OC1's development - In detail

[oc1]

Hi all,

I thought I’d share the details of my recently finished unit development (Dec 2012) with all fellow forum members. You will see below that a development of this size would be financially doable by most investors.

The property (located at Gippsland) was purchased as vacant land in 2011 and had been on the market for quite some time – over 6 months. The selling agent was marketing the site as a 3 unit site. Based on previous developments I knew 4 units would be ok without too much trouble. I made a call to the architect and after a lengthy chat we worked out that 5 two bedroom units would just fit. This was great as there was great demand, especially as rentals, for single story 2 bedroom units.

The block is an oddly shaped one around 980m2. I’ve upload the plans for viewing. I find these odd shaped blocks sometimes give the best results. The block is in an established area, close to schools and the major shopping centre. The block faces south which is ok as you can have all living areas north-facing. This is ideal from a planning point of view. Two units have garages while the other three each have a car-space.

Usually I would sell some and keep some. However, the numbers worked out very well. The idea of owning all units on the block appealed to me too – complete control.

Initial costs

In order to get the planning permits (DA):

Land: $95,000 (yes that’s $95,000)
Stamp duty/legals: $3,000
Town Planning drawings: $11,000
Council Application Fees: $1,600
Bank fees: $600
Survey: $2,000
Total Costs: $113,200


Construction

Total build: $402,000
Working drawings/engineering/soil report/energy report: $9,750
Subdivision (open space levy in Victoria): $5,250
Interest: $15,600
Bank app fee: $2,425
Titles & legals: $1,940

Total Construction cost: $436,965

COMBINED TOTAL (LAND & CONSTRUCTION): $550,165

The end value on all five units combined is around $880,000. That’s a profit margin of 59%.

I have leased all 5 units. Total combined weekly rent: $1,160. Gross rental return on costs is 11%.

Now, I’m a registered builder too (amongst other things), so naturally my construction costs are lower. Those using a builder would add say an 18% builder’s margin on the cost of construction – increasing construction costs by around $75,000. Profit margin 41% and rental return around 9.7%. Not bad!

This is one of the lower-cost developments I have completed. The total build time was around 5 months. Many builds I undertake (including developments in Melbourne) have this sort of profit margin. I have one beginning around Easter time too. Feel free to ask any questions, I’m more than happy to answer and help out where I can.

Cheers
Oscar

 

[mattnz]

Fantastic work Oc1.

Congrats on the great deal and thanks for sharing.

Cheers,
Matt

 

[anson_he]

Hi Oc1,

Your building costs seem to be extremely cheap.it works out only 120K each, how big is each 2 bedroom unit? What kind of finish is it?

The one I am buiding costs me 210K for a 3 bedroom/2 bathroom/1 garage townhouse in NSW with project home type finish. Do you build in NSW or QLD? If you do, what kind of construction costs you have got?

 

[oc1]

Thanks Matt.

Anson, the units are 7 squares living plus single garage (for 2 of the 5 units). The units have a decent finish for what they are. I'm able to get the costs down by building similar units over and over again and surrounding myself with others in the industry.

 

[MTR]

Hi all,

I thought I’d share the details of my recently finished unit development (Dec 2012) with all fellow forum members. You will see below that a development of this size would be financially doable by most investors.

The property (located at Gippsland) was purchased as vacant land in 2011 and had been on the market for quite some time – over 6 months. The selling agent was marketing the site as a 3 unit site. Based on previous developments I knew 4 units would be ok without too much trouble. I made a call to the architect and after a lengthy chat we worked out that 5 two bedroom units would just fit. This was great as there was great demand, especially as rentals, for single story 2 bedroom units.

The block is an oddly shaped one around 980m2. I’ve upload the plans for viewing. I find these odd shaped blocks sometimes give the best results. The block is in an established area, close to schools and the major shopping centre. The block faces south which is ok as you can have all living areas north-facing. This is ideal from a planning point of view. Two units have garages while the other three each have a car-space.

Usually I would sell some and keep some. However, the numbers worked out very well. The idea of owning all units on the block appealed to me too – complete control.

Initial costs

In order to get the planning permits (DA):

Land: $95,000 (yes that’s $95,000)
Stamp duty/legals: $3,000
Town Planning drawings: $11,000
Council Application Fees: $1,600
Bank fees: $600
Survey: $2,000
Total Costs: $113,200


Construction

Total build: $402,000
Working drawings/engineering/soil report/energy report: $9,750
Subdivision (open space levy in Victoria): $5,250
Interest: $15,600
Bank app fee: $2,425
Titles & legals: $1,940

Total Construction cost: $436,965

COMBINED TOTAL (LAND & CONSTRUCTION): $550,165

The end value on all five units combined is around $880,000. That’s a profit margin of 59%.

I have leased all 5 units. Total combined weekly rent: $1,160. Gross rental return on costs is 11%.

Now, I’m a registered builder too (amongst other things), so naturally my construction costs are lower. Those using a builder would add say an 18% builder’s margin on the cost of construction – increasing construction costs by around $75,000. Profit margin 41% and rental return around 9.7%. Not bad!

This is one of the lower-cost developments I have completed. The total build time was around 5 months. Many builds I undertake (including developments in Melbourne) have this sort of profit margin. I have one beginning around Easter time too. Feel free to ask any questions, I’m more than happy to answer and help out where I can.

Cheers
Oscar

Hi Oscar
Fantastic profit margin, considering the Melb market has fallen back.

I am currently looking at developing in Perth and will be looking closer to 20%, fortunately we have a rising market here so perhaps that will improve.

So is this your full-time job now and how many projects do you have on the go at one time?

Do you have anything in the pipeline now and is it difficult to source development sites, be interesting to see those figures and what you are doing in your neck of the woods.

Thanks for sharing.

Cheers, MTR

 

[oc1]

Hi Oscar
Fantastic profit margin, considering the Melb market has fallen back.

I am currently looking at developing in Perth and will be looking closer to 20%, fortunately we have a rising market here so perhaps that will improve.

So is this your full-time job now and how many projects do you have on the go at one time?

Do you have anything in the pipeline now and is it difficult to source development sites, be interesting to see those figures and what you are doing in your neck of the woods.

Thanks for sharing.

Cheers, MTR

Hi MTR

Thanks. Yes, the Melbourne market has fallen back but it has pretty much stablised in most areas. There's much less competition to buy development sites now which is great. It gives you more time to do your homework.

This is what i do full time nowadays. I have two to three on the go at any one time - it just depends on when the planning permits (DA) come through. I have a couple more to start very soon in Ringwood East and Epping. Similar profit margins.

What's it like in Perth? It sounds like it is heating up! You would most likely pick up more margin by selling once completed. But that may depend on whether you need any pre-sales.

Cheers, Oscar

 

[MTR]

Hi MTR

Thanks. Yes, the Melbourne market has fallen back but it has pretty much stablised in most areas. There's much less competition to buy development sites now which is great. It gives you more time to do your homework.

This is what i do full time nowadays. I have two to three on the go at any one time - it just depends on when the planning permits (DA) come through. I have a couple more to start very soon. Similar profit margins.

What's it like in Perth? It sounds like it is heating up! You would most likely pick up more margin by selling once completed. But that may depend on whether you need any pre-sales.

Cheers, Oscar

Hi Oscar
Have tried to place offers on a couple of site and they sold prior to going to market, pretty crazy stuff.

I am viewing a property this Thursday so hopefully I can secure this, also I believe to have half a chance you need cash offers.

MTR

 

[jerky]

Congratulations, thats great

I didn't realise there would be so much demand in Gippsland, can I ask what drove you to look there?

Thanks

 

[oc1]

Hi Oscar
Have tried to place offers on a couple of site and they sold prior to going to market, pretty crazy stuff.

I am viewing a property this Thursday so hopefully I can secure this, also I believe to have half a chance you need cash offers.

MTR

Sounds like Melbourne a while ago. How frustrating!!

Jerky, years ago it was the cheap entry level. But now if the deal stacks up I would develop anywhere - i don't discriminate

 

[sanj]

Sounds like Melbourne a while ago. How frustrating!!

Jerky, years ago it was the cheap entry level. But now if the deal stacks up I would develop anywhere - i don't discriminate :D

wise words!

 

[Rooster]

oc1,

Good to see the figures in deals like this, so thank you.

Your background as a builder is definitely beneficial, but the key to that deal and many more is sourcing suitable land at a good price point.

Are you based in the Gippsland area?

Congratulations.

Rooster

 

[oc1]

oc1,

Good to see the figures in deals like this, so thank you.

Your background as a builder is definitely beneficial, but the key to that deal and many more is sourcing suitable land at a good price point.

Are you based in the Gippsland area?

Congratulations.

Rooster

Hey Rooster, no i'm based in Melbourne.

You're right though, finding the right block at the right price is key. However, you can still pay asking price when you can find a way to fit an extra unit on the block, especially when the property is marketed incorrectly. It's amazing how buyers assume the real estate agents assessment of a unit site to be correct

You can find similar developments in Melbourne too. It's not just about cheap land prices.

Cheers, Oscar

 

[westminster]

Great project - thanks for sharing. I do love an unusual block

Any hurdles in the project that would give some good lessons?

 

[oc1]

Great project - thanks for sharing. I do love an unusual block

Any hurdles in the project that would give some good lessons?

I bought this with a pretty long settlement (8 or so months) so the permits were obtained during that period. Subdivision could have been tricky if the new underground electricity pit wasn't located in the right spot. Some councils, actually most, don't like the conduits running from the pit (located in the footpath) through the front yard of one property to get to another. Hope that makes sense! Made this mistake once before, more like a learning experience, which delayed getting titles by 6 weeks while i waited for an additional pit. So for this development the pit was located on the right hand side of the driveway. Managing these services are usually where the headaches are with unit developments.

 

[MTR]

Hi Oscar
How did you go at auction, did you pick up that property???

If so, would be interested in the figures etc.

Cheers, MTR

 

[anson_he]

Hi OC1,

As a part-time developer, personally I feel it difficult to source good sites. Do you purchase your sites through public websites like domain, realestate or through private sales by contacting owners directly, or you have some good agents helping you source the sites?

I found that development sites are often sold privately before going public? In other words, the sites we see in the public websites are the ones professional developers don't want to touch most of time. As a full time builder/developer, can you share some experience in sourcing the sites?

 

[oc1]

Hi OC1,

As a part-time developer, personally I feel it difficult to source good sites. Do you purchase your sites through public websites like domain, realestate or through private sales by contacting owners directly, or you have some good agents helping you source the sites?

I found that development sites are often sold privately before going public? In other words, the sites we see in the public websites are the ones professional developers don't want to touch most of time. As a full time builder/developer, can you share some experience in sourcing the sites?

It's true that agents will call their preferred clients before it hits the market. I buy some sites in this manner from agents that i have a great working relationship with. I guess they prefer to deal with buyers that can and will pull the trigger. I also buy sites that are listed on websites like domain and realestate. I bought a development site at auction over the weekend in fact. So it was up for grabs for anyone. I'm meeting with my architect tomorrow to begin the design process. It will have a profit of close to $500,000. I purchased another development site earlier in the month as well - listed on the website, saw it the day it was listed and wrapped it up day 2. Anyone could have purchased it. Also came with permits with a very nice profit margin.

The better you know your area/s the easier it gets. You will get to know a bad site from a good site. You may also see what others don't which will lead to finding a great site. I generally stick with unit/townhouse development blocks that fit 3-5 dwellings. Much less chance needing any pre-sales, you are in and out quicker and i find buyers of these units/townhouses prefer less rather than more on a block.

In the beginning finding a site is hard work. You need to know the market, what buyers prefer, arranging the town planning permit (DA) successfully, estimate your building costs, your holding costs and determine the end value. The more you do though the easier it gets. Surrounding yourself with people in the game is extremely beneficial too, especially when starting out.

Finding a site isn't hard anymore. I have a few strict rules i follow and a set routine i stick to when researching other areas.

Hope this helps.

Cheers, Oscar

 

[oc1]

Hi Oscar
How did you go at auction, did you pick up that property???

If so, would be interested in the figures etc.

Cheers, MTR

Hi MTR

I was successful picking it upso i am very happy. There were 4 other bidders. It was a looooooong drawn out auction. I was even able to negotiate a longer settlement after the auction was concluded. Nice

The numbers stack up pretty well. Roughly speaking: 4 unit development, land and construction, demolition, planning fees etc plus interest around $1,050,000. End value around the $1.5mil mark. If i keep all 4 and rent, the rental return would be around 7%.

I can put up more details if you wish, plans etc once they are drawn up.

Cheers, Oscar

 

[anson_he]

Hi OC1,

How did you negotiate a longer settlement term after the auction concluded? I though you would have to do it with the owner before the auction started.

 

[MTR]

Hi MTR

I was successful picking it upso i am very happy. There were 4 other bidders. It was a looooooong drawn out auction. I was even able to negotiate a longer settlement after the auction was concluded. Nice

The numbers stack up pretty well. Roughly speaking: 4 unit development, land and construction, demolition, planning fees etc plus interest around $1,050,000. End value around the $1.5mil mark. If i keep all 4 and rent, the rental return would be around 7%.

I can put up more details if you wish, plans etc once they are drawn up.

Cheers, Oscar

That is a great return.
Would like more details on this if you don't mind sharing, where in Melb is this property??

MTR