Opinion on Metropole
- Thread starter preacher_naric
- Start date
Smooth marketers
Please excuse a quick off topic comment. It surprises me to see advertising in the current Perth newspapers for new high rise residential apartments promoting the booming conditions and strong capital growth prospects (in the short & medium term).
Please excuse a quick off topic comment. It surprises me to see advertising in the current Perth newspapers for new high rise residential apartments promoting the booming conditions and strong capital growth prospects (in the short & medium term).
Isn't that what all the engineering companies are doing around Perth?
On massive projects. Some go over budget by billions of dollars.
They are supposed to manage the project & the risks. Yet the owners wear some horrible costs...
Extending that idea.
The engineering companies ATM build in (large) fees and/or extra hourly amounts (just for profits). That is, extra to the actual costs of labour & expenses.
So, say there are 500 to 1,000 persons working with the project management company/engineer, the company might be earning $x fee (profit) for every hour for every person.
If something goes wrong and it takes them another so many thousand hours to overcome that problem, the owner will be paying for all the extra costs and all the extra fees - depending on how the contract is set up.
If not, they won't take on the work. Why would they?
If owners' don't like it, they can have a go themselves... And they have gone out of that business model. Not so many years ago some of the big mining companies had in-house engineering offices to do the work: not any more.
The engineering companies ATM build in (large) fees and/or extra hourly amounts (just for profits). That is, extra to the actual costs of labour & expenses.
So, say there are 500 to 1,000 persons working with the project management company/engineer, the company might be earning $x fee (profit) for every hour for every person.
If something goes wrong and it takes them another so many thousand hours to overcome that problem, the owner will be paying for all the extra costs and all the extra fees - depending on how the contract is set up.
If not, they won't take on the work. Why would they?
If owners' don't like it, they can have a go themselves... And they have gone out of that business model. Not so many years ago some of the big mining companies had in-house engineering offices to do the work: not any more.
I think a cream brick 60s home in Mulgrave would have been a far better purchase. Actually buying just about any single family home on a block of land serviced with public transport would have been a better choice ( even doing nothing would have been 1000% better).
The biggest mistake I believe I made was not pulling the plug when the soil tests indicated problems, and if I had pulled I think I could have escaped with a $10K loss and a good lesson.
BTW The value of tear down homes in Chelsea, Paterson Lakes have also increased from $250K to $400K+ in the same time , so the land is worth more. The cost of building development in Melbourne has also increased as dramatically. Pity the unit I still own hasnt reflected that increased costs.
Interesting to note Petes comment about the architect who might project manage a development was thinking about developing my single home IP in Elsternwick, the architect suggested cost to develop into 2*two story 3 BR units was quoted at 1.1M for the construction alone. After getting up off the floor the architect suggested he could be my "partner"...which means I give up 1/2 my land and some cash and he keeps one of the two units! ...I take all the risk, provide most of the capital and it appears I give up 1/2 the value of the end result! So that is some project management fee!...needless to say I politely declined!
Hi AL,
You are just adding to my opinion that the Jan Somers way of buy and hold when you can afford it, is best.
What have you been up to in the last couple of years?? or did the missus pull the plug put the kybosh on the investment thingy for a while???
We sold a couple of IP's late last year, shot a dog and took profit on the other one. I'm currently cashed up and looking for opportunities.
bye
You are just adding to my opinion that the Jan Somers way of buy and hold when you can afford it, is best.
What have you been up to in the last couple of years?? or did the missus pull the plug put the kybosh on the investment thingy for a while???
We sold a couple of IP's late last year, shot a dog and took profit on the other one. I'm currently cashed up and looking for opportunities.
bye
Cheers for the update, and look forward to hearing more (like perhaps you getting back in the investing game)
Have you ever dabbled in development Bill.L?
Hi stumunro,
No I haven't dabbled into development. However we have a property on a large block which would lend itself that way. We decided to renovate the existing house.
I'm sure for people involved in the building game as well as others that have the time to be fully involved, it can be quite profitable.
My opinion is that it comes closer to the 'job' category rather than the 'investment' category and examples like the experience of AlwaysLearning are evidence.
bye
No I haven't dabbled into development. However we have a property on a large block which would lend itself that way. We decided to renovate the existing house.
I'm sure for people involved in the building game as well as others that have the time to be fully involved, it can be quite profitable.
My opinion is that it comes closer to the 'job' category rather than the 'investment' category and examples like the experience of AlwaysLearning are evidence.
bye
I'm tending to lean along those lines too, like perhaps the energy and funds can be put to better use (like purchasing another property)
Thanks
Yeah I second that ... it's been too long mate !
I would agree that development is a different kettle of fish indeed. It IS more stressful (at least for me) and you are gambling on a future market (end value, interest rate climate and rents). I was relatively lucky in that my end values were higher than aticipated as were the rents but I had not anticipated the subprime / credit crucnch and that has hurt some.
I will build again but I doubt as a profit venture. Personally I agree with SC than I can make much more money (with far les work and stress) timing the market.
I think I made 50% of the money I made on my entire development in about one third of the time on a single property in inner Melbourne bought at the right time of the market. Ironically it was an emotional / lifestyle purchase and I was not focusing on profit at all.
I will build again but I doubt as a profit venture. Personally I agree with SC than I can make much more money (with far les work and stress) timing the market.
I think I made 50% of the money I made on my entire development in about one third of the time on a single property in inner Melbourne bought at the right time of the market. Ironically it was an emotional / lifestyle purchase and I was not focusing on profit at all.
GOAnna, would be interested to hear what part of the development was stressful. Financing, the unknown future market, the builders, other?
That's exactly my view too.
I have no real interest in developing, but might still purchase 'developable' properties. Not even keen to renovate after my first external painting experience!
Well-timed passive CG is much easier, though some people argue that this is just 'luck'.
Reading the development story of someone like Michael Whyte makes me wonder whether he would have been better off doing this too, rather than go through the dramas of developing...
Why not do both?
Kieran Trass rightly argues that development should occur at the beginning of the boom so that you're building into a rising market. Development is really just an extreme use of leverage and as such amplifies the risks/rewards. But, if the market is rising then the returns are enormous.
For example, my IP is worth $850K today and if developed into 3 units has a gross realisation of $2.6M. Because the banks will lend against the GR, I can really push my leverage boundaries by developing this site. With only $125K of my own money in the game as deposit on the site, I stand to "buy" a property worth $2.6M and pay only $2M for it being my development costs. I buy $600K of instant equity which improves my yield to the point that I can hold this monster with a minimum of cash in the game. In fact, that cash is actually an LOC so its all borrowed money.
The wealth creation potential is enormous. There's lots of ways to mitigate against the risk such as fixed price contracts with over-stated prime costs, or with professional project managers and quantity surveyors to signoff on all progress payments. Another way is to time your build so that you're doing so in a rising market.
I personally believe that the Northern Beaches of Sydney where my IP exists will outperform over the long term. The reason I'm holding off on developing my site for now is as a risk mitigation strategy. When I walk around on the weekends and talk to REAs they all suggest the properties like mine are selling well to cashed up Baby Boomers coming in from Palm Beach and Church Point with their yap yap dogs under their arms. 3 bedrooms with a high level of finish and you'll easily achieve $850K+. So, if my development were complete TODAY then I'd be in great shape. Unfortunately, I'm not certain of the market in 9 months time so are taking the risk averse approach of waiting for a while.
I'm keen to get on with it, but don't want to bet my future on risks that I have the means to mitigate against. It will come to me in time. I read here recently: success is a result of the decisions you make not the risks you take. I agree completely.
Cheers,
Michael.
I was doing both. I missed opportunities because I was tied up in the development. Had I invested the same money into purely buy and hold (and trade if I wished) I would have made far far more money. This is my own personal expereince and much of it comes down to timing etc. I was sitting on land work $300K at the beginning of the development and ended up with 6 townhouses worth $2.5 plus. Nice profit and great rent BUT I came out in high interest rate environment with no option to fix when I wanted to and I also missed the opportunity to play more heavily in the mini Melbourne boom last year as my money was tied up in a development that had dragged on past its due date with rising commercial interest rates to pay before the rent finally kicked in.
And my development would be seen as a success overall. I did not experience that same marriage stress or poor market at completion that others did. But I am cured now and will leave that game for others to play.
I guess it comes down to it in many aspects being out of my control. I am reliant on others to produce the product I want in the time frame I want. Throw councils into the mix.
Plus two pre schoolers And then watching the interest rates rise and the project turn from positive to negative and without being able to do much was frustrating, stressful and costly. BTW I kept my properties which is a different scenario from selling. If I sold down some / all I would get rid of much of my financial stress but if I did that I may as well have been trading in Melbourne. Less work. Less stress. More profit.If you bought $2M of of well selected and located property in inner Melbourne in 2005, it could be worth as much as $3.5-$4M today...all passive CG, with no development. AND, a rental boom to go with it too.
My honest view is that you're putting a lot of time and money on the line for a relatively small equity gain that is 'guaranteed'...
Except that I can't afford to buy $2M worth of completed properties with only $125K down. Also, I get the yield on $2.6M worth of property having only paid $2M for them.
I do understand where you're coming from though, and I think once this ones done that I might diversify a bit and look at buying a lot more higher yielding lower price point properties in identified growth corridors. Just seems to make more sense. But so far this development has been fairly low stress despite what the thread reads like. And the build process should be relatively low stress too. We've done that all before, but time will tell.
Put simply though, buying this IP in Sydney will realise me a $500K odd profit. That's much better than doing nothing and definately much better than buying a passive buy-and-hold in the same postcode over the same timeframe. I'm happy with that. If I change my strategy and start buying outside my local area of knowledge to time the hot markets then I take on a different sort of risk. There's many different strategies and some are better suited than others depending on your personality and style as an investor.
Cheers,
Michael.
