Today I went to an auction in Moorebank, western Sydney for a large block of land of 1,200m and an old house which had a DA approval for 6 x 2 bedroom townhouses. The property was previously on the market for $720k and the vendor decided against selling even though someone offered $740k. It was then placed with a different agent to go to auction. It sold today at the auction for $910k which I thought would price the development out of feasibility. The finished product would sell for $350k each, total of $2.1m. At a build cost of $170k each totals $1.2m + land 910k comes to $1.93m, profit before tax of only $170k, a profit margin of just 9%.
The agent said those bidding at the end were all builders and could build at cost price of $170k each but I can't see how they could achieve much profit after purchasing for $910k. Perhaps they can build it for less than $170k?
My question is how do people compete against builders who are bidding at auctions for development sites like this? There are obviously plenty of developers around who aren't builders. Also what sort of cost per square meter would builders be constructing at?
On these figures above to get a 20% return on costs you couldn't buy it for more than $725k. Are there people out there developing off margins below 20%. If so and the banks don't lend unless the project has at least a 20% margin then would they fund most of it with their own cash? Or they might have to wait until the market goes up before they can source the funds.
Would be keen to hear peoples thoughts if they've had experience in this.
Cheers
The agent said those bidding at the end were all builders and could build at cost price of $170k each but I can't see how they could achieve much profit after purchasing for $910k. Perhaps they can build it for less than $170k?
My question is how do people compete against builders who are bidding at auctions for development sites like this? There are obviously plenty of developers around who aren't builders. Also what sort of cost per square meter would builders be constructing at?
On these figures above to get a 20% return on costs you couldn't buy it for more than $725k. Are there people out there developing off margins below 20%. If so and the banks don't lend unless the project has at least a 20% margin then would they fund most of it with their own cash? Or they might have to wait until the market goes up before they can source the funds.
Would be keen to hear peoples thoughts if they've had experience in this.
Cheers
