Good time to develop?

[rjw180]

Hi all.

First of all, I'm new here so big Hello to everyone
Moderators please move if I have posted in the wrong section.

I bought my first IP about 6 years back and haven't really done much since then. It's a 2BR house on a corner block in Preston VIC on ~510 sg m of land and I always had the intention of building and renting out a townhouse at the back.

My line of thinking was that with the ability to lock in a low interest rate, with rental yields fairly high at present and the existing house more or less cash flow neutral, now would be a good time to go ahead with this plan. In addition, builders are supposedly in low demand at the moment (although looking around at houses being built in my area and friends who are building I would never have guessed) so perhaps there may be some good deals to be had?!? What are people's thoughts?

The land isn't enormous, so I was thinking about something like this:
http://www.metricon.com.au/victoria/dualoccupancy/malvern/floorplans/default.aspx
Budgeting around $250K for the whole lot including landscaping and fittings (mid-level appliances and finishings) and expecting around $350 per week rental. Do these numbers seem reasonable?

Lastly, I've never built a place before. I'm assuming the most cost effective (not necessarily the cheapest) way of doing this is buying off-the-plan with a builder (with little or no changes) and getting them to apply for permits etc. I'm not sure I have the time or patience to do the owner-builder thing, but I'd be interested to hear of other people's experiences as to whether they think this is worth it. Would this involve going through an architect, or can you buy plans, hire a project manager to manage the build etc? Where do I start? Given I'm not going to be living there, I'm not going to be too fussed about specifics, just so long as the house is sound, requires little maintenance and will be easy to sell down the track. Any recommendations for builders to go through from people who have done this before?

All opinions welcome...

 

[Rockstar]

The project home builders are a great place to start. It shouldn't cost you anything to get them to do an assessment on yor site to see what they can fit on. Spending 250k and renting out for 350/wk means money in your pocket with the current IR's so I would definitely be progressing. I'm not aware of your planning requirements so you need to ensure that you satisfy the council reg's for dual occ.

I posted this info on another thread re. project builders. Just my opinion.

Pros

* Mass produced and having buying power makes them a fair bit cheaper than a normal builder as long as you have a suitable site.
* You don't need to hire an architect, draftsman or Engineer which can save a lot of dollars. (10 - 15k)
* They have display homes where you can check out their inclusions and quality of work. Remember to get a committment from them that the quality they build for you will be at least to the standard of their display home.
* The ones around my area build the house in around 14 - 16 weeks.
* They organise the BASIX certification
* They put it through council.
* So probably a lot less work for you and a lot cheaper if you can find a design suitable for your site.




Cons

* Somewhat inflexible with design. You may have to adjust their designs to suit the site so that you can fit the two homes on the land and this is where they may charge a lot extra for structural changes. Ask them up front. One company didn't charge me any extra for fairly major changes whereas another one did.
* They may not have any experience with the local Development plan in regards to dual occupancy so you will need to study the DCP and have meetings with council planners to ensure you are complying with their guidelines. This is where you have to do the architects role yourself. I write my own Statement of Environmental Effects (see beginning of this thread). You can employ an independant Town Planner but I have not done this as yet.
* The houses are usually built cheaply by adhering to the absolute minimum engineering standards. (possibly poorer quality)

Regards, Ian

 

[firstmillion]

Hi RJW,

Just make sure that the interest rates for the construction loan are variable during construction phase. You can move to a fixed rate once the project is complete. It takes anything between 6-18 months to develop once the process is started. The question would be, ' what will be the interest rates once the project is complete?'. Please correct me if I am wrong.

Cheers

 

[rjw180]

Thanks for the responses.

Ian: looks like a project home builder might be the way to go. To get them to do an assessment on my site do they actually come down to inspect it or do they work off the title or measurements I provide them with? I'm hoping to have time to visit some display homes this weekend so I can probably have a chat to them about it then I guess.

Thanks for sharing your build by the way. It's an interesting read.

DCP - is that the Development Contribution Plan? (and associated fees). You mentioned Section 94 & 64. Is that the same thing?

firstmillion: what is the reason for keeping interest rates variable during the build period? I realise there may be some flexibilty required because I'll probably be requiring the realease of funds in parts as stages of the build are completed. Is it because fixed interest loans generally don't allow much flexibility?

I realise some of my questions may be fairly newbie. Thanks for taking the time to write responses. It's much appreciated.

 

[firstmillion]

firstmillion: what is the reason for keeping interest rates variable during the build period? I realise there may be some flexibilty required because I'll probably be requiring the realease of funds in parts as stages of the build are completed. Is it because fixed interest loans generally don't allow much flexibility?

Hi,

I had checked with CBA and SGB banks, the loan these banks have during construction are variable only. Banks don't have a fixed loan product for construction. (MBs would know if there are any).

Cheers

 

[Rockstar]

DCP - is that the Development Contribution Plan? (and associated fees). You mentioned Section 94 & 64. Is that the same thing?

DCP is the local council Development Control Plan. It provides the parameters for development in your shire. It covers items such as building setbacks, height and density limits, street frontage limits, minimum land sizes for subdivision, etc.

Section 94 contributions are a payment (the largest by far) made to cover the council costs for having to cater for the extra burden of population density increases within an area. They go towards parks, sewer, roads and footpaths, etc.

Section 64 is the water and sewer charge for a development.