council and construction (I'd be lucky to do it it 12mths but again I don't know the area)

Things to look out for
- sewer lines and other easements. Some are registered on title, sewer is available via Dial Before You Dig or local water authority.
- slope as it will cost more
- heritage overlays
 
We dealt with a project home builder last year to build our PPOR so the risk appetite is a little more than a dual occ/ granny flat :)

Have learnt some lessons around fixed price contracts, thoughts around variations, selections and reading through the standard HIA contract. Meeting up with the site supervisors and tradies was fun too. Only drawback, with the lack of experience, unable to ascertain
- We can't ask what we don't know
- What is deemed good quality work

I'm still doing a lot of internet research, reading old DA submissions and building up a diary of sorts at the moment.

Thanks for the feedback, next steps definitely to reach out to real estate agents, town planners, surveyors etc for chats.

PPO will only be ready in ~5-6 months, so this is my 'education' window.

Question:
The standard HIA contract does not have a timeline schedule to completion other than the 32 weeks of build time. Other than having catch ups with the site supervisor every other week, how do we ensure it will be on track?

He's been fairly re-assuring that we're on track, but that's not something definitive?
 
Hi Westminster,
Thanks for that, then will re-focus towards a triplex rather than 4 townhouses.

My thoughts are risk and margins have direct correlation in developments, which is why am not considering a duplex as margins would be very think and even harder to find?

To other newbies who might be thinking about developing, this was posted a couple years back by someone on this forum. Did a copy and paste and did some modifications and this is now my search criteria for sites.

Just don't really understand sewer/ water diagrams, will need to post one up later to get feedback.

There was meant to be a Part 2 but the OP didn't continue. Maybe the current active developers can provide further insights :)

Keep the feedback/ criticisms coming please!

Search Criteria:
Zoning ? Check the zoning of your land. Different zones will allow you to build different types of housing. For example, I was looking at a block of land recently that was 1500sqm. It was zoned residential 2a. In the Council area you were permitted to build a dual occupancy on it as a maximum, but the land could realistically hold 4 dwellings as far as area goes. Townhouses were not permitted within that zoning. But after checking the subdivision DCP I found that I could subdivide the land first, then lodge 2 separate DAs to Council for 2 dual occupancies which was a total of 4 houses. Sometimes it pays to think outside the square. Some Council?s will give this out zoning information over the phone, while others ask you to come in to check the plans or pay a fee and they will advise. I believe this is because of legal reasons and some Council?s being sued for giving out incorrect information.

- Corner block, dual access
? Street access rather than long driveway
? Better use of land i.e. no need driveway
? Driveways take up to 60m2 to 100m2

Stormwater Disposal - The site should slope towards the street. This makes it easier to dispose of stormwater. If the site slopes away from the street, make sure that there is a stormwater easement, or you have ALL the neighbours permission in writing as part of a legal document permitting you to create a stormwater easement over their land BEFORE you purchase the site..

- Frontage size?
- Orientation ? Preferable courtyard faces North (20 degrees is ok)

Site Orientation - A large concern of Council is that proposed dwellings should have a certain amount of sunlight to the rear courtyards and internal living areas at the winter solstice (June 21). Check the orientation of proposed courtyards and living areas to ensure they gain solar access. Don?t forget that the double story dwelling you?re proposing next door also casts sunlight into its neighbour?s courtyard or their shadow cast onto your courtyard in return. Check if Council take the adjoining dwelling?s shadows into consideration.

- Shadow doesn?t fall on neighbors
- Established trees

Trees ? It?s preferable that there are no large, native trees on site where your building platform will be. It is common for Council to ask to retain large, healthy, native trees. Even if the drip line of the tree is within your proposed building platform, it may cause a problem. I have had instances of trees that look healthy, but a report from your arborist may show that the tree is diseased. If so, present the report to Council when you lodge your DA asking to remove the tree.

- Neighbours and easement

Drainage Easements - Yes, they?re fantastic when they?re located in the correct position, that is, parallel and adjacent to the side or rear boundaries. But if you have an easement that runs across your block, you will be limited to where you can build your house. Sometimes you can make use of the easement by designing a courtyard or visitor parking over it if your draftsperson is clever. You aren?t permitted to build a house over a drainage easement. Even your eave overhang should be clear of the easement, although I have seen Council accept them overhanging the easement.

- Sewer

Sewer - The sewer is also fantastic when it?s not located within your proposed building platform. It?s best located parallel to the boundaries as well. If the sewer does run across your site, don?t despair, you can build over it (unless it?s a mains sewer with an easement attached to it). If you build over your sewer, you must concrete encase the entire length and also pier your concrete slab over it on either side to structural engineer?s details. This does get expensive though and is best to avoid. Once again, a good draftsperson can use this area for courtyards or visitor parking.

- Soil test?
- Asbestos on old home?
- Flood zone

Flood zones - Your Council will be able to advise you if your block falls partly or totally within a flood zone. This may be either global or local flooding. They will give you the flood level as an AHD level. If it is in a flood area, you may be restricted as to what type of dwelling you build on it, the size of the dwelling you build on it and the height of the ground floor of the dwelling you build at. Generally, Council will ask you to provide an AHD (Australian Height Datum) survey. This means that the height of your block is measured above ?mean sea level?. Council will generally ask you to build 500mm above the flood level.

Pre-lodgement meeting ? Once you have some basic sketches (sometimes even before you?ve purchased the land) take them to Council and have a chat to their townplanner to see what their comments are. They may be able to see something either you or your drafty have missed.


Besides the obvious 1% which you know means a no go the selection of items looks correct - I can't say if the amounts are correct as I'm not a local.

Doing trial feasos like this is how you work it out. The more you do, the easier it is to spot those gems which are the ones which work.

As to your questions
1. financing for 4 is harder than financing for 3. With 3 you might get 80%, with 4 you are at the mercy of those that do 4 and they swing between 70-80 depending on their mood
2. Gaps might be - contingency (allow 10%), time taken in council and construction (I'd be lucky to do it it 12mths but again I don't know the area)

Things to look out for
- sewer lines and other easements. Some are registered on title, sewer is available via Dial Before You Dig or local water authority.
- slope as it will cost more
- heritage overlays
 
Hi Westminster,
Thanks for that, then will re-focus towards a triplex rather than 4 townhouses.

My thoughts are risk and margins have direct correlation in developments, which is why am not considering a duplex as margins would be very think and even harder to find?

.

Risk doesn't always mean reward. There are sites which have multiple options and sometimes it's the KISS (Keep It Simple Stupid) ones which make the most money.

The only downside about choosing a duplex is that a lot of people think they are easy and more people want to do them at less return than you may want. They are out there though.

I do up a spreadsheet with 2-6 columns depending on how many scenarios I can find for a block then run the very rough sums on it. They might be
- retain and sell rear block as land
- retain and build behind
- demolish and sell 3 lots of land
- demolish and build one , sell 2 lots of land
- demolish and build 3 villas
- demolish and build 3 townhouses

and so on

If you want to mitigate risk then never buy a block that only has one viable option. Our of those 4 above they may vary in return but if 3 of them are viable then you aren't stuck should a policy change etc etc
 
Hi WM,
Thanks for the scenarios. Given that I don't have the experience in identifying the various potential options for a site, what would be the logical next step i.e. send site across to a town planner for feedback? (Happy to pay for 'education' if that's just the way to learn)

Attached a sewer and water diagram via dial a dig for 39 Lutana Street, Stafford. (currently on sale and read the DA)

My understanding is:
- Land slightly slopes to street (according to DA)
- Sewer connected via Lot 33
- Water just at street

For the slope, sewer and water parameters, correct to say they are fairly ideal?

Appreciate the responses.

Anyone else wanting to feedback, please feel free! :)
 

Attachments

  • Assets Map - SEQ# 44780286.pdf
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Yes I would say that would be almost ideal having no infrastructure easements on it. I'm surprised that the sewer comes along like that from neighbour.

There could be a chance that they would ask you to connect to main sewer line in street if you develop but I don't think that would be unreasonable.
 
Thanks WM.

With this attachment, don't understand the diagram, what should I be looking out for?
 

Attachments

  • 44780285.pdf
    1.4 MB · Views: 254
Thanks WM.

With this attachment, don't understand the diagram, what should I be looking out for?

It's just showing you that there is a residential gas line to the house. It ends 14m in from side boundary and 5.5 from road - presumably there is a gas appliance in an existing building there - that might be a gas oven, hws, gas heater etc

When you demolish a house it needs to be taken care of but they are used to that.
 
Risk doesn't always mean reward. There are sites which have multiple options and sometimes it's the KISS (Keep It Simple Stupid) ones which make the most money.

I do up a spreadsheet with 2-6 columns depending on how many scenarios I can find for a block then run the very rough sums on it. They might be
- retain and sell rear block as land
- retain and build behind
- demolish and sell 3 lots of land
- demolish and build one , sell 2 lots of land
- demolish and build 3 villas
- demolish and build 3 townhouses

We are still waiting to lodge our DA for four townhouses. I'm not bothered though as we have so much else happening to keep me busy.

To the original poster, we are newbies at development and new builds. I'd be so much more comfortable renovating the existing houses (which we will do as part of this build). We have two blocks, back to back, two street access with DCP houses that cannot be removed. (I know we could push to remove one, and probably a developer could remove one, but we are pushing other things already... that could be a push too far.)

Anyway, after reading this thread, a couple of things stand out for me.

1. Our designer has drawn up two townhouses, and another two townhouses. The area between them has a sewer, so it will be courtyard space.

2. We own the house with the yard that the services must come through, so approval to run power and water/sewer down the slope into the main should be much easier than if we have to seek permission from a neighbour.

3. We are asking for approval to be in stages to allow us to build the first two, get occupancy certificates, get them rented, refinance them to get finance to build the second pair.

4. We are not working, so need to finance the first two ourselves (or get an asset lend), then we "should" be able to pull money out of the built ones to do the second pair.

5. Was told we would be hit with 6 x $27K headworks charges for the whole block and all that is on it, but due to having two existing houses, we don't pay for those and the paperwork would show them being credited back to us, ie. we would have to cough up $27K per each new three bedroom townhouse approved.

Assuming we get approval, we then need to do the figures for all the different scenarios mentioned by westminster (already done them before going into this, but will do them again once we know firm costs and what is approved... or not).

My figures prove to me that four townhouses is better for us than two stand alone houses on battle-axe blocks behind each house.

With so much else on our plates right now, I'm fairly worn out and the thought of actually building these is not something I'm embracing right now. Once the dust settles on our other plans, that may change, and our DA may take 3 to 12 months to get through council anyway.

We may simply get the DA approved and sell the block with the DA. We will make money, and a builder can make some money on the build too.

A developer we know told me he would have pushed further with our block and put three level townhouses on. We did ask for this at the pre-lodgement and were told a very firm "no". I don't know if a seasoned developer would have been able to get this through? Our town planner is ex-BCC so knows his stuff.
 
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