My little Mona Vale development update - Phase 3

[MichaelW]

Hi Guys,

Thought I'd start another little thread for those interested in following my Mona Vale MUH development through to completion. For those who want the whole sordid background here's the first three threads I ran on this development:

June 2006: Site purchase

June 2006: Initial Feasibility Analysis and Design Concepts

Febuary 2007: Architectural Design and DA Process

Which brings us to where we are today...

Well I just got off the phone from my personal banker at WBC who's given me finance pre-approval to do the construction!

So now I'm going to kick off the next phase of the project which will be engaging a third party to do the Construction Certificate drawings and tender documentation then tender and select a builder, lock in a fixed price contract with prime costs explicitly stated and get ready to commence.

That process will probably take the next three-four months and should make for some interesting discussions. From there I might start another thread to cover the physical construction in the following 9 months or so.

So for those who are bored stupid with seeing "Mona Vale development" in thread headings, this is the one for you to put on ignore.

We're off. I've seen enough of this doom and gloom to know where the market is headed and am more than comfortable with our projected end state. For the record, I'm working on a combined Gross Realisation of $2.5M with total costs of around $2M being $800K in site costs and $1.2M in construction costs. Our rental assessment came back at $850-900pw each for total rental income of $135K odd against a total mortgage interest cost at completion of $100K at current interest rates. i.e. CF+ by $35-40K at completion and a $500K margin.

If BIS can be believed in their media today then Sydney median's are set to rise 19% by June 2012. At that stage these would be worth $1M each for a $3M GR and a $1M margin. That was always my game plan on this site, and the servicability above suggests holding until then should be achievable.

On to the next stage then...

Cheers,
Michael

 

[wylie]

I shall read with great interest. This is an option we have on our double block and having never developed before, I for one am very interested to follow your journey, and perhaps pick up a thing or two.

Well done.

 

[josko]

Woo hoo- you're off and running! Fantastic news.

You certainly have done your DD and your plan sounds excellent. I can't see any way but up for the Sydney market. It missed out on the last mini boom the other states had, so should be in for a handsome profit to say the least.

Look forward to your updates,

Regards JO

 

[MiQu]

Good work Michael. Thanks for sharing and please do keep us informed and share your experiences.
I am currently in the process of purchasing a site (a house with dev potential) and hope to go down the same path in a few years time...

 

[Petal]

Very exciting and great for us to come along with you on your journey.

 

[Ajax]

Am watching a new 5 storey block of units being constructed on the site of a now demolshed block of units where I used to live (Sydney Eastern suburbs).

Am amazed at how long construction is taking-old unit block purchased around December 2005 for about $3.2m (6x2 bedroom units). Tenants all out by November 2006. Block demolished by end of February or early March 2007. Construction commenced May 2007 (very slow going) looking like construction will not be completed till February 2010. Loooks like 4 or 5 large whole floor units being built (stunning beach views) with underground parking for 7 cars. Might sell for $1.8-$2m a unit.

The delays in construction have got to be costing big $ for the developer. I would hate to be at the mercy of builders (if it is the builders who are going slow). Hard to tell what is causing the delays.

 

[kum yin lau]

Hi, good stuff. Taken a longish time but not bad. I see you have been very generous in your contingencies and the initial price helps your project viability. Your end value also seems very realistic. Fingers crossed you might find that the eventual finished product will exceed 2.5M At this point, it certainly looks likely.

Wish you all the best,
KY

 

[Rockstar]

About time you pulled the finger out Michael.

You're on a winner mate having done comprehensive DD. And not only that - the experience will be priceless even though it may be stressful at times.

Hope you can engage a genuine, stable builder for a fair price. This choice will be crucial to your success. Appreciate you continuing to share your journey with us.

All the best, RS

 

[ramone_johnny]

Big Mike how are you buddy?

Its been a while since Ive posted here. I see you're still involved with this development. Where is it currently at?

Good to see you still around mate.

Take care,

RJ

 

[pinotedesco]

Thanks

Hi Guys,

Thought I'd start another little thread for those interested in following my Mona Vale MUH development through to completion. For those who want the whole sordid background here's the first three threads I ran on this development:

June 2006: Site purchase

June 2006: Initial Feasibility Analysis and Design Concepts

Febuary 2007: Architectural Design and DA Process

Which brings us to where we are today...

Well I just got off the phone from my personal banker at WBC who's given me finance pre-approval to do the construction!

So now I'm going to kick off the next phase of the project which will be engaging a third party to do the Construction Certificate drawings and tender documentation then tender and select a builder, lock in a fixed price contract with prime costs explicitly stated and get ready to commence.

That process will probably take the next three-four months and should make for some interesting discussions. From there I might start another thread to cover the physical construction in the following 9 months or so.

So for those who are bored stupid with seeing "Mona Vale development" in thread headings, this is the one for you to put on ignore.

We're off. I've seen enough of this doom and gloom to know where the market is headed and am more than comfortable with our projected end state. For the record, I'm working on a combined Gross Realisation of $2.5M with total costs of around $2M being $800K in site costs and $1.2M in construction costs. Our rental assessment came back at $850-900pw each for total rental income of $135K odd against a total mortgage interest cost at completion of $100K at current interest rates. i.e. CF+ by $35-40K at completion and a $500K margin.

If BIS can be believed in their media today then Sydney median's are set to rise 19% by June 2012. At that stage these would be worth $1M each for a $3M GR and a $1M margin. That was always my game plan on this site, and the servicability above suggests holding until then should be achievable.

On to the next stage then...

Cheers,
Michael

Hi Michael,

Thanks for the post, great detail, love to see the passion of people about property and developing. Keep up the great work and good luck!

 

[House_Keeper]

Why did it took so long?

Did you put it on hold during the GFC or was it difficult to get finance?

 

[MichaelW]

Hi Guys,

OK, another quick update and a few answers to the questions posed...

Its been tendered now. It was tendered to 6 builders and all the tender responses came back at around the same level. But there's a fair bit of fat in the quotes that have come back due to things like the PC and PA items being over-stated as well as contingencies being built into the quotes due to absence of detailed engineering drawings and some of the other detailed design elements. It was always intended to be a two phase tender process. Phase 1 was the initial tender that is now complete. Phase 2 has me narrowing the pool of builders down to a couple and working very closely with them to refine the design and maybe take some of the cost out through engineering and refinement of my PC items.

I anticipate I'll have selected the builder to engage by Jan or Feb at the latest then get the contract in place, give notice to the tennant, get the bank to do their valuation, engage the PCA and get on with it. Feb/Mar looks like the likely start date now!

And, yes, I did delay it due to the GFC. Too much uncertainty and market turmoil. Now that the dust has settled it is clear the property market in Sydney, and specifically the Northern Beaches, is set to perform well over the coming few years so its a good time to kick it off. Financing is cheap and the construction cost is a tad lower than it would have been 12-18 months ago when you couldn't get a tradie for all the tea in China.

I'll post again once the tender phase 2 is finished and the builder engaged with some detailed financials and start date. I might then start a new thread to blog the build.

Thanks again for all the encouragement and interest from the forum. For those budding newbie developers like me, I hope you've gleaned at least a tidbit of knowledge from my posts thus far. Its been a huge learning curve as my first ever development, but you've got to start somewhere right!?

Cheers,
Michael

 

[Alex P Keaton]

ive been following your stories too and have really enjoyed them. Looking forward to seeing how it all goes.

Good luck

 

[aussierogue]

I think the timing is good Michael. You have been patient. Lots of pent up demand in Sydney!

Giddy up!

 

[GIDDO]

go Michael

Have been following your development adventures right thru Michael, and I am happy to see you are on to the next stage now.
Best of luck with it. I will be watching your progress along with the rest of the Somersoft Community. Leave nothing out. this should be very educational for me.

 

[MichaelW]

Builder appointed, and its someone you might all know...

Hi Guys,

Well, as planned, I have now appointed the builder for my Mona Vale development. The tender responses all came back and were pretty close to the same amount but this was a bit more than I was hoping it would be. So I met with the three short-listed builders and had them go away and rethink their numbers allowing for potential reductions in the PC and PA items as well as recommendations around construction techniques.

In the end I didn't go with the cheapest bid, but went with one of the builders that I personally had added to the tender list. I selected them not on price but on trust. I know them personally and know that they are very professional and produce an extremely high quality end product. I won't disclose just how much they were more expensive than the cheapest bid but I genuinely think the additional cost is worth it to know that I'm dealing with a company that I have the utmost respect for...

So who is it I hear you ask?... None other than our own JoannaK and her husband Roy's company.

So I guess this really is the Somersoft development now. Not only have I had a great team collaboratively assist me bring this development to this point, I have now engaged one of our senior moderators as my builder! I guess that means I better be careful how critical I am of them through construction or I might be censored...

My wife, Kay, is acting as Project Manager and between her and Joanna should ensure the project runs smoothly. We have now also appointed an architect to do the detailed construction drawings for us and are in the process of appointing the engineer and PCA. We've got an interior designer lined up at Joanna's recommendation and will commence the detailed construction design next week. Should have it all finalised, a Construction Certificate and contract in place ready to commence around end March if the timeline doesn't slip.

Absolutely thrilled to be able to do this. It just goes to show to all of you watching how important relationships and trust can be in this game. They were more expensive but they are exceptionally good at what they do and the relationship I have forged with Joanna over the years meant the decision was a relatively easy one. Now wish us both luck as we kick off the construction phase of this exciting endeavour.

Cheers,
Michael

 

[Rockstar]

Good to hear Michael. How can Kay Project Manage from Brissy?

How is the market going? Any revised vals on the end product to offset the extra costs?

All the best during the build.

 

[WinstonWolfe]

that's great Michael. I hope it all flows with your wife project managing a Sydney project and you working in Brisbane.

I totally believe that trust, AND RESPECT, are worth spreading 20% more of the profit, and more if the profit is big enough.

This development has been a long journey. I recall it started with your eyes on an IP in Brisbane.

 

[MichaelW]

Good to hear Michael. How can Kay Project Manage from Brissy?

Hi Rockstar, short answer is a lot of phone calls and regular flights to Sydney. Roy is also going to send us monthly updates with photos as it is built. Kay will fly down to Sydney next week for the detailed construction design kick-off meeting with the design team.

How is the market going? Any revised vals on the end product to offset the extra costs?

Ah, now that is a good question!

Our costs now look like the $750K land and DA costs plus $1.25M build plus $100K interest servicing and other professionals. All up around $2.1M. But the valuations have firmed and each of the three is now looking more like $1M each for a GV of $3M. Leaves about $900K margin less selling costs, GST and contingencies. Still, enough margin in it that we should do very well. This is another reason I was more than willing to go for the higher build cost quote for the certainty that it provided.

that's great Michael. I hope it all flows with your wife project managing a Sydney project and you working in Brisbane.

I totally believe that trust, AND RESPECT, are worth spreading 20% more of the profit, and more if the profit is big enough.

Thanks WinstonWolfe, I agree completely! The cheapest quote was a little bit more rubbery you might say. They seemed like a good outfit, but their quality of finish wasn't as good nor was there the established relationship and trust that I have now.

This development has been a long journey. I recall it started with your eyes on an IP in Brisbane.

Wow, you're right. Well, that was my first foray back into the resi IP market which I pulled out of when I realised I could do better than a project home buy and hold. A few years on and I'm kicking off a big value add project with nigh on $1M margin at the end of it!

Where's my old mate Pitt St (Mark) who said I was just a deer in the headlights who couldn't commit when I pulled out of that IP... No harm done, Mark is a great guy who still has my utmost respect too. Trust he's happy and healthy over in NZ. It has been a journey hasn't it!

Cheers,
Mike

 

[steveadl]

Great to hear it's going smoothly Mike, looking forward to more updates.