Duplex development - Does this look right?

[Hodge]

Hi Everyone,

Been thinking of developing an IP and build 2 town houses side by side (Duplex). I am very green when it comes to developing and have listed some figures below. Please let me know what I am missing and pick the holes

Duplex development:

Current value: $700K
Land size: 730 sqm
No mortgage on property. (purchased 5 years ago)

End value town house one: $650K
End value town house two: $650K

Total end value: $1.3m

I am after a medium to high finish, each town house to be 25 sq. Will sell one and live in one.


Construction costs:

Plans: $15K
Subdivision: $15k
Build cost $1200 sqm $564K ($282 each)
Contingency $30K
Loan interest 6% 12 month $32k
Misc bank fees $3k
Selling cost $20k

Total cost $679K

sub total so far: $621K

I am sure something is missing? GST??
Does this sounds feasible?

Thanks in advance

 

[westminster]

Lots and lots of money to the council for open space levy, money for headworks (sewer, water and power), money for demolition, I think your build cost is a little light on but I'm not a Melb person and I'd allow more for contingency - around 10%

 

[thatbum]

...the profit?

 

[Hodge]

Yes thank you! demolition! Open levy fee I think are for 3 or more but could be wrong?

Add another $100k to construction cost?

 

[dboy_tomato]

Am... your property value is $700k and your development cost is $679k
hence your total cost is $1.379m

and your end value after development is $650k x 2 = $1.3m

You'd be making a lost. It sounds like you are better just selling the property itself or holding onto it until the end product values are higher (at least at 20% gross)

 

[Hodge]

...the profit?

True, I didn't get that far as I knew I was missing a lot of the construction costs.

 

[Brady]

Should be calculating current value and cost to see if project is profitable IMO.

 

[oc1]

Lots and lots of money to the council for open space levy, money for headworks (sewer, water and power), money for demolition, I think your build cost is a little light on but I'm not a Melb person and I'd allow more for contingency - around 10%

No OSL for two dwellings in Vic.

Construction costs too low for medium to high finish on a double storey.

Based on the other figures there's no profit in it.

 

[Hodge]

Am... your property value is $700k and your development cost is $679k
hence your total cost is $1.379m

and your end value after development is $650k x 2 = $1.3m

You'd be making a lost. It sounds like you are better just selling the property itself or holding onto it until the end product values are higher (at least at 20% gross)

But I own the land out right so do you still have to calculate land value in your feasibility?

 

[Hodge]

No OSL for two dwellings in Vic.

Construction costs too low for medium to high finish on a double storey.

Based on the other figures there's no profit in it.

Now Im really confused so I need to factor in land value for each townhouse?

 

[Hodge]

Should be calculating current value and cost to see if project is profitable IMO.

So if current land value is $700K, I need to portion $350K for each town house?

 

[Hodge]

By the way thanks for all the replies, really appreciate it.

 

[oc1]

Now Im really confused so I need to factor in land value for each townhouse?

Think of the land value as money in the bank. That is, if you sold it today $700k is what you have. Add all other costs less the end value and you probably make a loss.

 

[Mamaof3]

I agree the construction costs allowed for is too little. Work on about $1550/m2 and that should cover you (this rate usually includes everything to provide you with a finished/complete site including landscaping, paving, fencing, rain water tanks, etc).

 

[Hodge]

Think of the land value as money in the bank. That is, if you sold it today $700k is what you have. Add all other costs less the end value and you probably make a loss.

I understand now. So I would make more money selling the land than actually building? I guess that's why they are building 3 or 4 dwellings in the one block. No profit in 2.

 

[westminster]

No OSL for two dwellings in Vic.

Construction costs too low for medium to high finish on a double storey.

Based on the other figures there's no profit in it.

Gotcha no OSL for 2 (putting it in the brain bank)

 

[Hodge]

hang on a minute!!! I may have given you wrong information. Yes currently land value is $700k but I paid $535K 5 years ago. Does this change things??

 

[hobo]

Well, if you sold the land today you'd still get ~$700k, regardless of what you paid for it. So that side of the equation doesn't change.

The other side of the equation is the second option, ie build and sell. On the figures posted so far, that's not looking particularly profitable.

So no, the purchase price doesn't change things in that sense.

 

[Hodge]

Thanks Hobo, makes sense. Every house in the suburb is getting bulldozed for townhouses, would love to know how the builders are making a profit. The only things I can think of is cheaper building cost and building say 3 or 4 rather than 2.

 

[westminster]

Thanks Hobo, makes sense. Every house in the suburb is getting bulldozed for townhouses, would love to know how the builders are making a profit. The only things I can think of is cheaper building cost and building say 3 or 4 rather than 2.

Generally yes its about putting on 3 instead of 2. The third one is often the profit maker