My little Mona Vale development update - Phase 3
- Thread starter MichaelW
- Start date
And, yes, a grand Somersoft opening at completion is a good plan. Just don't damage anything alright!
Cheers,
Michael
garden party?
great to see some movement and looking forward to updates!
Unfortunately nothings fixed price mate until they start ordering it and turn the provisional amounts to actuals. If not already, go pick all your taps,tiles, basins and the lot now before all these prices miraculously go up. Then theres the ole, hiccup costs which was unforeseen. Joys of project work but lessons learnt are invaluable.
asdf,
Its hard, I can't really go into it here in too much detail as Joanna is a member of this forum and a mate, but its been difficult initially. There are cost elements which I thought they should cover which are sneaking into my provisional sums and there are quality levels of finish which I thought they should meet which they are now arguing should be additional cost to me to achieve. And they were the most expensive tender by a large margin over the cheapest. I selected them to avoid these issues, but they're still occurring in these early days. I'm crossing my fingers that once the build proper gets underway that all this noise goes away and I end up with an exceptional product with no more cost creep. Time will tell...
Whatever happens I know the end product will be an excellent one in an excellent location. The only challenge is avoiding all the cost creep that is occurring currently in achieving that outcome. I can't afford cost overruns based on my servicability models at completion fully let. Nor should I expect cost overruns, I feel, as its a fixed price contract! There are elements which I perfectly accept as cost additions based on stated exclusions, but that should be it. Not paying more to get the level of finish that should be expected for this development.
Unfortunately, that finish is ambiguous in the contract and it seems my and her expectations were not sufficiently aligned. But its early days, I'm reserving judgement. I just hope these early concerns don't materialise throughout the build. Big learning here is that any ambiguity is a cost creep crack. I tried to lock them all down before signing the contract which delayed the signing by about 6 months but still didn't lock it down tight enough. Who would have thought I had to specify that supply and install of the turntable excluded concrete formwork?
Cheers,
Michael
Its hard, I can't really go into it here in too much detail as Joanna is a member of this forum and a mate, but its been difficult initially. There are cost elements which I thought they should cover which are sneaking into my provisional sums and there are quality levels of finish which I thought they should meet which they are now arguing should be additional cost to me to achieve. And they were the most expensive tender by a large margin over the cheapest. I selected them to avoid these issues, but they're still occurring in these early days. I'm crossing my fingers that once the build proper gets underway that all this noise goes away and I end up with an exceptional product with no more cost creep. Time will tell...
Whatever happens I know the end product will be an excellent one in an excellent location. The only challenge is avoiding all the cost creep that is occurring currently in achieving that outcome. I can't afford cost overruns based on my servicability models at completion fully let. Nor should I expect cost overruns, I feel, as its a fixed price contract! There are elements which I perfectly accept as cost additions based on stated exclusions, but that should be it. Not paying more to get the level of finish that should be expected for this development.
Unfortunately, that finish is ambiguous in the contract and it seems my and her expectations were not sufficiently aligned. But its early days, I'm reserving judgement. I just hope these early concerns don't materialise throughout the build. Big learning here is that any ambiguity is a cost creep crack. I tried to lock them all down before signing the contract which delayed the signing by about 6 months but still didn't lock it down tight enough. Who would have thought I had to specify that supply and install of the turntable excluded concrete formwork?
Cheers,
Michael
I know what you are going through Michael. Knowledge, Experience, Communication. Once these are established in yourself the development process becomes smoother. You will pay, like I and many others have, to get established in these 3 pillars that will support you in future projects (if you continue down the path of developing). I just hope, for your sake, you have enough cream in the project to absorb the blowouts in budget. It can be surprising what has NOT been included in the contract - things an inexperienced developer cannot comprehend.
Suck in a few deep breaths mate and don't be scared to question - otherwise you may be taken advantage of. Scrutinise the contract and stand your ground. Don't pay for any variations unless you have agreed and signed for them before they are done.
All the best,
Suck in a few deep breaths mate and don't be scared to question - otherwise you may be taken advantage of. Scrutinise the contract and stand your ground. Don't pay for any variations unless you have agreed and signed for them before they are done.
All the best,
Gday Michael, it's been a few years since I met you at the Forum in St Leonards. I don't know how you manage to find the time to post between work, family and developing.....when do you sleep I know its stopped me posting much the last couple years.
We're half way through our development (complete home rebuild, 3 story architectural design, underground basement/carpark etc) in Abbotsford. So far no major issues, we went provisional on the excavation which paidoff as we came in just under our allowance. The rest is fixed price apart from the joinery, tap, tiles toilets etc so hopefully not too many nasty surprises from here on.
I think these cost over-runs you are encountering we encountered before we signed the contract. Our drawings were so extremely detailed (and costly) that the builder was able to get very firm on his pricing up front as he knew exactly all the level/types of finishes required. It got too one point we're I (politely) had a bit of a go at him as every time he "firmed up" his prices, it moved up $30k. We managed to shave about $20k in the end with a few minor cutbacks but that was 6 months ago now and I have not had any "scares" since. Architect is also administering the contract which helps me sleep at night.
I cannot stress enough though if you or Kay can get to site to inspect as much as you can. We're fortunate in that we're living around the corner and I go past almost daily. There is nobody who knows that design better than yoursleves or your architect, so it's always good to be on site as you'll be the first to pickup something that does not look right. We've already had two occasions were I and then the architect picked up some mistakes (fortunatley easily fixed), relatively minor but mistakes nonetheless.
Your comments about how you decided on your builder were similar for us. I'd tendered to about 6 builders, then narrowed it down to two. In the end went with the more expensive one as he was the one we felt would deliver to the quality and spec of the design, not too mention he is a structural engineer by trade and has done numerous work for our architect in the past.
What I've learnt the most in the 2 years of planning and now 6 months of delelopment, is, if you are building in a quality area and want a quality result, pay the premium to attract the quality consultants/builders and trades. My builder is extremely loyal with his trades and sometimes that has meant we've had to wait an extra week to get them on site.
I know at the end of all this, we shall have a magnificent home that is built to the standard of the homes around us so no risk of overcapitalising (we have deep waterfront homes which we look over probably worth $5M plus.
As this is our home and not an IP like yours, I probably have not been as profit focused but I know our value will show some reasonable equity gain in it. I've spoken with a couple good local agents who have no doubt it should get valued in the low $2s to $2.25M. It will only take a few years of even moderate growth before its up around the $2.5M (tax free ), heaven forbid what it could be worth if we hold through a boom
All the best with it in 2011
Ross
I know its stopped me posting much the last couple years.We're half way through our development (complete home rebuild, 3 story architectural design, underground basement/carpark etc) in Abbotsford. So far no major issues, we went provisional on the excavation which paidoff as we came in just under our allowance. The rest is fixed price apart from the joinery, tap, tiles toilets etc so hopefully not too many nasty surprises from here on.
I think these cost over-runs you are encountering we encountered before we signed the contract. Our drawings were so extremely detailed (and costly) that the builder was able to get very firm on his pricing up front as he knew exactly all the level/types of finishes required. It got too one point we're I (politely) had a bit of a go at him as every time he "firmed up" his prices, it moved up $30k. We managed to shave about $20k in the end with a few minor cutbacks but that was 6 months ago now and I have not had any "scares" since. Architect is also administering the contract which helps me sleep at night.
I cannot stress enough though if you or Kay can get to site to inspect as much as you can. We're fortunate in that we're living around the corner and I go past almost daily. There is nobody who knows that design better than yoursleves or your architect, so it's always good to be on site as you'll be the first to pickup something that does not look right. We've already had two occasions were I and then the architect picked up some mistakes (fortunatley easily fixed), relatively minor but mistakes nonetheless.
Your comments about how you decided on your builder were similar for us. I'd tendered to about 6 builders, then narrowed it down to two. In the end went with the more expensive one as he was the one we felt would deliver to the quality and spec of the design, not too mention he is a structural engineer by trade and has done numerous work for our architect in the past.
What I've learnt the most in the 2 years of planning and now 6 months of delelopment, is, if you are building in a quality area and want a quality result, pay the premium to attract the quality consultants/builders and trades. My builder is extremely loyal with his trades and sometimes that has meant we've had to wait an extra week to get them on site.
I know at the end of all this, we shall have a magnificent home that is built to the standard of the homes around us so no risk of overcapitalising (we have deep waterfront homes which we look over probably worth $5M plus.
As this is our home and not an IP like yours, I probably have not been as profit focused but I know our value will show some reasonable equity gain in it. I've spoken with a couple good local agents who have no doubt it should get valued in the low $2s to $2.25M. It will only take a few years of even moderate growth before its up around the $2.5M (tax free
), heaven forbid what it could be worth if we hold through a boom All the best with it in 2011
Ross
Hi Ross,
Thanks for that detailed post, it really helped put my mind at ease. You're right in that I selected a quality builder for this quality project. They're really good and working hard for me to deliver a great product at a competitive price. I'm confident we'll get there in the end, but its hard work.
I just had my nastiest surprise to date. For those who are faint hearted, change channels now... I just got a variation invoice from my builder for disposal of contaminated waste through the demolition. I knew this was coming, but we'd mentioned two truckloads. That was enough as its $240+GST/Tonne to dump the contaminated waste so I was working on a nasty $10,000 shock. Just got the invoice and it is $50,000 based on 8 full truckloads in the end. That's $50,000 that the project didn't have budgeted for and I now need to find. I'll need to go to the bank with a variation and they'll no doubt support it, but the project can't afford another $50,000.
I'm going to sue the guy who took the house away as he contaminated the site by sawing up asbestos on site and dumping it everywhere. But that will be a drawn out affair with no guarantee of success.
In the meantime, I have to swallow a $50,000 bitter pill and get on with it. I've asked my builder to help me find how to take that back out of the project without compromising quality but her initial response was we couldn't.
Margin erosion at its worst...
Not a happy day. If everything I have posted to date hasn't put you off, then let me tell you the build itself isn't any less stressful. Good thing I'm made of stone or I would have crumbled by now.
Cheers,
Michael
Thanks for that detailed post, it really helped put my mind at ease. You're right in that I selected a quality builder for this quality project. They're really good and working hard for me to deliver a great product at a competitive price. I'm confident we'll get there in the end, but its hard work.
I just had my nastiest surprise to date. For those who are faint hearted, change channels now... I just got a variation invoice from my builder for disposal of contaminated waste through the demolition. I knew this was coming, but we'd mentioned two truckloads. That was enough as its $240+GST/Tonne to dump the contaminated waste so I was working on a nasty $10,000 shock. Just got the invoice and it is $50,000 based on 8 full truckloads in the end. That's $50,000 that the project didn't have budgeted for and I now need to find. I'll need to go to the bank with a variation and they'll no doubt support it, but the project can't afford another $50,000.
I'm going to sue the guy who took the house away as he contaminated the site by sawing up asbestos on site and dumping it everywhere. But that will be a drawn out affair with no guarantee of success.
In the meantime, I have to swallow a $50,000 bitter pill and get on with it. I've asked my builder to help me find how to take that back out of the project without compromising quality but her initial response was we couldn't.
Margin erosion at its worst...
Not a happy day. If everything I have posted to date hasn't put you off, then let me tell you the build itself isn't any less stressful. Good thing I'm made of stone or I would have crumbled by now.
Cheers,
Michael
That's a painful kick in the teeth mate, all the best in your reclamation of costs.
You'll get through this, mate, especially if you maintain that great attitude you have cheered us with over the years. It's impossible to control all circumstances in life's game but you can certainly choose your attitude. Keep looking on the bright side and put it down as lesson.
What are your revised projections?
What are your revised projections?
Ditto, "development be a harsh mistress".
Thanks for keeping us in the loop.
Regards
Peter 14.7
Thanks for keeping us in the loop.
Regards
Peter 14.7
Hi again everyone,
And thanks for all the well wishes and votes of support, much appreciated...
OK, we're definately making progress now. Yes, Karina, there is definately movement at this station.
We've now finished the full excavation and thankfully we didn't hit rock at all so that's one possible cost overun that was averted. They're full steam ahead now and have had the geotech sign off that the excavated basement is as expected and aligned with the signed off engineering so we can go straight into the basement concrete slab now. The surveyor will be out there Monday to lay it all out. In the meantime, here's some happy snaps showing just what a transformation has occurred already with my little site.
Enjoy...
Looking forward there's not too much risk to the budget now with the big unknowns around the site clearing and excavation now behind us. For those interested, the financials are still stacking up nicely. At a high level they look something like this:
Contracted Development: $1.25M
All Other Costs: $950K (including site purchase, DA, CC, funding, contract variations)
TOTAL Cost: $2.2M
Conservative Valuation at completion: $2.7M
So, a conservative half a million margin at this stage, but my REA thinks the valuation will come in closer to $3M. Either way, all looking good and a hell of a fun ride too. Will be cash flow neutral to marginally positive at completion on funding of $2.2M. Either way, no problem for us to hold and an asset worth a touch under $3M added to my portfolio.
Very exciting days for this little black duck.
Cheers,
Michael
And thanks for all the well wishes and votes of support, much appreciated...
OK, we're definately making progress now. Yes, Karina, there is definately movement at this station.
We've now finished the full excavation and thankfully we didn't hit rock at all so that's one possible cost overun that was averted. They're full steam ahead now and have had the geotech sign off that the excavated basement is as expected and aligned with the signed off engineering so we can go straight into the basement concrete slab now. The surveyor will be out there Monday to lay it all out. In the meantime, here's some happy snaps showing just what a transformation has occurred already with my little site.
Enjoy...
Looking forward there's not too much risk to the budget now with the big unknowns around the site clearing and excavation now behind us. For those interested, the financials are still stacking up nicely. At a high level they look something like this:
Contracted Development: $1.25M
All Other Costs: $950K (including site purchase, DA, CC, funding, contract variations)
TOTAL Cost: $2.2M
Conservative Valuation at completion: $2.7M
So, a conservative half a million margin at this stage, but my REA thinks the valuation will come in closer to $3M. Either way, all looking good and a hell of a fun ride too. Will be cash flow neutral to marginally positive at completion on funding of $2.2M. Either way, no problem for us to hold and an asset worth a touch under $3M added to my portfolio.
Very exciting days for this little black duck.
Cheers,
Michael
Good to see this thing eventually getting off the ground MichaelW.
As a side note in relation to the contamination issue. In my opinion ,it's a good idea to get the head contractor to organise demolition works. You will pay a margin, however, should there be issues that you have encountered, ie the demo guys making a big mess, it all goes back onto the builder. So no big variations...
After a few developments, most learn the value of having water tight documentation, and the art of being able to forgo a small margin that can be saved in order to reduce the risks of organising certain items yourself.
Wishing you all the best of luck with the project. Exciting times indeed
Boods
As a side note in relation to the contamination issue. In my opinion ,it's a good idea to get the head contractor to organise demolition works. You will pay a margin, however, should there be issues that you have encountered, ie the demo guys making a big mess, it all goes back onto the builder. So no big variations...
After a few developments, most learn the value of having water tight documentation, and the art of being able to forgo a small margin that can be saved in order to reduce the risks of organising certain items yourself.
Wishing you all the best of luck with the project. Exciting times indeed
Boods
Yep, that's something I've taken on board now. I still reckon I would have got stuck with some contamination costs but might have been able to argue against a lot more of it if I hadn't used a separate subbie for the demolition to try and save some coin.
Still, good to have it all powering along now. Its a pretty tight fixed price contract to a solid spec and I'm very up beat about its prospects in the end of 2011 market. They'll have the slab down soon which will be drawdown number 3 for the same amount. Can't wait to see it come up out of the ground.
Happy days.
Cheers,
Michael
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Hi Michael,
I would to know indicatively - if it is not too much of a probe based on your final valuations how much would you be left in your pocket if you sold all at the end.
Taking into account:
Cost to raise & hold money over duration. I don’t think your latest figures take this into account?
Actual hours you personally put into the full project – which should be accounted for.
Whatever the final figure is, then it would need to be approximately halved again to take into account tax on the gain / income.
Obviously the name of the game is to hold for the long haul; however this will show the other side to the coin for those quick flip developers. Maybe it is still too early to accurately calculate this?
I would to know indicatively - if it is not too much of a probe
based on your final valuations how much would you be left in your pocket if you sold all at the end. Taking into account:
Cost to raise & hold money over duration. I don’t think your latest figures take this into account?
Actual hours you personally put into the full project – which should be accounted for.
Whatever the final figure is, then it would need to be approximately halved again to take into account tax on the gain / income.
Obviously the name of the game is to hold for the long haul; however this will show the other side to the coin for those quick flip developers. Maybe it is still too early to accurately calculate this?
Hi Abby,
There's no CGT on a new build, just GST, so halving that final figure is not appropriate. But GST is enough of an embuggerance at 10%. But at least if I were to sell them then I could claim my GST input credits against my build contract.
OK, not that I'm selling any, but here's a quick summary for you.
Assuming my $500K margin is accurate to start with, I'd need to subtract $270K in GST but then add back $125K in GST credits for a net deduction of about $145K reducing my margin to $355K in my pocket.
There'd probably be 2% sales commission too, so another $54K odd off that for a net net number of $300K odd.
I've used a builder as I'm just the developer so there's no accounting for my time. Most investors put their own time into their ventures whether its buy and hold or developing but we do it for the love of it. And, yes, my latest figures include the cost of interest servicing over the duration of the build too. I've always factored those. Before I started building it was let as an IP and virtually neutral so no holding costs.
Still, to sell would take my margin from $500K to $300K in a blink. So I intend to hold all three and sell my former PPOR in North Narrabeen for about $900K CGT free and GST free in order to release some capital. Prior to doing that I'll get the existing LOCs on North Narrabeen refinanced across to the Mona Vale units as security so I can pocket all of the proceeds from the PPOR sale and bring them North to Brisbane to buy my next PPOR. That leaves all the debt against Mona Vale at about an 80% lend after refinancing across and marginally negatively geared. But that's no big deal on our salaries and with a paid off PPOR in Brisbane once we buy one for cash.
Hope that helps. Its because of GST that I've decided to sell the former North Narrabeen PPOR instead of one of the Mona Vale new build units. They'd sell well, but they'll rent just as well...
Cheers,
Michael
There's no CGT on a new build, just GST, so halving that final figure is not appropriate. But GST is enough of an embuggerance at 10%. But at least if I were to sell them then I could claim my GST input credits against my build contract.
OK, not that I'm selling any, but here's a quick summary for you.
Assuming my $500K margin is accurate to start with, I'd need to subtract $270K in GST but then add back $125K in GST credits for a net deduction of about $145K reducing my margin to $355K in my pocket.
There'd probably be 2% sales commission too, so another $54K odd off that for a net net number of $300K odd.
I've used a builder as I'm just the developer so there's no accounting for my time. Most investors put their own time into their ventures whether its buy and hold or developing but we do it for the love of it. And, yes, my latest figures include the cost of interest servicing over the duration of the build too. I've always factored those. Before I started building it was let as an IP and virtually neutral so no holding costs.
Still, to sell would take my margin from $500K to $300K in a blink. So I intend to hold all three and sell my former PPOR in North Narrabeen for about $900K CGT free and GST free in order to release some capital. Prior to doing that I'll get the existing LOCs on North Narrabeen refinanced across to the Mona Vale units as security so I can pocket all of the proceeds from the PPOR sale and bring them North to Brisbane to buy my next PPOR. That leaves all the debt against Mona Vale at about an 80% lend after refinancing across and marginally negatively geared. But that's no big deal on our salaries and with a paid off PPOR in Brisbane once we buy one for cash.
Hope that helps. Its because of GST that I've decided to sell the former North Narrabeen PPOR instead of one of the Mona Vale new build units. They'd sell well, but they'll rent just as well...
Cheers,
Michael
hi michael, i've just read thru your thread, what a great journey!! well done for coming out the other side still making money, despite the people around you who have failed you... "not their problem" kinda person! I can't stand these kinda people, but of course in PD work, they're everywhere...
anyways, I'm watching your thread closely, can't wait to see the build start!
congrats.
anyways, I'm watching your thread closely, can't wait to see the build start!
congrats.
