property development idea - townhouses

[Cloud]

I am just running a few ideas atm. Would like advice and any comments about the feasability of this idea.

my idea is: to develop a set of townhouses on my block and my neighbours block.

block: 14mx 85m x 2 , able to build around 10 townhouses
area: fairfield, sydney - there are many townhouses//flats in the area and nearby streets.
costs: land is currently around $450k each , ie $900 total
building costs $120 k per townhouse (is this a reasonable
quote?) = 1200 k
other costs: 50000k ( to demolish preexisting houses and selling
costs)
total cost: 1200k + 900k + 50 = 2150 k
market value once built: 10 x $300k = $3000 k

profit: 3000 - 2150 = $850k.

I am just running this idea in my head. Is it reasonable? should i persue it further?

- it is subject to council approval, building costs for townhouses may be higher,
- finances: someone quoted a lender was willing to lend 70% of market value ie 3000k x 70% = $2100 k, which is enough to cover the total cost to build the townhouses ( also as i am developing on my block, there is only $150 k left on the mortgage)

A builder is coming to have a look at the block and I will keep u guys updated. Any comments from any builders or from ppl who have done something like this b4??? thanks heaps

 

[peelsman]

you forgot GST on the sell costs which is offsetable on the build costs. this can kill returns

Get a town plannner, go down to the council and run the idea by them to get the vibe on the HD apartments. You will get a good idea if this is feasable and of additional requirement of the development eg. underground CP's (a show stopper).
depending on the area your build costs may have been a bit light on, check with as many builders as possible. always best to allow for worse case scenario and then add 10% contingency. this will be the money needed to replace hair on head when development underway


HT

 

[Tibor]

Just another point. How quickly will you be able to sell the townhouses? Do you have a plan for it, what is the selling cost (including, marketing, agent cost, GST to ATO, etc).

I would also take into consideration that if I can not sell lets say for over 8 months how much is my interest cost? Will it kill the profits.

I am living in Guildford West (near Fairfield) and have some idea about values and how quickly townhouses going. Your price seems reasonable (maybe even can be increased slightly), but
things have slowed down. Lots of townhouses have been built in the area in the past 3 years and not quite sure how much more the market can absorb.

Good luck with it, but keep in mind you are getting on the bandwagon pretty late in the cycle, so be careful.

Tibor

 

[Cloud]

Thanks for the advice guys. Now, with the gst, so how do i incoorporate that into the feasibility test?

do i have to take away 10% of the market value as gst?

also what happens with finance, if I'm borrowing say 70% of $3 m, how do i pay the interest during development since i am not getting any cash flow? what are the arrangements i can make with the bank?

also, should i consider mezzanine financing to raise funds for the development if i dont have enough (along with selling off the plan)?

The builder didnt come today due to the rainy weather, it turns out hes got projects in mel. as well and will be away for next 3 days.

 

[Rick]

There are quite a few things you have missed there;

In costs - stamp dutys and legals etc (if you are buying the neighbours property)
Holding Costs - these will need to be paid during the development
Approval Costs - These include, legals, town planning, council fees, engineering, architects
Services - Water, sewer, stormwater, underground electricity, new crossovers if you need them
Landscaping
Other costs like concreting and fencing
Contingency Amounts - usually 10% of total cost

Development can be a very profitable path to go down, but there are a lot of hidden costs that people are just not aware of.

 

[Serge]

$120,000 per town house!!!!!!!!!

Have you got your sums right Cloud?

Sounds a bit cheap to me.

 

[Steve25]

You'd be lucky to build 1/2 a townhouse for $120,000.

 

[XBenX]

$120K - $150K is a reasonable estimate

depending on site costs

add $$$ if excavation is req'd or its not a flat/difficult access site

im thinking syd market done to a fairfield standard

speak to someone who has done it in your area

 

[Bazza]

I have just spent all day ringing around builders on the Gold Coast to get an estimate of the cost of two townhouses (two story, common wall, 3 bed, two bath - basic) and they all laughed when I said $120k - 150k each. More like $250k each.

A rough estimate can be calculated @ $870 - 900 per m2. Architects quote ~$1000 per m2. So, for $150k you'll get a 172m2 unit - pretty small if you include a garage.

But, that is Gold Coast pricing.

Cheers,

Bazza

 

[Tibor]

Bazza,

Just above you shire, in Logan, building / renovating people also gone berserk. This is a great time for them, there is plenty of work and they are giving unreal (meaning ridicolously overpriced)
quotes.

Of course, it also requires suckers, who are willing to pay it. As an example, a my (ex) builder mate (last year I gave him about 20K worth work) just 4 weeks ago quoted 51sqm tiling (take up old carpet, get rid of it, supply and install) me at mate's rate for $3800!!!!

I had to ask him to repeat it 3 times, until the penny dropped (I am a bit slow at best of times).

OK, he's lost that job, He also lost ANY work on ANY of my properties in the future (what I have and what I still be buying) by trying to screw me big time (stupid Sydney investor). He also lost ANY positive recommendation (but willing NOT to recommend him) for the future.

I asked my property manager, she got me another bloke who
quoted to do

painting all walls and ceelings in a 2 storey, 2 bedder townhouse for $900

did the same what my ex-mate (at mates rate for $3800) for
$2100

supply and install blinds and curtains for $365

AND

at the end of the day was asking to pay him

$3145 (GST Inclusive)

($220 discount)

Guess who is going to get more work from me in the future and referrals?

Who in the long term has better business sense?

Anyway, while people are willing to pay silly prices (I MUST HAVE TO HAVE IT DONE NOWWW!!!!) the building industry will have a them at their mercy.

When people stop paying silly prices and start deferring projects or shop around, the prices will come down.

Supply and demand.


Just my experience.

Tibor

 

[beech]

hi Bazza,not that small 18.5 sq/172msq.?

Darren

 

[XBenX]

i thought build costs in QLD were cheaper... i have nothing to back this up

it was just my perception

 

[plainsong]

You too Tibor, I thought it must have been me looking silly or something.
Big variation in the prices of the quotes too, that after you wait a week and a half to get the quote in the mail, after you wait a week and a half to get someone to look at the job..some dont
ever show up at all. and I have had some pretty wild prices
quoted too...

Cheers,

 

[Tibor]

Plainsong,

When builder prices (or labor cost) goes too high, hence margin is reduced for developer, and market is reasonable mature, this is when developers (at least smarter ones) just put projects on hold.

I know having a piece of undeveloped land is not the best thing (no income, but non deductible (at least not immediately) servicing cost, BUT the land value will still appreciate and your profit will noy be taken away by too greedy building contractors.
There is a point you can raise the price to cover your cost, after that you will have difficulty to sell.

As an alternative have you thought to get someone semi or retired who would be willing to do the work (maybe some cash component will be required) for a more reasonable cost? Maybe an experienced person close or in retirement would be willing to take on a "one-off" project as they are not interested in regular work. My gut feeling that the quality will also be better as usually these people are proud of the work they do. There is an issue with the building guarantee bit, so you might need someone with licence. Not being in the game I am not fully aware of the requirements, just trying to think outside of the square.

Tibor

 

[plainsong]

Hi Tibor.

Yes when you cant do the work yourself that eats up a lot of money, and I would love a handyman if I could get one..problem is in Bris at least everyone is standing in a que for getting work done, I think there is a renovating virus going around, everyone
seems to be renovating and or building something .And I think
prices are being charged accordingly. Im only renovating my own house so I can wait--

Some big variations though in quotes for the same thing -makes me wonder--


Cheers