Newbie - Investor/Developer

[Domain]

Hi Everyone,

I purchased my first investment at age 21 using a small amount of savings and the FHOG to purchase an inner city apartment in Melbourne which is now returning $415pw (7.5%) and CF+. Even though, I'm 23 years old now, I'm a very keen property investor.

I've been spending allot of time on this forum which has helped me allot with ideas and motivation. It is good to see that everyone here is so passionate about property!

I'm in the process of purchasing a run down house on a large block in a suburb within 15kms from Melbourne's CBD with the intension of spending $30,000 renovating the front to Top condition (arranging a licence agreement whereby I can access the house to renovate before settlement), whilst applying for a DA & Sub-division to build 2 units/ townhouses at the back (on a delayed settlement agreement of course).

When the plans are passed, I will sell off the front house (willing to sell at break even or a small lost due to the house not having land anymore!), and the land at the back is in a sense 'Free'. I was then going to obtain another Loan to build 2 units/ townhouses at the back.

So my question to you is whether this is a good and feasible idea? and if so, what is the best way to go by doing this? I met up with my mortgage broker, but I don't think she fully understands this process as she mostly deals with off the shelve 'mum and dad' loans rather than investors. FYI. I would have approx. $80k to play with in this project and my girlfriend & I are in professional jobs with a combine salary of $100k (We're pretty good savers).

I have also heard of loans for developers whereby the Interest is accumulated and is paid at the end of the construction process. I was wondering whether this would be a better idea as this will allow me do this project in one single step rather than the 2 steps as outlined above (obtain mortgage to purchase land, sell the front then obtain loan to build). But not sure whether we can obtain this as we are both very young with limited finances. Hence, why I'm trying to do this project in 2 stages rather than the one simple step.

I've done a fair bit of research last couple of months but would like to hear your recommendations or experiences.

My ultimate goal one day would be to purchase warehouses in innercity Melbourne and convert them to 5 star apartments .

Regards,

 

[willair]

Hi Everyone,

I purchased my first investment at age 21 using a small amount of savings and the FHOG to purchase an inner city apartment in Melbourne which is now returning $415pw (7.5%) and CF+. Even though, I'm 23 years old now, I'm a very keen property investor.

I've been spending allot of time on this forum which has helped me allot with ideas and motivation. It is good to see that everyone here is so passionate about property!

I'm in the process of purchasing a run down house on a large block in a suburb within 15kms from Melbourne's CBD with the intension of spending $30,000 renovating the front to Top condition (arranging a licence agreement whereby I can access the house to renovate before settlement), whilst applying for a DA & Sub-division to build 2 units/ townhouses at the back (on a delayed settlement agreement of course).

When the plans are passed, I will sell off the front house (willing to sell at break even or a small lost due to the house not having land anymore!), and the land at the back is in a sense 'Free'. I was then going to obtain another Loan to build 2 units/ townhouses at the back.

So my question to you is whether this is a good and feasible idea? and if so, what is the best way to go by doing this? I met up with my mortgage broker, but I don't think she fully understands this process as she mostly deals with off the shelve 'mum and dad' loans rather than investors. FYI. I would have approx. $80k to play with in this project and my girlfriend & I are in professional jobs with a combine salary of $100k (We're pretty good savers).

I have also heard of loans for developers whereby the Interest is accumulated and is paid at the end of the construction process. I was wondering whether this would be a better idea as this will allow me do this project in one single step rather than the 2 steps as outlined above (obtain mortgage to purchase land, sell the front then obtain loan to build). But not sure whether we can obtain this as we are both very young with limited finances. Hence, why I'm trying to do this project in 2 stages rather than the one simple step.

I've done a fair bit of research last couple of months but would like to hear your recommendations or experiences.

My ultimate goal one day would be to purchase warehouses in innercity Melbourne and convert them to 5 star apartments .

Regards,

Why not just bulldoze the whole block,30k on a reno is still a lot of money and as most blow out by 20-50% what happens if it goes that way?,and the time factor,how long for the "DA" to be in place you may be lucky and find the right vendor who will work with these terms,
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whereby I can access the house to renovate before settlement), whilst applying for a DA & Sub-division to build 2 units/ townhouses at the back (on a delayed settlement agreement of course).
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But you may well find not many people will agree with a contract set-up that way,i get several letters a month from people wanting to buy one of the properties we control,with the terms you have set-out,AND A 9-12 MONTH settlement, i always ring them back ,just to learn something new,but it always ends the same way,when they start to lay down their rules and time frames,after all there are only 2 names on the titles,and when i tell them there's is not one of them,they seem to go into shattered mode,,good luck willair..

 

[Fourex]

I am a fan of the buy renovate, subdivide (or boundary realignment) then build.

I am not sure on if the vendor will agree on the delayed settlement those subdivisions can take longer than expected and I don't hold much faith in the timelines council give.

For me it comes down to buying well (no point if you are paying a premium) and carefull calculations on all council fees for the subdivision (my local council take a parks contribution of 10 % of the lot value along with the application fee, service connection fees which take a big slice of that profit).

You may want to look at Bantacs booklet on How not to be a developer, you may be toeing a fine line with having to pay GST.

http://www.bantacs.com.au/booklets/How_Not_To_Be_A_Developer_Booklet.pdf

Best of luck.

 

[Domain]

Thanks for the response Willair & Fourex.

Based on my calc, the reno will only cost $20k to $25k max with an amount set aside in case of a blow out. Having friends and family in the renovation industry will help in this.

As for the sub-division process, I mistakenly wrote the 'delayed settlement agreement' after the that sentence. I understand that this will be extremely hard. What I meant was that I would get a delayed settlement to finish off the reno before settlement (an extra 30 days or so).

As for the delay in the Approval process, I have factored this in and will rent out the front house to generate rental income and it's a waiting game from there.

Thank you for the link Fourex, very useful booklet.
nice bed time reading