Perth.... What next??? develop, buy, hold for a while

[Cruskits]

Hi all,

Like other people on this forum I have been reading for a while and now would like to contribute and see what others think of my situation.

I have been in property for a few years now and am seeking a bit of advice on what to do next.

I earn 100,000

mrs earns 85,000 (prob having children in 2-3 years fingers crossed) so count that out

(we are both teachers)

30,000 in tax back annual

50,000 in rental return after management fees annual

88,000 in mortgage annual

10,000 in the bank and growing by 4,000 a month

i live in a government subsidised house (geha) in the north

I have;

1 x northbridge unit conservative value at $320,000 mortgage of $173,000

1x north perth unit value $265,000 mortgage $160,000

1x scarborough house (693sqm - triplex block) valued $829,000 mortgage of $698,000

1x loan of $55,000 i drew off north perth to buy scarborough.

The owner of next door scarborough is wanting to sell and it has a 4x1 house and a fully self contained 1x1 on the back divided buy a fence that also runs down the side of the house (would get good rent return for both)

I am keen to pursue this and I will talk to my mortgage broker, however I do not think I will ever be in a position to build 6 on combined site (finding the money) so maybe look for investing opportunities elsewhere and work towards building 3 on scarb one day????

has anyone reading this ever built 3 houses on a triplex block?? what kind of money does the bank want to see before you can proceed??

thankyou in advance for any feedback

 

[westminster]

If you can get a good price on your neighbours house then I would buy. You don't have to develop the 6 at once but you can then do a design/plan around 6 which share driveway etc which will make a nice development.

You could stagger the development providing there is enough room to build around one of the house, i.e. demolish one house and build 3 and the shared driveway. Then when you sell one of those or rent them out you demolish the other house and join into the development

 

[Kent Cliffe]

The best way to look at this equation is by weighing up the positives and negatives.

Positives

• You secure a site and add an additional (approx)19sqm to the site of each of the 6 town houses/villas because you save on a second drive way. Have a chat to a designer and see what tangible improvement you can make on the design and how much $$$ will this add to your additional re-sale. If for example you can only fit a 3 bed 2 bath on the site and with the additional 19sqm you can fit a 4 bed 2 bath - this is probably worth it.
• Granny flats aren't yet legal to split lease yet, but in the future they might be - so this helps to boost yield.
• If you can build all 6 at once, you'll be able to save a bit extra on construction cost per/sqm

Negatives

• All your eggs in once basket and Scarborough is quite a volatile market due to their being lots of supply.
• There could be better development opportunities elsewhere.
• The seller might want a premium because you're there neighbour. Yes, I've heard some neighbours believe selling a development site to the guy next door gives them a sense of entitlement that they should have some of the profits from the development too.
• You aren't actually boosting the amount of blocks you can subdivide.

If you are looking to hold, it would be best to keep the development funding on the residential side of lending. As you will be paying a lower interest rate than commercial lending. If so, you'll have to kick in 20% of the cost of construction + soft costs (DA, Designer, Engineers, Water corp, site works, retaining, etc...) + interest costs. This can vary a from bank to bank and you'll site have to have 20% in the land.

The only problem I see is that in the construction faze at max draw down (when the project is 90% complete) due to the fact you aren't getting rent on the project many banks will knock you back because you won't service for the debt.

The commercial lending channel will give you more flexibility (and especially private money). I've seen some Gross Realisation Lending coming back (inclusive of soft costs) but you'll be paying a much higher rate. Gross Realisation Lending is when they lend to you based on the end value of the project. This is much higher risk and you should always have a buffer or solid exit plan with this lending.

This is all just general advice from working with previous clients but the best way get advice for your situation is to speak with one of the brokers that frequent this forum.