How can this kind of development work???

[Mindmaster]

I have an IP in Melbourne's Sunshine with a residex value of just under 400k as of july 2011.

The old and worn down and the block is 602m2 with the front being 14-15 m and the side 41-42m. My original plan when I bought it around 6 years ago was to develop it into two town house site like this one

http://www.realestate.com.au/property-townhouse-vic-sunshine+north-107059073

The problem is I can't get the numbers to work.

Using construction costs from Home Builders Australia and House & Land Package Center the cost of each town house would be around 325k to give a minimum of 650k which does not include planning permit costs, connection costs and what have you.

An optimistic sale figure for that kind of town house on completion is 480-490k each to give a total of 960-980k.

With an initial value of 400k and a cost of at least 650k, the sales value would need to be at least 1050k for the two town houses to break even.

Playing around with designs did not help much. Reducing the town house size to reduce construction costs also did not help much because the sales value also dropped proportionally.

For the time being, I've given up the idea of developing that IP and will buy IP no 3 instead. I'm still curious and would really like to know how that kind of development can be made to work.

So my question is how can a profitable development be done on my IP that is worthwhile or at least breaks even???

If you have any ideas or solutions, I'd be delighted to read them. Feel free to destroy my figures and ideas and call me an clueless because I know I'm on the wrong track and in need to education.

 

[Aaron_C]

What I would do if I was you would be to possibly make it into a 4 unit site. Two at the front, two at the rear. And it doesn't cost you 325k to build a townhouse in Sunshine....you would be overcapitalising in that area

 

[Propertunity]

The problem is I can't get the numbers to work.....Using construction costs from Home Builders Australia and House & Land Package Center the cost of each town house would be around 325k ....

The reason you can't get the numbers to work is because your numbers are wrong. $325K to build a t/house is way way too expensive a number to work with IMO. Go and get an actual quote from a couple of builders.

 

[Belu]

talk to some local builders about cost per sq, that will give you an indicative

 

[devank]

I’m going through similar exercise to see what I can do with a 580K property. Each duplex is going for around 550K now.

I have attached my spreadsheet calculations which do a bit of scenario forecasting. If my assumptions are reasonable then it looks like developing a dual occupancy can work only long term – after 10 years.

I tried to put all the assumptions in one spot and made comments where I did anything different.

Let me know I you need any clarifications. Granny flat option is something specific to NSW.

 

[oc1]

Look at building 3 small 2 bedroom units/townhouses instead.

 

[RightValue]

I am currently working on a vlautaion for a Townhouse development in Coburg.

2x 2 brm units and 1x3brm unit on a smaller site than yours.

Construction contract is under $550k for all three units.

As mentioned.. your construction costs are way outta line, should be no more than $220k per unit depending on lots of factors.

 

[RumpledElf]

Wouldn't use those figures ... I was bandying around an idea a while ago and was getting quotes (inc foundations) for a basic 3x1 at about $120k, plus carpet and other upgrades it still wouldn't come close to $325k.

Our own house is a 4x2 with rather a lot of extras (base price $85k) and cost $111k plus about $30k of extra Stuff to finish, and we're going WAY over the 'basic' standard you'd put on an IP. Who puts real timber floors and a solar HWS in an IP

 

[Melbournian]

go prefab problem solved.

 

[Mindmaster]

Thank you every one for your comments and feedback so far.

The reason you can't get the numbers to work is because your numbers are wrong. $325K to build a t/house is way way too expensive a number to work with IMO. Go and get an actual quote from a couple of builders.

Hi Prop, I was given two different prices by the two different companies I spoke to and I used more expensive price of $1250 and $1300 per square meter.

The property size was around 250sqm. This was the size of a town house exactly like the one I want. Called the REA of that town house (was up for sale) to get the correct area.

So using 250 x 1300 gives $325k per town house.

Does that look too expensive to you? From reading peoples comments, I beginning to think it is.

Will have to get a quote from some builders.

I’m going through similar exercise to see what I can do with a 580K property. Each duplex is going for around 550K now.

I have attached my spreadsheet calculations which do a bit of scenario forecasting. If my assumptions are reasonable then it looks like developing a dual occupancy can work only long term – after 10 years.

I tried to put all the assumptions in one spot and made comments where I did anything different.

Let me know I you need any clarifications. Granny flat option is something specific to NSW.

WOW, you have put a lot of work into your planning. The results at 2018 where doing nothing gives double the profit of a duplex would be frustrating. I considered a granny flat. Mainly for cash flow, not CG.

I am currently working on a vlautaion for a Townhouse development in Coburg.

2x 2 brm units and 1x3brm unit on a smaller site than yours.

Construction contract is under $550k for all three units.

As mentioned.. your construction costs are way outta line, should be no more than $220k per unit depending on lots of factors.

Very nice to know. I was not even sure you could get that many buildings on a block that small.

Do you have the name of the builder who gave you those prices? They'd definitely be worth a call.

go prefab problem solved.

I looked into that but the savings from prefabs turns out to be around 25% at the maximum.

 

[RumpledElf]

250sqm is a BIG house ... you really need to build one that big?

I live in a 110sqm house. Its too small, but only by two rooms. I honestly don't know what I'd do in a house over twice the size of this one.

Pre-fab houses are cool. Watched ours sail past today, with a fleet of attendants. Looks fantastic. The whole street came out to watch. And then the bank rang and asked us to give them $43k. Kinda took the shine off it ...

 

[devank]

WOW, you have put a lot of work into your planning.

It helps to play around with different assumptions to see 'What IFs'. How else everyone make your decision??

The results at 2018 where doing nothing gives double the profit of a duplex would be frustrating.

I think I was a bit conservative with my figures. For example, I set the cost of duplex to be $500K. Few builders said it would cost 400K... but I would add an extra 20% to be safe.
Have you thought of getting a DA for your development and sell it after that?

Mainly for cash flow, not CG.

Some may argue that the value would increase based on the total rental return.
In my example, I simply increased the value by the Granny flat construction cost - 120K. Again builders claim they can do it for under 100K.

 

[mattnz]

Just for comparison, I am building 2 x 4 bed, 3 bath, 2 living townhouses, each is only 130 sqm of living space (plus garage). People don't expect a single townhouse to be 250 sqm and it is likely that you are overcapitalising if you build them that large.

Developing isn't about building your dream home, its simply building what makes financial sense. Just maximise (end sale price - (purchase cost + build cost)). That's all there is to it.

 

[Aulyna]

Just for comparison, I am building 2 x 4 bed, 3 bath, 2 living townhouses, each is only 130 sqm of living space (plus garage). People don't expect a single townhouse to be 250 sqm and it is likely that you are overcapitalising if you build them that large.

Agree.

but still wondering how can you build 4 bed, 3 bath, 2 living townhouses, only 130 sqm of living space? It must be a very good design. Do you mind to show the floor plan?

 

[RumpledElf]

Its not hard. Every other project builder has a 4x2 that size, a 4x3 isn't a stretch.

Ours is 7m x 20m and has 4 bedrooms, 2 bathrooms and 2 living areas and is only a fraction smaller than I'd like it to be. I suspect the townhouses have quite small bedrooms - that's where I'd like the extra space in our house, bedrooms that are 4x4m rather than 3x3.5, that little extra space makes a big difference.