Kit Home Duplex Development - Rockstar No.3

[Rockstar]

Rockstar, do your profits depend on the sub-division, or are the profits okay just not as good if you don't do the sub-division. As the strata/sub-division looks a bit more complex than what I'd want to begin with.

If you are selling them you have to subdivide to give each owner a seperate title. If you are renting them there is no point going through the process or expense.
If you want to refinance them you will come under the scrutiny of valuers. Some valuers don't penalise you too much if the two are on 1 title whereas others do. If you are keeping them you will never know exactly what profit you have made but knowing your market and getting some appraisals from agents will give you a close enough idea.

I think I should probably learn to crawl before working.

That's a funny habit?

 

[dave_olol]

Quote:
Originally Posted by dave_olol
I think I should probably learn to crawl before working.

That's a funny habit?

clearly too much working going on!! (it must be on the brain) And not enough wealth building! Not only do I need to learn how to crawl then walk, I also need to learn how to spell

 

[Rockstar]

Forgot to mention. Exchanged contracts today and the new owners will move in on July 31 'under licence' until settlement.

Made a written offer yesterday on another block of land I have been investigating - subject to

1. Finance
2. Registration of strata title and settlement of …(current contract)
3. Within 2 weeks from exchange of contracts the owner will sign and return our DA application form that will be lodged with Byron Shire Council for a dual occupancy. Lodgement of the DA by purchasers can occur any time prior to settlement.
4. Covenants approval letter from Byron Shire Real Estate for the proposed plans to construct two free standing dwellings.
5. Permission to access the site for planning, engineering and surveying purposes prior to settlement.
6. 2% deposit.
7. Settlement to occur 1 week after date of registration of strata title for …………….(current contract)

Will keep you posted on results of negotiations.

 

[Rockstar]

We have now moved to unconditional on the contract. Sold sign went up yesterday. Still a few items to finish before the purchasers move in on July 31.

Signed up Sole Agency agreement with PRD today. Will list the next house "off the plan" for 399k. NSW govt has waived stamp duty for current OTP purchases. Mrs R will attempt an artists impression for marketing purposes.

Have attached budget and cost comparrison. Still haven't finalised the Strata but this cost will be shared with 2nd house. A few more landscaping extras to come in as well. I would say the house will cost us around the 118kk mark. Pretty close to my original budget. I have not paid myself in the budget so it has obviously cost more - say another 10 - 15k. If the next house comes in at similar cost the following projections will be fairly accurate.

Construction Costs 240k
My Labour 30k
Land Cost 260k
Holding costs 40k
Sales costs 20k

Total Costs 590k

Total Sales 760k

Gross Profit 170k

Holding costs have been a bit of a shocker on this one as we were stuffed around by the GFC and an abandoned original design for 2 larger project homes. Basically couldn't get the loan through. We were forced into using our LOC on PPOR to fund these smaller Kit Homes - one at a time. It has opened our eyes to this niche market of single 45 - 55 yr olds, mainly women.

Our next project will be the same design but hopefully we can afford to build two at once and rent them out. Our strategy will remain - to hold onto what we can afford to, continue using investment loans to purchase land and raising construction capital (if needs be) by occasionally selling our least desirable properties that we have held for more than 1 yr to avoid CGT. We will be , in a sense, LOE and investment profits by parking all proceeds in offset accounts. (Wife has just retired) By doing a duplex project once or twice a yr or so we can fast track to our goal of financial freedom. Planning to join a few of you guys and girls in the Big M club by the end of the next project. Will be holding 5 properties by then with val of around 2.3 Mill. LVR will be close to 50%. We've done pretty well considering our net worth around 8 yrs ago was 80k and we only had our PPOR. It's been a path full of challenge and reward. Overcoming challenge actually brings the reward and adds to the increasing pool of experience and wisdom one can accumulate in one's chosen path. We love the asset that is housing and I have continuing faith in this asset class. I have no interest in shares - never have. There is something fulfilling about building and owning resi property. A roof over one's head is a necessity. Folks need housing and I am happy to be in the business of providing for that requirement.
By adding value to a property investment you can really boost your returns. Duplex projects are a simple way of achieving this. I started by researching the council planning controls thoroughly and consulting with the council duty planners. Now I know exactly what to look for in a site yet I would always have them cast their eye over my plans before lodgement. Local Agents have also been a great help for market information and design feedback.

The passion is turning into a profession.

 

[Sheryn]

Congratulations Rockstar!

Tell Lee I am envious of her new retirement status.

Can you please post a photo of your backyard landscaping when finished.


Kind Regards
Sheryn

 

[dave_olol]

Congrats Rockstar,

Thanks for this detailed thread. It is great to hear your story, it’s very inspirational for those of us looking to make a start and trying to get out of working for others for the rest of our lives. Seeing your progress through the project with photo’s, commentary and numbers, helps people like me understand that with hard work and research it is possible, to build your wealth and achieve financial independence.

Congrats and thanks again for the thread.
Dave

 

[Mrs Property]

Thanks

Hi Rockstar, thanks so much for sharing this information with us all. Its awesome to be able to read all about your development and see photo's along the way. I've really learnt a lot from reading this.

I'm new to property development (have been buying and holding since I was 20, so 8 years now) and I'm really keen to get into the development side so I'll ask you the same question I've asked Sheryn:
How did you find the information needed to be able to do your first development? Do you just jump in or is there certain info I need to know. Also What motivated you and what advice can you give a newby?

 

[Rockstar]

How did you find the information needed to be able to do your first development? Do you just jump in or is there certain info I need to know. Also What motivated you and what advice can you give a newby?

Hi Mrs P,

I was motivated by realising I had no retirement plan - no super as I was self employed. I also was breaking my body from hard yakka. I developed a desire to break the status quo. I began talking to friends who were dabbling in property. I am still deeply thankful to a couple of authors whose books I read. They were Jan Somers and Michael Yardney. They opened up a new world of opportunity to me. It all made sense pretty quickly what I had to do. Buy property where I could add value. I discovered the letters "STCA" in some REAgents adds on duplex blocks. After some investigation I found my first site and heavily researched the council DCP to ensure it was going to be approved. Got to know the planning staff at council and began to embrace and understand their planning policy. Find out what they want and do your best to satisfy their criteria. Learn how and where you can request variations to the DCP. Show them your plans before you submit the DA.

The numbers are a no brainer. Buy a block for, say, 250k. Put 2 dwellings on there and split the title. You get two blocks for 250k + Sec 94's, strata title costs, some storm water detention works, holding costs and a fence down the guts. You basically make 150 - 200k on the project as long as you keep the building costs in check.

Finance was pretty easy to get up until last year when the GFC hit. All lo doc loans for us because of self employment. They are still around - our current application is with Bankwest. We have gathered more equity now through adding value so our LVR has come down from around 80% to around 50%.

Off for a 10 day meditation retreat tomorrow. Back on 25th July.

I have more info in my last diary as well.

 

[matto_]

Questions

Hi Rockstar,

Thanks a lot for going into so much detail in this thread.

As others have noted - it is great to have other people out there doing it and demonstrating that it really isnt as overwhelming as it originally seems.

Couple of questions - which I am trying to work through, howver am not sure what the pro's/con's to throw about are:

Scenraio - we have recently bought a house which is on a fairly big block - very close to town. It has a house close to the front. We would like to subdivide-somehow.

1/ How would you decide between building one or two units on the back of the block. Profitability is obviously better - building two.

2/ How would you decide whether to sell off prior to the construction stage - ie. get the approval through council and then sell the land to a builder.

Anyway - any thoughts would be much appreciated.

Matto.

 

[Rockstar]

1/ How would you decide between building one or two units on the back of the block. Profitability is obviously better - building two.

2/ How would you decide whether to sell off prior to the construction stage - ie. get the approval through council and then sell the land to a builder.

Matto.

Quick answer here mate as I am off on hols in 10 mins.

1) Council development control plan ( on their website usually) will tell you what is possible with densities on the site. Duty planner at council will clarify things for you hopefully. Town Planners can also assist but will charge you. This is fine if you are working full time and need assistance.

2) Have experienced recently that it is harder to sell DA approved site than a completed building. Go for the build and reap the profit if you can finance the construction.

Keep asking questions.

 

[Rockstar]

Update

Well it's been quite some time since I posted on this thread - and for good reason. I have not posted about the ongoing dramas as no one could have solved my problem except myself.

I am understanding more and more why developing is not for most people. Plenty of hurdles to jump over and the one I came across came out of the blue while I was away for a long weekend in the Blue Mts.

Some history. As I reported at the beginning of this thread, a friend of mine was also building a kit home duplex in the same town. He was a few weeks ahead of me and completed his house before me. He also had a contract in place for the sale of house 1 and had submitted a "development contract" to council which accompanied his strata subdivision plans. All was progressing slowly but smoothly through council and his application was approved and a Strata subdivision certificate was issued by council. They also signed the strata administration sheet which was to be sent to Land Titles Office. My application, at this stage, had also been lodged with council but was some weeks behind. So once my friends' documents had been approved he had to then send them to the bank to be signed in order to release the original title to enable the strata subdivision to be registered at LTO. This all takes time - especially as it was a Macquarie funded loan. After a couple of weeks he had everything he required to send off to LTO and his solicitor lodged the subdivision application through an agent. Anyway I received a call from my surveyor while I was holidaying and the news was quite a shock - it was actually news about my friends lodgement as we use the same surveyor. The LTO had rejected his application! They told him that council had misinterpreted the subdivision laws and had wrongly made him (and me of course) go through the lengthy and costly process of creating a Strata Development Contract which was unacceptable to LTO.
Sooo.. of course, according to council, LTO had been allowing these to be processed in the past so it wasn't their problem! Here we had both council and LTO shirking responsibility with my friend, me and, apparantly, 10 other applicants in the council system in no mans land.
Well, that was around 24th Sept. Fast forward to now and we have just managed to, after much negotiating, a section 96 and an 88b, get the revised plans (without a development contract) ready for lodgement to LTO. I will give out the info in another post about how it was solved if anyone is interested.
The good news is now we are around 3 weeks away from getting this subdivision registered so we can settle on the first house and throw some money at the 2nd house to get it built. All of this business is also holding up the purchase of our next block of land which is subject to the settlement of House 1.

 

[brazen]

Sorry to hear about the bungle(s) mate- wouldn't be the first time the bureaucrats cost a developer unnecessary time, money and anguish... unnecessarily.

Luckily, your a smart person who was able to think on the fly and fix things yourself. Well bloody done!

 

[Rockstar]

Thanks for the sympathy mate. Obviously someone is responsible to compensate me for all the extra cost associated with unnecessary work and wasted time but my lawyer told me "don't go there".

 

[Rockstar]

Subdivision was registered last week and settlement for House 1 is booked in for Dec 22. Still not fully confident my solicitor will pull it off as he is dealing with Perpetual who have been slow in the past. Anyway, we are ok financially after borrowing some money from family and friends to see us through.

The interesting news is that my BIL and SIL are signing a contract to purchase House 2 for a discounted price - 375k. Buying OTP will exempt them from all stamp duty and of course no agent fees enabled us to reduce their price as well.
Now that they have nearly fully committed we have suddenly another very interested buyer (why does this always seem to happen???)

Would you guzump your relatives?

 

[Rockstar]

No settlement for house 1 today after purchasers' bank let their loan approval lapse. Should be sorted for a January 14 settlement. Contract exchanged for house 2 on Monday.

Cut the site this week and dug holes today ready for posts to be concreted in. Of course it began to rain soon after the footings were inspected by council. Now it looks unlikely we will get any posts in before Xmas.
Our kit is scheduled to arrive on Jan 19 so we need to have everything ready for my team to begin on the bearers and joists.
Taking trip to Tassie from 25th till Jan 7 and will lock up the site - security fence going up tomorrow.

 

[Rockstar]

Rained till midnight (forcasted rain for 4 days straight) and then miraculously cleared to a cloudy day yesterday with only a minor shower in the morning. Conditions were sticky but we put in the hard yards and mixed 3 cubic metres of concrete and completed the posts for the whole house. Safety fence was erected and the site is locked up for Xmas and almost ready for bearers and joists when the kit arrives on 19th Jan. Just need to cut off the posts to size and weld on the brackets and braces.

Happy Xmas.

 

[Rockstar]

Back on site the past 2 days after a nice Xmas break. Dodged all the rain somehow (half of that SE QLD rain was forecast to hit us as well, but remained up there for some reason) and managed to get the garage slab poured this morning. Power gets hooked up tomorrow and the kit is arriving on Wednesday. Settlement for House 1 is booked in for 2.30 tomorrow but Purchasers solicitor can't contact Suncorp bank because of Brisbane floods.

 

[Annietom]

hi RS, I've just read thru your thread for the first time tonight. Great thread, wonderful information. I particularly found it interesting because I had on my mind a very similar idea to yours, but 3bed, not 2bed. I wonder why you didn't go the extra bed? I assume advice you received, kept initial outlay costs down too obviously. Great to see your figures, and frankly my figures hit about that mark. But of course it doesn't include all the delays (ie. your council strata thing!! They SHOULD compensate you for that - surely your soly has some backbone. I guess easy to say... another thing to achieve..!) And your lending costs increase with delays too. But overall it looks you have done really well despite the delays. You obviously think on your feet. Great skill to have in this game.
My first development is more like a dual occ, both with street frontage tho, in a country town in Vic. I have a blog on it if you're interested. www.mytowncottage.blogspot.com

But I must say, I'm thinking of one like yours next time, down the Great Ocean Road way in Vic.

So I will be watching your posts closely now, and I had one question for you, you said you budgeted from "holding costs". What's that? (see how green I am!)

ta!
Annie

 

[Rockstar]

Hi Annie,

You may also enjoy my previous duplex diary.

Holding costs are the cost of interest on borrowed money + rates, insurances, etc. These accrue throughout the project until the units are sold. My holding costs for this project were high because I have been paying interest on the land for 2.5yrs. Despite this we are still in for a healthy return.

My next project will be much quicker - that's the plan. I haven't settled on the land yet - but have my DA in council already.

I went for 2 bedders because they were cheaper to construct and the feasibility study indicated that the profits would be similar to 3 bedders. So for a smaller outlay of capital I make the same profit. There is also a demand for them in my area.

 

[Rockstar]

Finally we have settled on House 1 and the money is in the bank. Can pay off a few old debts now that cashflow has freed up. Will also be settling on next block of land next week so 50k is required to go toward that.

Brackets and bracing were welded onto posts on Tuesday. Kit was delivered on a semi on Wednesday and the team will begin erecting house on Monday. Hoping to be locked up within 2 weeks.