Is it worth build for 60k profit-would you bother ?

R

random

Gday people.

Do you think it's worth building for say 40-70k extra profit , the particular job is hard to estimate - depending on how the home shaped up I guess-which home and on where our market might be in the 6 -12 mths time or so?
Or what about just putting on a shed for say roughly another 20k profit , would that be worth your while , if you had to spend 20 to make that extra 20 ?
I have one block that if I just sold , I'd do say 60k profit but if I built on it I could add another maybe 40 - 70k a/c profit on that - but i'd earn it and , i'd have to organize the financing , repayments !

Alternatively , I've only renovated others so far , I haven't built anything but if I just sold this block as is now and instead used the smaller profit combined with original principal, I could just buy another renovator = no permit grief - no septic - plumbing , choosing houses, organizing , builders or worrying about margins to make it worthwhile .
If I bought the right place the margin would probably be more if anything plus it could be rented out if I get hold ups .

Downside = going to the trouble of selling one and financing a totally new deal .

What do you think ?

Cheers
 
random said:
if I just sold this block as is now and instead used the smaller profit combined with original principal, I could just buy another renovator = no permit grief - no septic - plumbing , choosing houses, organizing , builders or worrying about margins to make it worthwhile .
If I bought the right place the margin would probably be more if anything plus it could be rented out if I get hold ups .
Click to expand...

Hi random,

Seems to me like you've answered your own question.
 
in short...no way!

not sure if you would be liable for gst but if you are this would decrease your margins again.

$60K may seem like a decent amount but lots of extra little costings pop up in building and on top of that you may not sell it for what you anticipated so your $60K could easily drop to say maybe $30K or less...

much more profitable deals out there...i'd skip this one.
 
A "private individual" did a development on 2024 sm in my street. I never met him but the story went that he didn't make much more than he would have simply sellin with DA.

I've checked with a planning/project manager and there is no way I would touch developing my 1012 block with the figures supplied. I would be better off doing a "limited" development which incorporated existing structures than starting with a clear block.
 
Risk versus Reward versus market time/timing

Hey there random


random said:
Gday people.

Do you think it's worth building for say 40-70k extra profit , that depends on what the figures are. Your assessment of the risk/reward scenario needs to be in terms of percentages of the end value (gross realisation) the particular job is hard to estimate - depending on how the home shaped up I guess-which home and on where our market might be in the 6 -12 mths time or so? Yep, time and timing in this environment is critical and depends where your potential construct is. If it's in Melbourne or regional Vic where you are situated.........maybe think again. IMHO we are gonna go sideways here for some time.
Or what about just putting on a shed for say roughly another 20k profit , would that be worth your while , if you had to spend 20 to make that extra 20 ?
I have one block that if I just sold , I'd do say 60k profit but if I built on it I could add another maybe 40 - 70k a/c profit on that - but i'd earn it and , i'd have to organize the financing , repayments ! Critical word you have used is MAYBE. Don't know your situation and the location of the site, however making another xyz dollars whilst being exposed to risk of market softening and the finaciers might seem like the extra (maybe) possible reward could turn south.

Alternatively , I've only renovated others so far , I haven't built anything but if I just sold this block as is now and instead used the smaller profit combined with original principal, I could just buy another renovator = no permit grief - no septic - plumbing , choosing houses, organizing , builders or worrying about margins to make it worthwhile .
If I bought the right place the margin would probably be more if anything plus it could be rented out if I get hold ups .

Downside = going to the trouble of selling one and financing a totally new deal .

What do you think ?

Cheers
Click to expand...

Don't want to sound negative. :( I am an investor and generally an optimist, however unless you know what you're doing in this market (and even then you need to be clever with contingencies), developing/building for potential profit (you are very unsure just guaging by the use of your language) leaves you exposed to risk that might be best avoided.

If your profit stacks up by the simplest (and most immediate) route, then sometimes trying to do too much and maybe gain more, could turn pear shaped in a soft market.

I am no expert however whilst banks/financiers look for circa 20 % profit in a deal, today I would think at least 25-30 % would be more prudent and that also assumes you've hedged by allowing for construction over-runs and contingency of 5-10 %

Good luck :)
 
Thanks guys . General feeling seems against and 4 or 5 heads have gotta be better than one surely .

Exact numbers are hard without an exact house yet , which I've been having trouble choosing so far but I reckon your right regardless.
An estimated 40-70k doesn't allow for much does it and wouldn't take much to turn pear shaped as you say , flat market worries on top of it .
No no experience what so ever , I did build a couple of little cabins but that was a totally different scenario. I bought those blocks with all the dirty work done, permits ,approvals all in place, payed for and ready to go.

These other two would be starting completely from scratch , they do have planning permits but that's it.


Cheers
 
the problem with building is that you have no control over timing.

i built what would have been a nicely profitable house in 2004 (around $100k profit on market figures when i started building) - 2 months before the house was finished, the market plunge due to soaring interest rates. couldn't give it away. rented it out and had carpets ruined, so lost 10 weeks of rent in that. ended up selling for $70k net loss (incl interest payments, selling costs etc) as trying to hold and paying the negative gearing was unsustainable.

i won't do a single house again - although still like multi-dwelling builds.
 
thanks lizzie . caps broken sorry.

yeah see and you were talking a 100k margin, that's a pretty decent margin yet still easily ripped to threads.
there are also a couple of other aspects with mine. the area although liked is normally a very cheap out of town location . my profit margin and rentabilty if stuck is more depending on the construction side of new projects upping prices which has happened but at the same time does seem to be flattening off right now.
whether that's effects of the market in general or maybe construction demand has maxed out now , it's really hard to tell .

sorry to hear about that one of yours rump/f , i hope it pans out in the end for you.

cheers
 
I never really expected a profit on that one - its a location thing. But the original plan was to hold it a few years longer, living in it. Its saved me a LOT of rent, and still pays twice as much in rent as the mortgage.

The house I am in now is likely to turn a $100k profit, and the next a $200k one, and we used that first one as an equity downpayment, so it all evens out.

There's always a next project after all :)
 
random said:
yeah see and you were talking a 100k margin, that's a pretty decent margin yet still easily ripped to threads.
Click to expand...

we probably could've broken even if we'd severley slashed the asking price straight away and given up our expected $100k profit - but in naivety we followed the market down and ended up selling for a small loss.

the killer was holding it for 18 months while hoping the market would come back up (which it didn't). the unclaimable negative gearing (held in d/trust), market dropping further and tenent damage cost us another $70k.

the biggest killer was the neg gearing. if we'd been able to claim that and depreciation, we probably could've held on until the market came back.

lesson learnt the hard way
 
RumpledElf said:
$60k is more than zero. I'm hoping to sell a house I've had for 7 years for a small loss. C'est la vie.
Click to expand...

Agreed, it's 60k you wouldn't have made otherwise.

It all depends on the sureity of that 60k, I'd work out your absolute worst case scenario, and then decide if that figure is worth the effort.

The turnaround time is a factor to consider too, i.e. could you make the 60k on different project in a shorter time, i.e. consider a subdivision and sale of rear block (retain front house) for less risk and less effort.

There's way too many variables in a build project that could eat up your 60k.
 
I think it's a "depends on the circumstances" kind of question. We're just about to do a build with that kind of profit margin (for a rental, though, not for sale).

I wouldn't have bought a block with those figures in mind. However, the block is one we already have. It's subdivided off from our former PPOR, which was originally our dream home and not an investment, and wouldn't have really stacked up as one, although it's slowly creeping up to CF+.

At the moment, the land is costing us money that is not tax deductible. Also, it is in a regional area where good houses are in demand for rent and sale, but vacant land is a dime a dozen and routinely sits on the market for long periods. Unless you're very careful about what you build, with who, and how you do your inclusions, it would be very easy to overcapitalise, so people tend not to buy vacant land and build there. We've spent a long time finding the right builder and package for the site, but we've now hammered out a deal that will work.

So for us, building will transform something we could only sell at firesale prices into a good investment. With depreciation, it'll be cashflow positive and do good things for our portfolio overall. So it is worth it. But I wouldn't have created the situation for investment purposes - there are better yields available.
 
hmm , very interesting and thanks people.

selling , rebuying , tunring that over and getting your next profit would in reality take 8-12mths out-in and out again anyway I know and really , we're not gonna know where we're headed now until mid spring really are we.
god this stuff can be tricky can't it . i can well appreciated the holders among us . I want to move onto holds after this .
i say around a 60 margin as the likely between 40 as worst case and 70-80 best. 70 - 80 right now would be doable but things do seem to be slowing even with the projects in area.
i wonder as with say yours lizzie , say it's normal value should be say 300 for argument sake but at the time things have slowed and 300 now isn't moving.
so from an equity point of view as with the way rump/f has still managed to use that one in a positive way - would the bank call the equity from a 300 sell tag , or would they use say the 250 or whatever the selling range has become if and since things get slower ?
i mean the equity with my build on now prices would be fine right now & it'd also rent cp regardless but what i really want is the sell of cash - just thinking worst case , if stuck , the equity would be great back up on now price but if things slowed and bank called it on slow price it'd be lucky to break even. still rent well but a poss' no equity ..

not ideal i know , it's just that i do have the blocks already and new buys are getting harder to finance - i really want these two just gone to be honest , dunno if that's a good attitude though but hey i'd still rather they were gone!

cheers
 
The bank uses 'market value' based on comparative sales at the time and a bit of trend thrown in for luck, so if your area is trending downwards ...

I got my place valued at $95k by the REA, had offers at $85k, $75k valuation by the bank (the house had no bathroom at the time) and now this latest offer at $70k, which looks like it might either fall through or I just have a slooooow buyer.

No comparable sales though - the most recent two sales were a 2 bedroom unrenovated asbestos jobbie for $65k and a 12 bedroom (yes, twelve) unrenovated one for $150k. Mine is a renovated stone 3br. And by 'unrenovated' I mean 'barely habitable hovel'.
 
Thanks Rumpled.

I spose that would be the obvious answer eh , don't worry not the first silly question I've asked !
I'd love that 12b , I've always wanted one of those big old rarities .
You have a slow buyer too , I got me one of them . Been 4 mths , solicitor reckons hang in there though and thinks he should be ok. Here's to hoping , I really need the money .

Cheers
 
random said:
sooo, i race out and grab one at 4 in the arvo b4 posting so it looks pretty right. nice to see some focus on the 70 or 80k question .

besides - ever tried shutting a laptop with a $5 keyboard sticking out:rolleyes:
Click to expand...

lol....ops.....but yeah....OK.

Um..no it's not worth it. :D
 
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