Knocking down residence, building twnhouses - advice please

[888Katone]

We are looking at the possibility of knocking down or removing our weatherboard house (house and land currently worth around $650,000) and building 4 townhouses (696m2) to sell for profit.

We are assuming construction costs of 4 townhouses to be $200,000 each - they would DEFINITELY sell for $600,000 at least each in our suburb (based on current townhouse construction and sales in immediate area i.e. a few streets away - our street has a better view).

The area has schools in high demand - is 12kms from Melbourne and demand in the area is high - its an older established suburb with a bit of a toff element. Median house price is around $600-650K.

We are assuming that on-costs would be about 20% of total cost of construction ($800,000).

Our problem is financing the project - does anyone have an indication for us as to how we can get information on financing options ?

 

[Kristine..]

Hi Katone

Getting finance is not a problem but there are a few things which don't stack up in what you have said:

Is your land 696m2? How do you expect to get four townhouses on 696m2? What about set back, building envelopes, driveway, car parking etc?

Each dwelling nowadays has to have parking for two vehicles and one space has to be a garage. Your block seems to be very squeezy for four dwellings.

However, you may be right, but have you really done any costings, spoken with any builders? If there are any developments going on near you go and speak with the builders, they will give you an idea of what it will really cost you.

And don't even think about demolishing the house until you have the crews lined up to start building. Getting permits can take up to two years, even longer if your neighbours don't want you to do the development. On costs can end up being burial costs if the project isn't managed expertly all the way through.

I recently got a very competitive low doc loan for four townhouses in Adelaide for a customer of mine, but they were as organised as if they were planning an invasion of a small principality. They had also cut their teeth on a two dwelling development two streets away, so the lender could see that they had experience and knew what they were doing.

Are you talking full doc, low doc, what equity will you have to start the project with, will you be appointing a project manager or just working with the builder on the project? Do you anticipate taking an active role or will you be handing the whole thing over to someone else? I don't mean 'will you be doing the painting' as owners trying to save a couple of thousand dollars gives lenders nightmares and can make them think the project is an 'owner builder'.

Anyway, give us some more details - where there is a will there is always a way.

Cheers
Kristine

 

[kum yin lau]

Hi, comment on your numbers.
End value: 650Kx4 = 2.6M
Construction costs= 1m [very conservative; likely to be 1.8M]
Time lapse = 12 months [again very conservative]
You're looking at approx. 2M in costs
I've not even BEGUN to frighten you yet about sale costs. GST on each house sale is likely to be 40K

You'll probably make $400K. Why not just sell as is?

Or consider 2 houses? Your numbers will look about the same.

End value : 750K = 1.5M
Building cost = 500K

Live in 1, rent out the other for 5 years. Then review.

This is not advice. You need to do the numbers yourself cos I could be wrong.
KY

 

[sash]

We are assuming construction costs of 4 townhouses to be $200,000 each - they would DEFINITELY sell for $600,000 at least each in our suburb (based on current townhouse construction and sales in immediate area i.e. a few streets away - our street has a better view).

QUOTE]

I would be very vary in the current market...what you could have got even 6 months ago...may have moved down.

Unless you have done this before and know the ins and out....is sounds like a risky proposition.

Perhaps...you could do the DA and wait to see what pans out in the next 6-12 months, thus tying up minimal funds. Also, have you got finance on your development approved yet? I think you maybe surprised to see how tight things have gotten in this regard.

My thoughts anyway....

 

[StanZ]

Hi katone,

where abouts is your site located in melbourne?

i agree with everything kristine said before and you might also want to check into the zoning for your property at the dse website - on that size site there are only very few areas where you could achieve 4 units.

cheers,
sz

 

[888Katone]

Thanks for the tips guys - I probably didn't say that we are only looking at this as an option at this stage and have not stepped forward to do DA's or anything.

At this point we are concentrating on buying up as many properties as possible before we attempt our first development.

Thanks again