Duplex development - Does this look right?
- Thread starter Hodge
- Start date
hi hodge,
im glad you started the thread because if the numbers are right this development is a terrible idea financially. either investigate the possibility of putting 3 on there, sell the site for a small profit or do nothing.
all the of the above options would be better than using a fair amount of capital to lose money, go on a holiday or use the money for deposit on something else
im glad you started the thread because if the numbers are right this development is a terrible idea financially. either investigate the possibility of putting 3 on there, sell the site for a small profit or do nothing.
all the of the above options would be better than using a fair amount of capital to lose money, go on a holiday or use the money for deposit on something else
Should also consider the time, stress that you will have to put in managing the whole development process.
When doing a feasibility study on a project, do you calculate the value of the land on it's current value or what you paid for it? What I am trying to say is if for example you purchased a block 15 years ago for $100,000, and today its worth $500,000. If you decide to build a duplex would you portion $50K to each townhouse or $250k?
I hope this makes sense
I hope this makes sense
When doing a feasibility study on a project, do you calculate the value of the land on it's current value or what you paid for it? What I am trying to say is if for example you purchased a block 15 years ago for $100,000, and today its worth $500,000. If you decide to build a duplex would you portion $50K to each townhouse or $250k?
I hope this makes sense
Current. That way you're comparing apples with apples. NO point in doing the development to make $400K if you can just sell it & make $400K.
Because as demand for your end product increases over time, so do the end values which increases your profit margins.
Ideally, even for landbanking, the numbers would still work, and you are using the time to save/ create equity so that you can finance the development.
$100K to $500K is pretty good in 15 years isn't it? Better than many land banking exercises I would say. It's a good point though, would you do better by leveraging your $100K into greater debt? The other side of it is getting hold of the land. As I'm finding out, development sites are not easy to find unless you have stacks of $$ and are stalking agents.
Real world example. My brother in law bought a corner development site (big block with old house) on the Gold Coast. His mate bought the exact same thing except one block north. My BIL developed his and his mate rented the house out and did not develop. They both sold at the same time. After tax, my BIL lost money on the deal. His mate sold his and made a decent profit. In some cases you can make more money by not developing.
Complicating factors in the case of my BIL is that he built to rent but changes his mind and sold. It was the GST implications of that decision that caught him out and ate into his profit. He also messed up the timing of the sales of 4 townhouses. Suffice to say that not getting specialist tax accounting advice can cost big dollars. My BIL likely could have made a decent profit if had acted on proper advice. So not saying that developing isn't profitable, just that it is not a sure thing that you will make money or that you will make more money than not developing.
