This is my current project
I have the duplex contract sitting on my desk and finance ready to go, but I don't like the numbers. How I got here is a long story and not very different from what you hear from other inexperienced investors. The numbers looked reasonable, though not fantastic when I decided to build. The builder went broke and, fast forward 1 year, with holding costs, plus legal costs, the profit margin has eroded quite a bit. Couple that with a softening rental market, I am reluctant to go ahead and build the duplex.
I am doing a feaso for a triplex and also for 2 duplexes on the block. The profit margin there is much better, but with financing challenges described, I am not in a good position to move forward with it just yet.
I am considering my options...
- build the duplex as is and accept the low margin as a risk
- Wait for my return to Australia in 1 or 2 years to get proper finance and do the project then.
I am tempted to go with the second option. I could pay down (or off) the block of land in the meantime and borrow against it for the project to minimise holding costs. That would also allow me to save more cash for contingency. Overall, I would be better prepared to tackle a bigger project...
The issue here is the opportunity cost of doing nothing for up to 2 years...
Option 1 frees up capital after 6 to 10 months, but the risk of doing a project like this for a loss (albeit small) is not very tempting...
What do you think?