New build in Adelaide - any profit there?

[Darren1968]

Hi all,

Haven't posted for a long time as I've been doing other things but have recently been considering getting back into some property investing.

I have a PPOR and one IP (I bought land and built) which has been rented for two years to the same tenant.

I am considering buying land in the current or next release at Andrews Farm and building again.

I love the building process and I loved landscaping my last property. The bank valuation showed a $70k increase over what it cost me to build.

I'd like to do this again, but I think I'd consider selling once complete.

Ideally if there is any money in it, I'd like to do one every 12-18 months (buy land, build and sell).

Even if I can walk away with $20K-$25K per property, I think it's worth doing.

The thing that bothers me though is that the developer is also selling house and land packages and they are dirt cheap. I'm not actually sure I can compete with this and am worried that there may not be any profit in it.

I believe Devine are the actually developer of the land and as such, get the land at cost price and also being a home builder, get the house at cost. That's why they can sell so cheap.

Any Adelaide people care to comment?

Is there money to be made buying land and building decent family homes and selling (hopefully for profit) or are these low cost developer house and land packages too hard to compete against.

 

[jabz]

We've signed up to build a rental in the neighbouring suburb, Smithfield Plains only because of the relatively cheap cost of land, modest build and potential of a neutral or +ve cash flow (after depn). We're looking at $230-$240k once completed.

Thought about the possibility of selling but didn't think there would be enough profit to be gained after purchase, construction and sellling costs were taken into account - especially if competing with some of the house and land packages I've seen for about $265k. You'd need to be buying land and building quite cheap to make anything out of it.

 

[Mamaof3]

For at least the past year we've not come across a single site (one where you just buy land and build 1 house) that we could foresee any profit out of building. Very rarely we'd come across a 2-siter where there's profit so with 1-siter builds i doubt there would be any profit in it especially if you're buying the land. $20K-$25K profit per build is waaaay too risky for my liking. But then again we all have different profit margins we work with so each to their own. But to give you an example, a site we developed about 18mths ago, the retaining walls alone costed $20K more than what we had allowed so if something like that pops up then there goes your profit out the window

To be honest i'm not sure how many other developers who buy these sites around Adelaide at top dollar and build 2 or 3 homes on them actually make any money....and actually its probably that they don't actually make any profit i the end. One of our Agents told Us that alot of their listings at the moment were from Developers who have lost money or overcapitalised on a development and now just need to get out now and cut their losses whilst they still can...doesn't surprise me.

If Devine are able to sell at a much lower price than what you would be asking for then i would seriously hesitate developing next door to that.

My suggestion would be to look at other suburbs, bigger sites or different strategies as the simple buy a site, knock down and build strategy doesn't really work at the moment (not for the 1 or 2 builds).

Good luck

 

[RumpledElf]

Why not go closer to town? Around the inner north-eastern suburbs where those horrible timber frame ex-trust houses on massive blocks are (just north of Enfield, Ingle Farm, Klemzig, heaps more) there seems to be quite an industry in knock one down, build three. And they sell for $400k+. The SIL has one, they bought the subdivided land (from a 3 way split) and built their own little house and got it valued at $480k a year or two ago.

Probably lots of competition for the old houses though, there is an insane amount of new builds in those areas.

 

[eKwatee]

I dont believe there is enough demand for established new builds in and around that area to push your price up high enough to make a profit. Your first home buyers will be buying through the affordable homes program in Munno para West & Blakeview & you wont be at a competitive price to attract the first home buyers, so your market will be limited. There is a large number of homes & stacks of land for sale creating an oversupply. I don't believe there would be any immediate profit, you would have to hold for some years. I think certain areas in the Playford alive development are a good investment opportunity, just not buy, build & sell.

 

[Gools]

Darren, it's really a battle between slick marketing and a finished product. By the time the buyers of the house and land packages pay for all the extras required to complete the build they can start to get pricey. Unfortunately if you buy, build and sell you face stiff competition from the low price (with hidden extras) house and land packages.

The cost of building has sure crept up recently in Adelaide. I have a feeling it will come under pressure shortly. I'm seeing pressure put on builders due to a lack of demand. They will have to drop their pricing to keep work on their books. Might be a chance shortly to sign cheaper building contracts which could help.

You liked the landscaping process, you're rare that's for sure....

Jabz, care to break down your costs to come to $230-240k? That's some handy work. I haven't done anything out that far so quite surprised its do-able.

Matt, that's a huge generalisation you have made. Plenty of new home buyers in the inner north east wouldn't even know where Munno Para is let alone want to buy there. Having said that, you're correct about immediate profits not being available at the current price of the 2 into 1 development blocks. Doesn't seem to stop people having a go though. Pity most don't have accurate budgets done before it's too late.

We've just finished a 2 into 1 split and build in Windsor Gardens. We purchased the existing house in 2008 and it all went well but if we were to pay the going price for the site now, there would be no profit in it.

Darren, if I was looking for something to do now, I would be after the stock that Mamaof3 is talking about. Buy the finished product at cost, reduce your risk to zero and you're laughing.

Gools

 

[eKwatee]

Matt, that's a huge generalisation you have made. Plenty of new home buyers in the inner north east wouldn't even know where Munno Para is let alone want to buy there. Having said that, you're correct about immediate profits not being available at the current price of the 2 into 1 development blocks. Doesn't seem to stop people having a go though. Pity most don't have accurate budgets done before it's too late.

Gools

Posted by Darren 1968
I am considering buying land in the current or next release at Andrews Farm and building again.

Sorry, I should have added in the quote from Darren1968 where he mentioned building in Andrews Farm

 

[Gools]

Thanks for clarifying Matt. Hope the new job is going well.

 

[eKwatee]

Thanks for clarifying Matt. Hope the new job is going well.

It's going really good & I'm enjoying it.

 

[jabz]

Jabz, care to break down your costs to come to $230-240k? That's some handy work. I haven't done anything out that far so quite surprised its do-able.

Land $96K, House $116K (basic 3 bedroom, 1 bathroom - seems to be the norm for rentals I've inspected there) leaves $18-28K for extras. Not sure if it's do-able as yet but trying to stick to that.

Builder provided some external/internal upgrades as part of their current promotions. Developer provides fencing on all 4 sides, crossover and front landscaping.

Much like Darren, I enjoy getting my hands dirty so looking to install as much as I can by myself with the help of family (eg floor coverings, window coverings, light fittings, paving/concrete, back garden etc). I know others would include the cost of their time but for me it's what I like to do and hopefully I get experience built up to get into renos in the future.

 

[Bullfrog]

Builder

Hi Jabz,

can you share with us who your builder is. I've got a house in Elizabeth on a corner block and am thinking of cutting in 2 and building at the back. Would be interested to chat to your contact.

Thanks Bullfrog

 

[jabz]

Hi Jabz,

can you share with us who your builder is. I've got a house in Elizabeth on a corner block and am thinking of cutting in 2 and building at the back. Would be interested to chat to your contact.

Thanks Bullfrog

Hi Bullfrog,

Building with Sterling Homes. Slab has just been poured so I can't comment too much on the standard so far. I'm holding judgement on whether I'd use them again until later but as with any other builder, you need to be proactive and keep on top of things. I've built 3 times before all with different builders but with the same common theme.

I have noted that some of the other builders are offering similar promotions so might be worth shopping around.

 

[Ocean Architect]

I think that entering into a development with the idea of making a mere 20-25k is a terrible idea.

Your risk exposure is sky high, and your profit is at rock bottom.

If you like doing that sort of stuff, and only want to make a few thousand, go work as a contractor.

 

[Spanish1]

You'll find most developers work to a minimum 20% profit over development costs for reasons like budget blowouts, property market fluctuations and project delays. As you're only building the one house, you could get away with a little less. Just keep in mind that it's better to work on percentage of profit instead of $20-$25k per development, and that all comes down to a through feasibility.

Good luck!