Our first development site!!

[MichaelW]

Of course, it would only take a rental increase of $40 on each unit (approx 5% increase), to bring the shortfall down the the current $30K shortfall that you have. I don't think it's too much of a stretch to imagine the rents going up 5%, if not more!

Hi Land,

Math there not quite right...

Current market rent appraisal is $830 per week or $129,480 pa for all three.

The shortfall as stated already is $37,248 at current 8.5% interest rates on $1,961,500 total borrowings completed.

To bridge that shortfall I'd need an additional $238.77 per week in rent ($37,248 / 52 / 3). That equates to a 29% increase in rent from today's appraisal.

Whilst 30% is not out of the question, I'm waiting until some of that is bridged in the market already before I commit to building it. I'd like to start building knowing that when complete I'd be neutral cash flow on it or better. Admittedly, if the market turns growth oriented in the interim, then I'll happily start building even if its marginally negative. When I allow the $50K non-cash deduction then the actual holding cost is really achievable. But, if vacancies occur, or project delays happen then there is still some serious risk of cost blowout or servicability problems.

It looks good, but I'm letting the market improve a little more before I get going on it.

Thanks for the excellent post mate,
Michael.

 

[Land]

No worries..

No worries Michael, I have a keen interest in your situation as I feel it is similar in some ways to mine and I agree a lot with your approach to investing etc.

Just to clarify, I meant that rents would only need to increase by 5% to match your existing shortfall of about 30K.

If that happened, your holding costs would be exactly the same (although not sure if your figures including depreciation or not for the purposes of this exercise), but your exposure would be nearly 3 times as much into a growing Sydney market.

But, I agree that there is no harm really in waiting and consolidating your position - I'd just hate to see you sell it - especially before I could buy it off you!! hehehe

PS. I know it's actually none of my business whatsoever if you sell or not, and I'm not the one in your shoes, so please don't take my interest as being rude or to forthright.

 

[Land]

Approved!!!!!!

Today is a great day - we got DEVELOPMENT CONSENT!!!

Wow, what a fantastic feeling. It took 2 months, which is twice what I was hoping for, but still incredibly fast!!! Even though there's still a hard slog ahead of us, it's such a relief to secure consent because from now on we have certainty that we can put a dual occ on this block we've bought with a dilapidated house on it.

Just put in application for preliminary construction finance approval, and sending off plans to a number of builders for fixed price estimate. The original builder we were going to go with came in at $50K more than he'd been saying for more than 6 months now - not impressed with his lack of consistency. Will just have to see what the others come up as.....

Will enjoy a nice drink tonight!! We're on our way.

 

[steveadl]

Congrats Land, must be a great feeling! I'll be following your updates eagerly!

 

[stumunro]

Today is a great day - we got DEVELOPMENT CONSENT!!!

Wow, what a fantastic feeling. It took 2 months, which is twice what I was hoping for, but still incredibly fast!!! Even though there's still a hard slog ahead of us, it's such a relief to secure consent because from now on we have certainty that we can put a dual occ on this block we've bought with a dilapidated house on it.

Just put in application for preliminary construction finance approval, and sending off plans to a number of builders for fixed price estimate. The original builder we were going to go with came in at $50K more than he'd been saying for more than 6 months now - not impressed with his lack of consistency. Will just have to see what the others come up as.....

Will enjoy a nice drink tonight!! We're on our way.

Congrats matey!! look forward to hearing more!

was there much red tape trying to get DA consent?

 

[aaarghhh]

Today is a great day - we got DEVELOPMENT CONSENT!!!
The original builder we were going to go with came in at $50K more than he'd been saying for more than 6 months now - not impressed with his lack of consistency.

Congrats on the consent

Have construction costs escalated that much in six months? The builder may be fair dinkum.

petrol costs have increased.
suppliers will be passing this on the enduser.

Aaron

 

[Land]

Thanks for the feedback

Thanks to everyone for the congrats.

Well, there wasn't really too much redtape. I actually used to be a town planner at the Council where we lodged it, and didn't expect any problems (if I was assessing what we submitted, I would have approved it), but the planner assessing it was young and being particularly picky about some stupid things. In the end, it was easier, quicker and therefore cheaper to just amend the plans and get our consent. It will be quicker next year on our next project because I will lodge an identical design.

The builder's price hasn't gone up in 6 months, he saw a complete set of the plans 1 month ago and was still telling me it would come under our budget, but then when we get his formal estimate it was 50K more! He said that the stormwater design was more complicated than he had anticipated, but that doesn't cost 50K more for a simple dual occ in my opinion.......

Given the lack of business around for builders at the moment (i.e Beachwood homes closing down), I'm expecting some competitive quotes.....

 

[FinFreedom]

Well done and good luck with the next phase Land!!

Fin.

 

[MichaelW]

Given the lack of business around for builders at the moment (i.e Beachwood homes closing down), I'm expecting some competitive quotes.....

Good luck mate, and I hope you're right!

I've been watching the cost of construction moving up and wondering what impact this will have on my current $1.2M build cost estimate. Obviously, if it comes in over that then my GR is reduced and my end holding cost increased. I work in the steel industry so I know first-hand what is happening to domestic steel prices, ouch! I think this is flowing through to the construction industry and is hurting.

Time will tell I guess. All we need is a little recession for it to all turn around and go the other way for a while...

Keep posting your updates, its exciting reading!!

Cheers,
Michael.

 

[monster24]

hey land,

great story and I like your approach. We are ourself close to handover of our first mini-development IP project ...a nice house on 1/2 acre block ...and tenants are already queing up to get in there ...! Only paid $290K total and the house next door is on the market for $497K... Jipee ! Building process was kind of slow (7 months) and we wish we had a tenant in there in beween to cover the costs.

Wish you fun in Europe ...we are from Germany but love the Queensland climate and lifestyle ...

Cheers
Thomas

 

[steveadl]

Wish you fun in Europe ...we are from Germany but love the Queensland climate and lifestyle ...

So did my uncle and aunty when they used to come and visit. Were here for 3 weeks at a time, and spent all day every day lying by our pool. Kept asking them "aren't you sick of it yet?"

 

[investwest]

How exciting, keep us up to date.

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!!

That's brilliant, I love hearing about people who have been scared to take the plunge, and then finally jump, as we are in the same position.

 

[Land]

Progress - slowly....

Hi all!!

Sorry for my lack of posting, but progress has been quite slow so there wasn't too much to report.

After getting a proper quote from the first builder which was 50K more than he had originally mentioned, we got 3 other quotes to see how what other options there were, and guess what?! The original builder was the cheapest!! I didn't tell him that though. Some of the quotes were incredibly high which surprised us.

So, we're going with the first builder now, which is good because we had built somewhat of a relationship with him.

We have now obtained our Construction Certificate (yayaya!!), and preliminary finance approval, and we signed the full contract with the builder on Saturday and I've posted that off to the broker yesterday to obtain full finance approval. That should take 1-2 weeks.

The most exciting thing is that we've got a date for demolition of the old house on the block: 15 August 2008!! yayaya The bad news is that construction is going to extend over Christmas, so we'll be paying interest for a month with no progress.

We're seeing the accountant on Friday for our tax, and he tells me that because we'll be keeping the dual occ for rental when it's finished, we can claim all the interest costs as we go along! So we can claim the last 3 months of interest in 07/08 tax year, and we'll also be setting up another 221D for the wife and I, and should start getting some massive tax back in our fortnightly pay because everythings a loss at the moment because obviously there's no rental income until probably about next February when we put tenants in the completed develpment.

Things We have Learnt
The things I have learnt so far is that pretty much everything takes double the time you think it will. It's taken us about 6.5 months to get from exchange on the property to demolition and getting on with construction, and it would have been far better to have a tenant in the existing house whilst we are doing all of this to help with cahsflow and take out some of the urgency.

There are a lot more tiny little costs that pop up, $1000 here and $1500 there, so it's very important to have some significant cash reserves in place. Also, the amount of paperwork is staggering!!

The other thing that we have decided is to alter our strategy slightly, instead of buying a few more sites to develop, we're going to buy about 3 high yeild apartments next year when we finish this project, maybe in Pyrmont (6-6.5% yeild achievable) and have a breather in between projects, because they are actually quite tiring - that's what we're finding anyway, but part of that might be because we're constantly pushing forrward because we don't have the luxury of a tenant in the existing house bringing cash in. Will definitely do more in the future, but there's a lot of effort to gain a 20% discount in comparison to just going out and buying a couple of investments retail.

We're also thinking of going to Europe for 2 years now instead of 1, and working in the UK again (I worked there in 2003), so we don't want to load up with too much negative gearing, because it doesn't work so well when you're not paying tax in Australia! Hence the desire to balance the portfolio up with some higher yeilding investments. We might actually live in one of the dual occs when we come home from OS, which has the nice benefit of making it our PPOR and taking away the CGT liability.

Anyway, that's the news for now, I can't actually imagine how cool it's gonna be to see the demolition and in particular the slab go down - can't wait!!!!

 

[MichaelW]

Hi Land,

Thanks for the update! Sounds like you're going great guns. The idea of balancing the portfolio with some high yielding stock is something I'm considering in the next year or so too. And I guess I'm lucky in that I have a tennant in place in my development site to help with the holding costs.

We still plan to develop Mona Vale and are just waiting for my wife to start back at work in the next month or so to give us a bit more of a cash flow buffer to allow for those little surprises.

Cheers,
Michael

 

[ILoveProperty]

Well done!
Very much looking forward to the photos...

 

[want2bewealthy]

Congrats Land!
Great to hear.

 

[Land]

Thanks guys,

yeah, I'll have to figure out how to post photos on here sooner or later and get them going. It's always interesting seeing other people's pics so I should get around to it.

Michael - how have you gone with your quotes? I think you said you've got your CC already? Hope the old Section 94 Contributions weren't too steep?

 

[Land]

Pics

Hey guys,

Well, here are some attachments with some photos of the place which we is booked in for demolition on 15 August, and also some floor plans and elevations for the new dual occ.

Hope you find it interesting!

 

[steveadl]

Looks great Land. Mind if I ask the dimensions of the block? Looks similar in size to my dual occupancy block. Always nice to get ideas.

 

[Land]

Hi Steve,

Yeah, it's got a 15.24m frontage (50 foot in the old language) and is 600sqm in size.

Unfortunately, those plans have lost some resolution so I'm not sure if anyone can make out the room configuration for them. The floorplan page shows the first floor at the top and the page and the ground floor at the bottom of the page.

I guess it's a fairly modest development compared to some, but we've tried to make the floor layout to be very useable and I particualrly like the rear living area next to the kitchen as it's got sliding doors which lead out onto a 3m deep tiled patio area with a roof.