How to not over/under capitalise

S

spanna

Hi all, I have a Sub dividable block of land that im looking at developing in the Perth Suburb of Karrinyup, I have been looking at properties in the area that are up for sale and assessing interest / trying to establish what the market demand is in the area.

My question is how do you guys and girls go about assessing the market and what they desire when your looking into developments? and hence refraining from over/ under capitalizing.

Basically im seeing a lot of spec homes (although very nice) coming on and selling well. however i feel something a little more custom and unique (and more expensive to build) would demand a premium, but there isn't a lot of comparable sales of this type of product in the area. i do understand i am opening myself up to more risk buy doing this?

Thoughts, comments, stories of similar situations, all very much welcome.

Cheers
 
One important question is will you be selling or plan to rent long term? Because these two senarios can require totally different outcomes.

And what kind of development, triplex?
 
Currently splitting a corner lot in Kardinya, where median house price is around $700K.

Have looked at all possible scenarios and the best option for me is to strata and sell both blocks. Quick turn around, blocks are scarce so they sell for a premium. I then move on to next project and only marginally less than a build which will take me 12 months, and of course selling blocks is less risk.

Have you looked at all options?

Split/sell blocks
Build on 1, sell 1 block, or access equity
Build on 2 sell both, or access equity
Build on 2, keep both etc etc. (have I left anything out?)

Its all a numbers game....... but then you are also talking about risk, I like to stick to minimal risk, I must know a product can sell, if I don't know I don't go down this road.

Just because you are building a quality or custom built home does not necessarily mean you will get more money, perhaps??? It is dependent on this particular market, as this will be the higher end of the market this I expect will also limit your market, less buyers.

What I would be wanting to know is what is in demand in the area? Price point that hits the sweet spot?

The risk of having a house sitting on the market that is not selling is too high for me.

An agent worth his salt should be able to answer all these questions. Alternatively, I would take note of what flys out the door.

Cheers
MTR:)
 
haha sorry should have said it will be a Duplex, 4 bed 2 bath narrow lot homes, I would love to keep them but I don't theink we would be able to afford to hold long term, One of the houses will become PPOR.
Looking at Similar product to this http://www.dominationhomes.com.au/listings/detail/49
The other question is weather or not to just sell off the block straight away?
To fund PPOR build and go again once complete.
 
Spanna, this is "how long is a piece of string" question, so many variables come into play, one that comes off the top of my head is your SANF.

Some investors will go hard and choose to access the equity from both builds and use the funds to cover the short-fall/holding costs with the view that future growth will sort this out at the end. Risk is increasing debt and no immediate growth???

If the plan is to continue to develop then cash flow is imperative moving forward.

Cheers
MTR:)


How narrow are your block frontages??
 
Sell selling the vacant block maybe a quick easier way to get to your goal of building your ppor. You should look further into it to see if values and demand of blocks is there.

Maybe by building and selling you will make more of a profit? But is the risk and reward worth the time and effort? Only you can answer that.

2 upsides i can see is

1- you will have the say in what your neighbours house will look like to hold your value, rather than selling the block and having a shoeshack built there.

2- you will be building anyway so the time and stress wont be that much more to build two together.
 
Thanks for the replys MTR and ACE

Point 2 of your last post HD ace really gets me. We will be building anyway, potential deductions for building 2. the difference in selling off the land now vs building and selling the house looks to be about 200K. but again its hard to estimate given i don't really know how much to set aside for the build cost/ potential end value of certain products....

Might just have to sit wait and watch a little while longer... its not going to hurt i guess.
 
spanna said:
Hi all, I have a Sub dividable block of land that im looking at developing in the Perth Suburb of Karrinyup, I have been looking at properties in the area that are up for sale and assessing interest / trying to establish what the market demand is in the area.

My question is how do you guys and girls go about assessing the market and what they desire when your looking into developments? and hence refraining from over/ under capitalizing.

Basically im seeing a lot of spec homes (although very nice) coming on and selling well. however i feel something a little more custom and unique (and more expensive to build) would demand a premium, but there isn't a lot of comparable sales of this type of product in the area. i do understand i am opening myself up to more risk buy doing this?

Thoughts, comments, stories of similar situations, all very much welcome.

Cheers
Click to expand...

There is a fine line between a few tweaks to stand above the crowd and building something that only 1% of the population will like and therefore limiting your buyers.

As you know I built in the suburb next door.

I would aim for the upper end of selling well to reduce the risk.

Money hitters in the area
- nice staircase
- pivot door
- good appliances
- good alfresco

What price do you want to end up at? Work backwards how much profit you want, then that is how much you can spend on the house.
 
spanna said:
Thanks for the replys MTR and ACE

Point 2 of your last post HD ace really gets me. We will be building anyway, potential deductions for building 2. the difference in selling off the land now vs building and selling the house looks to be about 200K. but again its hard to estimate given i don't really know how much to set aside for the build cost/ potential end value of certain products....

Might just have to sit wait and watch a little while longer... its not going to hurt i guess.
Click to expand...

Since time is on your side i would recommend sitting down with a builder or two and get some idea on numbers to build what you want and what the market wants. From there sit down and talk witha few area agentsto get an idea on land price and sales price if you were to build and sell then go from there.

Dont forget subdivision costs, site costs and selling costs/taxes.

And remember, The numbers Don't lie
 
spanna said:
Thanks for the replys MTR and ACE

Point 2 of your last post HD ace really gets me. We will be building anyway, potential deductions for building 2. the difference in selling off the land now vs building and selling the house looks to be about 200K. but again its hard to estimate given i don't really know how much to set aside for the build cost/ potential end value of certain products....

Might just have to sit wait and watch a little while longer... its not going to hurt i guess.
Click to expand...

When I was looking into building two there wasn't any deductions offered!
I think it would pay off selling the vacant block.
 
Hi myf,

Yeah i have been basically doing what you said about working backwards. i think the sweet spot im trying to hit for the area is around 1.2 Mil mark for the house. for me to build this product im guessing it will cost around 500K for the house, and im factoring in around 100K for site works landscaping ect (very rough numbers) Must make an excel spreadsheet with all the costs!!!

That would puts me at around 950K including the land component for that house.
Might have to look into the demand for land in the area. I have seen a few sell for around 575-600K.... a few did sit on the net for a while though!

What are the tax implications of just selling the land? considering the current house is our PPOR atm

I could also wait a while longer until i have built up more of a buffer and try to complete the project and hold both houses....Only problem is the unknown with the rental market in the future. A similar house not far rented for about 1200pw but this was going back about 6 months.. i think i would have to base numbers on 950 - 1000pw

Positive of this could be that we could self manage because we would be just next door. and its a pretty blue chip area.

Thanks everyone for your contribution.
 
Hi Spanna,

I have been fairly active buying and selling land in Karrinyup of late for a few clients, so have the attached latest sales and for sale information at hand, thought it might help with your research and number crunching.

Regards

P
 

Attachments

  • Karrinyup - SOLD last 5 mths & FOR SALE.xlsx
    30.1 KB · Views: 104
That's great,
Thanks very much Paulie!!! 450 sq blocks selling at a slight discount it seems but still for a good price! how have you found the competition/ sales interest for this size land?
Cheers
 
Buyer inquiry for land is reasonably strong.

I sold pre title's both the "long tom" blocks at 1 Draycott in Karrinyup for $585k and $590k, both blocks being 10 m frontages and 44.5 m depth, opposite a nice park, but with no retaining and a good 1.5 m fall from the front of the block to the back.

I am aware of one buyer still looking for similar land at around the $580k mark, and have probably 3 buyers on the books who would pay $550k for these sized and located blocks.

I also recently listed 7 Draycott, a full 890sqm sub diviseable for $999k and sold it for $995,000 in 4 days to one of the previous 445sqm block buyers.

cheers
 
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