My next project

[sue78]

I am very excited. Spent the last few days searching for land and I think I am about to do a deal! (I love land, only takes a few days to find one since not many around)

I can't say the suburb yet since this land is really well priced but will update once deal is finalised.

So the numbers look like this:

Land $255k (maybe less)
House Base price $233k (36 squares, 2 storey, popular)
Site costs $10k estimate
Water Tank $6k estimate
Floorings $8k (porcelain tiles and carpet)
Stencilled Concreting $6k
Deluxe Inclusions Upgrade Offer $3.5k
Facade with balcony $8k
brick laid flushed with off white mortar $1.5k
Fencing $1.5k
Landscaping $6k
Electrical Upgrades $2k
Air Conditioning $6k
Miscellaneous Upgrades $5k
Brick fence at the front $2k

=$523,500

Interests $20 - $25k

Rental $700 p/w

There's the exact brand new house in the same area on the market for $735k but they have the classic free facade which doesn't look very nice from the front.

We have to live there for 6 mths I think but will put it on the market for $680k to $750k.

I think I can achieve the minimum $80k profit required of my projects though.

 

[stumunro]

that's awesome, can you walk us through the process of coming up with the building funds. Will you apply for a construction loan?

 

[sue78]

With the loan, there's a few different ways we can do that. First of all we have to worry about the land. I have never paid that much for land before and land is hard to borrow since we can't take into account rental. In the past, we have always had to put up 20% deposit but with the credit crunch we may have to put 35% and since I'm not working atm.

The construction cost is a separate loan (it's really annoying and they rarely amalgamate loans when finished because of the different secuties) but it's easier to get since we can take into account rental income. What I did last time was financed the construction + the 20% deposit that I had to put up for the land with existing security.

I have $760k of loans which will be cleared soon so I should be able to borrow $500k but who knows since it's just for 1 property instead of the 2. Also my equity has dropped as I didn't sell my property for as much as as the bank had valued it.

But I still have equity in other IPs.

Hopefully I will get it approved based on history as I only deal with Westpac for the last 6 years and many transactions.

 

[wooody]

hello don’t want to dampen your construction but you have not allowed for any cost overruns or unforseen problems that may arise on site, or problems that may be buried in the ground, was the land previously built on or is it open ground?

Also i see a very small return on your investment for a huge outlay, your 80k profit is that including selling costs & what about the taxes? Land, stamp etc

Also you need to deduct of your profit the net interest that you would earn on your 500k if you put that money in the bank for the life of the construction period!

Have you had experience in this field before of construction? Who is going to manage the job?

Have you had a quantity surveyor cost the full scope of works & materials, including all associated costs + your buffer for overruns?

There is also a large spread of 70k between you min-max selling price range, i assume your 80k profit was worked out on the min price of selling

 

[sue78]

I go with project builders so my prices are fixed. It's easier this way to borrow money from the bank.

I have done this for 6 years and it's like my job so $80k is pretty good for just project managing 1 house which is hardly time consuming as oppose to a full time job. I used to work full time and do these kind of things.

The best part about building is you only pay stamp duty on theland so I think it should be around about $10k and stamp duty on loans isn't that much.

Buffer/cashflow is vital and I have the buffer.

building 1 house for $500k+ is still less riskier than a subdivision of 2 houses for $1mil. Your costs are fixed and it's easier to offload if you need to and there are very minimal delays.

I always prefer lowsets as you can turn it over in 7 mths but for this project, it has to be a 2 storey unfortunately.

 

[Gee Cee]

Hi There

I also do not want to dampen your enthusiasm. I have done quite a number of similar projects but doing nothing at present.

Firstly you need to look at your own family and financial situation. Is this going to put a real strain on your financial survival. Especially if things really turn to poo througout the world. If there ain't no money around as everyone is loosing jobs and banks are tightening up credit. Then you could have a big problem selling. At $700k it is not exactly a first home or cheapie. You could be left holding a property that you cannot sell and cannot afford to hold
This then certainly effects your family and mental life. Stress, Stress , STRESS
There are a lot of people out there at present in that situation I cannot see it getting better quickly.

Do the numbers:
The interest will be a real killer. At the start you will be paying interest on the land loan. Then At each stage of the development when funds are drawn down as progress payments you will be paying more and more interest. By the final progress payment you will be paying heaps in interest. A two storey home would take at least 12 mths to build. By the time you add all this into the equation the actual cost will be large.

I looked at a block a couple of weeks ago at a liquidation auction. Could have probaly got it at half of the price blocks were going for 3 years ago.
But by the time I added it all up then figured the oportunity cost it was not worth the small return and stress.

Gee Cee

Greg

(Being careful)

 

[sue78]

Hi Greg,

Thanks for your post. I wouldn't spend that much in an area I'm unfamilliar with. I live close by and I have done a similar project in that area before.

i have also been through difficult periods but what I have learnt is that all houses does sell eventually.

The good thing is that this house will rent out easily even if we had to drop it to $600p/w. Only 1 yr ago 600sqm block could sell for $380k but atm prices have probably dropped to $320k. It's a very good area in Brisbane.

$800k to $1.5mil houses are still selling. It's all about building theright house here. A lot of ethnic people with a lot of money.

There are single storeys currently on the market at about $620k but I think it's priced too high.

my only concern is building 2 storey, it takes longer and can be a bit of a headache.

i hope to get a longer settlement to get the house contract finalised so when it settles, the house can go straigh to council. Will save about 2 lots of interest payments.

If there was a cheap property in this area I would have bought it already. This area does not seem to be affected at all. So annoying!!

 

[sue78]

Ok the deal is done.

The land is in Calamvale. So for people who know the area they would know that's pretty cheap for the land, also no way you could buy a brand new 2 storey 36 sq brand new house for that price.

 

[asdf]

my only concern is building 2 storey, it takes longer and can be a bit of a headache.

Congrats on the deal. Give it 12-15 months from initial contact with builder. No matter what they say, 2nd stories take forever.

 

[sue78]

I have negotiated longet settlement so will get the soil test done asap and if everything's ok then get them to draw up the plans. I want no more than 2 weeks delay after settlement for the plans to go to council so they can be on site within 6 weeks after land settlement.

I have built 2 storey before and the actual building time didn't take that long. Maybe delayed a few weeks because of weather.

 

[ems]

I suppose it depends on the builder but we built a two storey house on the Gold Coast and it took just under 6 months and that took in delays due to rain and Christmas. Overall very happy with the build time....

Cheers
Ems