My first project in Deer Park

Hi all, just went through Brendon's diary and it's so inspiring. :) I have just purchased a potential site in Deer Park ( close to the train station), and decided to start my own diary as well. As the title suggests, this is my first project and even though I have done a lot of home work and gone through the numbers 100 times with my broker, I am sure I will need every bit of support i could get to go through this journey.

The site
The site is 700 sqm, backyard is facing south ( the two architects I spoke to both advised me that the orientation sort of limits the options I have, 1st lesson learnt). I paid $358000 for it, which I think isn't too bad considering the recent sales on the same street. The existing 3bed house is still in a reasonably good condition and the agents I spoke to told me it could be rented out for $320 pcw without too much work.

Plan
My original plan was to knock down the existing house and build 3 ( 3bed TH, 2 bed TH and 2bed single storey unit), however I was advised by one architect that it's not the most cost effective option. He recommended renovating the existing house and building another two single storey 2 bed units at the rear. This options is way less expensive as the construction cost would only be around $250,000 and the end value, based on the recent sales, would be around $870,000.

Site purchase cost (including stamp duty): $378,170
Planning permit: $6569 ( I just received the quote today )
Building permit: $9328
Subdivision: $9061
Open space levy: $18000
Construction of two units: $242,000
Renovation: $40,000
Holding cost: $20000
Sub total: $722,996

End value:
Existing unit: $270,000
Unit 1: $300,000
Unit 2: $300,000

Return: $147,004 (Gross Margin 20%)
The reason I highlighted the renovation bit is that the existing driveway is only 2.6 m! The architect told me that it could be widened and it's still worth keeping it given it's condition and this option will be better than knocking it down and building 3. I haven't spoken to a builder about the renovation yet.
The cost for planning and building permits are less than what other people have shared here and I guess that's because i am only going for the single storey units.
I spoke to two architects. The first one just provided me with a quote without much consultation, it's like I would design whatever you want to build and charge accordingly. The second architect shot down my original idea as soon as he heard it.. lol I like how he thinks and might go with him in the end.

The house will settle on 09/02/2015 and I am trying to do as much as I could between now and then. My first priority is to find a good architect and then a good PM in the deer park/sunshine area to manage the existing house. Also, I am hoping to finish the renovation/alteration soon after the settlement.

So folks, that's all I could think for now.. Any suggestions, words of wisdom and constructive criticism will be greatly appreciated.
 
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Well done Netvista. I like that part of deer park (close to train station) and will be ready to purchase a development site around Albion, Sunshine or Deer Park area (Brimbank council) next year.

So I will be keen to see how you go with this project.

Best of luck!
 
Well done Netvista. I like that part of deer park (close to train station) and will be ready to purchase a development site around Albion, Sunshine or Deer Park area (Brimbank council) next year.

So I will be keen to see how you go with this project.

Best of luck!

Thanks Teshy.. Best of luck to you as well. It took me 6 months to find a site and I am glad the searching part is over.
 
Spoke to the arctecit again about obtaining a separate building permit to push the external wall in by 0.5m to make the drive away 3m. That's another $3500 for the working drawing and application. :( Hopefully I can get the drawing by late Jan 15 so that I could get someone to start the alteration/renovation immediately after the settlement. I have heard good things about them http://www.truelocal.com.au/business/rightway-developments/pascoe-vale. Can anyone recommend a reliable builder in the west ?
 
I dont see any contingency anywhere, id definitely recommend some.

Also, is your price of 250k for the 2 homes turnkey?

Project numbers look a little tight so u will need to pay close attention, it will only take 1 or 2 major thinga going wrong for it to suddenly be a 10% project or less.

Will you be holding on to these?

Sounds like a small block but is there an option to just subdivide the land and sell off the blocks? May end up being just as profitable with less time, work and capital involved.

Good luck with your first project!
 
Thanks Sanj.

I dont see any contingency anywhere, id definitely recommend some.
there is 5% that I forgot to include in the numbers above.

Also, is your price of 250k for the 2 homes turnkey?
I am still talking to the builders to confirm that..

Project numbers look a little tight so u will need to pay close attention, it will only take 1 or 2 major thinga going wrong for it to suddenly be a 10% project or less.
100% agree, and I just got off the phone with a builder who told me that I might need to allow for $100k for the alteration (moving the wall back) and renovation inside the house. :( If i want to keep the front house vs knocking it down and building new house.

Will you be holding on to these?
At stage, yes, I want to keep them as rentals. Haven't thought about other options yet.

Sounds like a small block but is there an option to just subdivide the land and sell off the blocks? May end up being just as profitable with less time, work and capital involved.
that's a good point.. will do some numbers around this option and see what i might be able to get.
 
My best advice would be not to not rush in. It looks like you will get pretty good rent for the house as it is and then take your time to work through the scenarios to work out which has the best feasibility.

You need to firm up a lot of numbers before you decide what is the way to go forwards. I probably wouldn't be getting end values from an architect but would do my own research as to what is reasonable for the area.
 
My best advice would be not to not rush in. It looks like you will get pretty good rent for the house as it is and then take your time to work through the scenarios to work out which has the best feasibility.

You need to firm up a lot of numbers before you decide what is the way to go forwards. I probably wouldn't be getting end values from an architect but would do my own research as to what is reasonable for the area.

Thanks for your advice westminster. This is definitely a good learning process for me even though I have done a lot of research before. Regarding the end value, I used the numbers from the recent comparable sales and took $10,000 off it just to be safe.
 
Hi Netvista I'm trying to learn about this also. I'm just wondering about electricity connections and sewer connections or are those prices included in your build cost?:)
 
if you are selling, then you have to incorporate GST, which according to my quick calcs is another $20k-$25k PER site profit reduction,

have you cosnidered gst?
 
What about the tax credits along the way? Would have been a fair bit of gst paid in construction and subdivision costs
 
What about the tax credits along the way? Would have been a fair bit of gst paid in construction and subdivision costs

yeah of course, obviously there is gst credits and already paid from the past, the figures was a just a rough one,

he doesnt say whehther his construction costs are ex or inc gst, my guess is ex gst, so if construction was $200kx3, then it would be $660k inc gst

if he was keeping all the units, then my point is mute
 
Thanks for your advice.. it's a really good point that I haven't considered before. I guess that's because I haven't thought about selling.

At this stage, I am planning to keep them as rentals and just use the equity. I was told before if I intend to sell my project down the track, I should buy it under a trust, however I didn't like the ongoing cost associated with it.
 
Hi Netvista, A very nice looking project, well done :cool:

Deer Park has that new train line in the works doesn't it? That would be a nice CG boost.

Looks like the different options you have to choose from are giving you a headache. I'm with Westminster in suggesting you take your time, go through your options, crunch the numbers and speak to experts.

This project is likely to take 1.5-2 years to finish so taking a few months to get it right in the beginning while the house is rented out is not a problem.
 
Guys, can I please have your thoughts on the options below ?

Option 1: Demolish the house and build the following:
1 double storey 3 bed -> $380,000 comparable sales within 500m of my site
1 double storey 2 bed -> $340,000
1 single storey 2 bed -> $305,000
with Turnkey package

I dug up the construction quote I received before for another deal in Deer Park. It's very similar to this site. That one fell short due to valuation. The fixed price contract was $463,800 including GST.
This is the builder http://bluekeyproperties.com.au/. Just in case you are curious about the quality of their work.

Estimated CG: around $110,000
Estimated Gross cash flow position: $7,198 p.a.

Option 2
Alter (widen the driveway)/Renovate the existing house
1 single storey 3bed (existing house) -> $280,000
2 single storey 2bed -> $305,000 each

Estimated CG: around $120,000
Estimated Gross cash flow position: $8,680 p.a.

My thoughts:
Option 1
+ higher potential for CG given the condition of the units
+ overall maintenance effort is less
+ benefit of depreciation given the age ( I plan to hold them )
- requires more capital and more risky

Option 2
+ less capital required
- unknowns involved in altering and renovating the existing house. I spoke to a reputable builder yesterday and he said the alteration and renovation could cost up to $100k.
- hassle managing the property during renovation and construction.
 
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