Our first development site!!

[Land]

I have been lurking around these pages since mid-last year, but thought that I might finally add our own story to the forum.

My wife and I married last October and have spent the last 3 years saving enough to get into our first development site. I brought one existing humble IP in the Blue Mountains into the relationship, but we have plans to not only buy more IPs, but to develop them instead. We are both town planners, which is a job which is a lot like being between a rock and a hard place, and want out of the 9 to 5 as soon as possible. We love spending time with each other *awwww*, and travelling, so it makes sense for us to focus on how to get out of the rat race. Life is waaaaaay to short to spend behind a desk.

Anyway, our plan is to do 3 dual occupancy developments from 2008-2010 (one per year), buy another development site but with a rentable house at the beginning of 2011, put a tenant in it then head off to Europe in 2011 with some of the equity, return in 2012 and develop the fourth dual occ. By then hoping that Sydney will really start to kick off by about 2010 after a long 7 years of flat, and create enough equity to start living off equity and being retired from the desk job for good upon our return from Europe. Obviously will continue on with developing.

Well.....we have finally acquired our first development site from the Department of Housing, they went to auction on 22 December 2008 and not surprisingly it didn't sell. We saw it on 5 January and put in an immediate offer, and we settle in mid March!!!! yayayaya

Our plans are progressing well and we should have a DA in Council next week which I expect to go very smoothly, because the entire proposal complies with each and every Council control for that form of development.

Next step will be getting a fixed price contract and construction finance and then we're full steam ahead with construction, prior to subdividing late in the year, re-valuing and then doing it all again at the beginning of 2009.

Will keep you all posted on the progress.

Thanks to many of you here who have inspired us, and Michael Whyte in particular has provided a lot of inspiration. Kudos to you Michael.

Cheers!!

 

[House_Keeper]

Thanks for sharing your story.

Looking forward to the updates.

Cheers,

 

[pi2012]

Hi Land.
We are doing a similar project here in Melbourne. Infact, got a meeting with architect today and meeting council next week just a preliminary thing.
Good Luck and keep posting

 

[MichaelW]

Congratulations Land!

Sounds like a great plan!! Please do keep us posted with all your updates as you go along. I'm very interested in your progress as I'm sure others are too...

Well done!

Michael

 

[lizzie]

congrats and welcome to the club ...

 

[boods99]

Well done mate...
Sound like you have a plan and a realistic goal...two very importand things!

Good Luck with it all

Boods

 

[steveadl]

Congrats Land, I'm excited for you! Hope to join you in the development ranks one of these days!

 

[Dazz]

Hi Land,

Nice nick. Don't know why that one hasn't been taken prior. Welcome and thanks for your story.

focus on how to get out of the rat race. Life is waaaaaay to short to spend behind a desk.

Amen to that...in principle. Do you think you'll change your mind though when you get to such a position, given the amount of investing and business you'll have going by then ??

Most people at station 1 say when they get to station 3, they can kick back and relax and live the high life. In contrast, the people at station 3 are busily beavering away now they have a bit behind them. I also see people at station 6 and 7 and they are passionately working every day, aiming for station 9.

Nirvana for humans always seems to be about 2 stations about where you are right now.

You'd be a very rare creature indeed to shoot for station 3, achieve it, and not yearn to keep moving forward to station 4.

Anyway, our plan is to ....... create enough equity to start living off equity and being retired from the desk job for good upon our return from Europe. Obviously will continue on with developing.

Sounds good. I'd be interested to know how you arrived at the figures behind the "enough". How much is enough ??

 

[Land]

G'day Dazzling,

By the way, glad you decided to hang around the forum, I particularly enjoyed your last post about LOE.

As far as our figures are concerned, each dual occ when finished in today's value will be worth basically $1M. My very rough basis, and this very much depends on how the Sydney market moves in the coming 5 years, is on having four dual occs, so $4M worth, and having them double in value, giving us $4M in equity, of which we can access 80% (i.e. $3.2M with no-doc loan - yes, I know at a higher interest rate).

We live quite a simple life so we can actually get by on about $50K a year, but factoring in a more conservative requirement for $100K a year (the properties are likely to be just marginally negatively geared - although that may change given the rising rents we're experiencing - which may require a small amount of capitalising), that gives us 32 years worth of equity, during which time I think we can expect some more price rises to fund LOE once again.

Of course, I don't know how the market will perform, but I know I can get four dual occs done only using the equity generated from each previous development, and I know I can comfortably handle the negative gearing (even with further interest rate rises), so it just depends on when and how the market moves as to when we can quit the day job.

I agree about the 'stations' analogy. I guess this is really 'phase one' of the plan, and we will take stock again at the completion of phase one (as well as doing some more travelling around Oz - probably get a nice caravan and 4wd and join the 'grey nomads' for a time), and move onto 'phase 2'. Your commercial work has certainly got me interested so keeping an eye on that.

Some people think that living on equity is risky, and capitalising is risky, but people every day buy boats and cars etc with it, whereas I'm really interested in buying time with it. Provided I have at least a 10 year buffer, I am very comfortable with it.

Also, it's worth realising that if we take ven just 1 year off from a day job, it would normally take 12 years of working life to accumulate 12 months of leave. I don't know what the future holds and how may years I have in this world, so I intend to make the most of them with the one I love.

 

[Dazz]

Sounds like a plan Land.

With your stated profession, and being surrounded by these DA's constantly, I'm sure the plan will eventuate into something plausible.

Excellent for your ages. I might be following in your footsteps soon regarding developing something.

Good luck mate.

 

[lizzie]

I might be following in your footsteps soon regarding developing something.

.................... sorry, just fell off my chair

 

[asdf]

Congrats Land. Very ballsy to be taking on a DA now. Kudos to you. Whats the rental returns like for your site in Syd if you can't shift em or tap the equity? Now that no doc loans are expensive with much lowered LVR compared to say 12 months ago. 5% rent coming in, 10% expenses going out, maybe 7% capital growth pa. 2% is not much fat to be sustainable. Sorry mate, I should be more of an optimist...

 

[Land]

Hi Lizzie,

Why did you nearly fall off your chair with the idea of Dazzling developing? I'm a little confused. I understand Dazzling has done really well with some commercial/industrial property, so I'm guessing he's thinking about developing some of those sites.

In my early years, I used to work for Campbelltown Council and I approved countless factory unit developments in new release areas, and they're actually a really simple form of development, provided the site doesn't need to be remediated. I'm thinking of investigating this form of development down the track, they go up so fast these days with the concrete tilt panels.

Dazzling - care to share?

 

[Land]

G'day ASDF,

The rental return will be about 6.5% on our costs (obviously because we are developing them, our costs are much lower), and the first two will be on full doc loans, so still on reasonable interest rates, by the time we get to the third and fourth, I'm not too worried about them being slightly negative because I will have equity buffers and also because we are DINKS so we can handle it the shortfall.

There's no reason why we can't tap into the equity - it's just a question of at which interest rate.

In terms of growth, I have a reasonable expectation that Sydney will take off at around about 2010, and should line up with a turn around in the interest rate cycle, combined with the massive shortfall in supply and after 7 years of flat, I think it's a reasonable expectation that we will be entering the growth part of the cycle with significant capital gains occuring over a short number of years, as has happened in the previous cycles for quite a number of decades back. I don't know the exact timing, but the fundamentals are there and it will just need a catalyst I believe. So we should build a lot of equity in a fairly short period of time.

And besides all that, I reckon that life's too short to sit on the side-lines, I'd rather be in the main game having a crack at it, and besides, what's the alternative? Work for another 36 years before I retire? Not for me. So long as the down side is covered, which our's is, then may as well have a shot.

Life's short - invest hard!! (hehehe...I like that one).

 

[asdf]

Life's short - invest hard!! (hehehe...I like that one).

Yeah I like it too. But worth noting guys holding DA for sites out at Blacktown have lost money in the last 5 years after you factor in holding costs. But if I had a 1000m2 site on say Manly Esplanade zoned mixed then I'd be developing the cra* out of it without even baulking at the cost. The sought after parts of Syd have already experienced 25% growth in the last 18 months. The others have languished dismally and will probably remain so in the forseeable future unless us NSWmen can head straight out to the mines & rigs to pull in $150k with little or no training. The rest of us unfortunate folks will have to stick with the 9-5 grind and wait for CPI to increase our serviceability.

 

[Land]

I agree that if some of the developers bought sites at the top of the market in 2003, they'd be hurting pretty bad right now. My first IP in the Blue Mountains is definitely worth less than what I paid in 2004.

However, if someone is buying now, like we are, then it all works out ok - provided you can handle the negative gearing, of which there isn't much anyway because of the dramatically improving rental yeild. I would even be buying in Blacktown right now and deveoping if I had the resources, because the yields are making it very easy to hold until some CG starts to occur.

Also, the longer the market stays flat, the more developments we can do therefore increasing our exposure to the market when it does finally take off. I'm hoping to dramatically increase our exposure over the next 3 years, and then enjoy the next boom which should set us up for leaving the 9 to 5.

 

[MichaelW]

Also, the longer the market stays flat, the more developments we can do therefore increasing our exposure to the market when it does finally take off. I'm hoping to dramatically increase our exposure over the next 3 years, and then enjoy the next boom which should set us up for leaving the 9 to 5.

Land,

I like that concept. My original thoughts were similar: develop Mona Vale, create equity, use it to go again and do all this BEFORE Sydney booms. But now my cashflow is a tad too tight so I'm locking it down by getting my Section 221D form in, and locking my current interest rate at 7.95% pa on the Bankwest teaser rate for 12 months. Once I'm back comfortably in the black I can re-assess the start timing for Mona Vale.

Investing is all about cashflow IMHO. For me, the stock market through me a curve ball and I'm adjusting my situation accordingly. Hopefully it will be all back in shape shortly and I can reconsider the start timeline on Mona Vale.

But even if I hold off for a bit and only have Mona Vale and my Nth Narra PPOR when Sydney goes, that's still $3.5M in property at today's value so a nice little boom wouldn't do me any harm... Might even be enough to get me out of the rat race too!

Great work mate, and please do keep posting your achievements. Its good to hear from the other small time developers like me on how you're all going. Keeps me motivated to keep going myself.

Cheers,
Michael

 

[MichaelW]

But if I had a 1000m2 site on say Manly Esplanade zoned mixed then I'd be developing the cra* out of it without even baulking at the cost. The sought after parts of Syd have already experienced 25% growth in the last 18 months.

Like every other developer in Manly is doing right now! Manly has gone absolutely crazy. I'll try and track down the exact number, but unit developments that have just commenced or are about to commence in Manly are phenomenal. Easily in the hundreds, and mid hundreds from memory.

Makes me think that Mona Vale might be a good prospect soon too...

I like the North side...:

http://www.smh.com.au/articles/2003/08/01/1059480551297.html
http://www.realestate.com.au/review/nov072/manly.html

Cheers,
Michael

 

[asdf]

For me, the stock market through me a curve ball and I'm adjusting my situation accordingly.

Was it the Navra fund you got a belting at. Heard its around $0.98 NAV or long financials through this "mini crisis". Maybe you can take comfort that theres a lot of folks in a lot worser position. Think long term... sorry words somehow doesn't ease the pain does it?

 

[Dazz]

Hi Lizzie,

Why did you nearly fall off your chair with the idea of Dazzling developing? I'm a little confused. I understand Dazzling has done really well with some commercial/industrial property, so I'm guessing he's thinking about developing some of those sites.

I'm a little confused as well Lizzie ?? Did one of the legs break ?? Why did you fall off your chair....

Now that we have acquired the sites and have tenants currently occupying rusty ol' sheds paying us a +CF stream....we'd like to up the returns somewhat.

Best thing to do we reckon to occupy our time whilst avoiding continuing to pay through the nose for over inflated sites.