Queenslander relocation and residential subdivision

[brendio]

Finally after much consideration and number crunching, my family (mum and brother and sisters) has finally decided on how to develop a property we inherited from the grandparents.

The property is 9105 sqm with a large, lovely old (although in need of a little TLC) highset Queenslander (four bedrooms, plus two sleepouts). The house has some lovely pressed tin ceilings, and was built by my great grandparents probably around the 1920s. The town has since expanded around it. The land takes up half a town block and faces the most distant road (there are old photos around from when there was a long, 100 m or so hedged pathway from road, but I only remember the land being used as a horse paddock for a Shetland pony. The position and orientation of the house is not ideal for splitting the land up into allotments and would leave the old house looking a little out of place.

So, the plan is to lower the house, turn it 90 degrees to face the side road and move it to a corner block and renovate it to restore its former glory. This will be mum's project. She plans to build a separate double bay shed and put a deck on the back.

The remaining land we plan to subdivide into 8 allotments. I have been assigned to project manage this part. Thus, I am coming out of lurking on Somersoft to start this thread to share my experiences and dramas that will inevitably crop up along the way, to draw on your vast wealth of knowledge and experience in property matters and hopefully to inform anyone undertaking similar projects.

I am meeting with a town planner from council tomorrow, as well as a surveyor. After many years, the ball is now rolling.

Stay tuned for updates.

Meanwhile, any tips from people who have completed similar subdivisions of relocated houses would be much appreciated.

 

[Rockstar]

Good luck with the project brendio. You are wise to be engaging the Town Planner to help you along.
How is the land owned between you all? Sounds like this aspect requires careful consideration to avoid unnecessary SD and legal costs?

Thanks for sharing, RS

 

[brendio]

Mum owns a third, and us four kids own one sixth each. The plan at this stage is to transfer the property into a joint trust structure at current market value. We will have to pay stamp duty on this, but should avoid capital gains tax for the 10 years or so since grandma died, since we have each at some stage had it as a PPOR (It will mean some siblings will not be able to claim PPOR on the houses they are currently in, but it should work out better in any case). It helps that the brother is an accountant, so he can give advice on the financial structure for the development.

 

[Rockstar]

I would be posting a thread up in the accounting and tax section mate. If you do, please link it into this thread as I don't peep in there too often. Seems like a lot of transferring to do which means dollars to pay to SD office. What will be the final split in ownership?

 

[brendio]

Well, it means we are paying around $20-25k in stamp duty on the way into the trust, but it will save around $45-$50k in CGT if we do the development in our own names, because once subdivide we are classed as carrying on the business of developing property rather than mere realisation of an asset, so we would no longer be eligible for the CGT exemption on a PPOR.

I might still post in the other section, but I've done quite a bit (too much?) of reading of the ATO website and elsewhere, and the above is my (and my brother's) understanding of the situation.

 

[brendio]

Update

Well, we had a few meetings today.

First up, we spoke to a town planner at council to get some more general info about the whole procedure. I feel I am getting to know all the different terminology better now and hearing it a few times. It will be a pretty straight forward subdivision in terms of approval, the main issues will be infrastructure related. Our block slopes slightly towards the blocks at the back, so they will either have to be raised or interallotment drainage will need to be installed at the rear of the blocks and the engineers will need to check that the storm water system will be able to cope with the increased runoff. The other issue is sewerage. The sewer main runs through the backyards of the properties at the rear so we will need to propose how we are going to hook into that. One of the neighbours even has a shed built on top of the sewer pipe where our house hooks into it as was discovered a number of years ago when we were having sewer problems.

We will need to replace the fence along the entire (180m) rear boundary with a 6 foot screened fence. I asked if we can get a list of names and addresses of property owners from council, so we can contact them about getting a free fence before we start ripping their back fences down, but he said they can't give out that information because of privacy regulations, so we would have to go through the fencing regulation of Australia. I read the Qld Dividing Fences Act last weekend and I don't recall anything about how to find out ownership. Maybe someone can help. And, yes, I know I can and will go any knock on all the doors, but I would like to have had names in case any of them are rental properties (I think most are owner-occupied).

The council application fee will cost $4k. The infrastructure contributions payable down the track will be around $15k per block. The application for the operational works approval is $2 per $100 (ca. $3k).

Next, we met with the surveyor to get a fee proposal. He lives down the end of the street, so he dropped it in the letterbox on his way home. We will get a detail and level survey carried out so the engineers can prepare sewer and stormwater reports to submit to council with our development application. The subdivision is code-assessable, so we don't need a public notification and consultation period. The surveyor will prepare the application and liaise with council over any information requests they may have.

Once the application is submitted, council will have 10 working days in which to seek further information about the application and then a further 10 days to respond with further queries to our responses. The statutory period is then 20 days for a decision, but they can then extend that for another 20 days, so it could be 3 months from submission until we get development approval.

On the way home, we drove past one of the engineering consultants the surveyor had mentioned for the operational works planning, so we popped in to see about getting a fee proposal from them. I will consult another couple next week.

So, the planning side of things has begun, now we need to get the trust set up and start talking to lenders.

Mum also got a house mover around to quote on shifting, turning and lowering the house. She will be looking at around $50k +GST plus council and engineers fees (around another $5k), and that's not including the extra work that will need doing to bring it up to the current building code (cyclone bracing, solar hot water, possibly sky lights in the middle bedrooms).

 

[Rockstar]

I read the Qld Dividing Fences Act last weekend and I don't recall anything about how to find out ownership. Maybe someone can help.

You should be able to write letters to them and get council to forward them for you. This is how it's done in our shire.

now we need to get the trust set up and start talking to lenders.

You mean you haven't talked to them yet? Good luck with the development loan. Been a bit tight lately but you would think you will be ok if you're at 40% LVR.

 

[brendio]

Lenders

Mum spoke with someone at one of the big 4 about getting a loan for other things, but also asked about a loan for the development. The bank told her they will do up to 80% LVR, which suprised me as I was presuming it would require a development loan with 60% or 70% max LVR. Which value do they take as the "V" in calculating the LVR—the current value as one block or current value plus value added by doing the subdivision? Eighty percent of the current value should pretty much cover our costs. We have five parties to help service the loan, plus some other equity available, although ideally we would be able to get away with just the value of the land as security.

 

[brendio]

I would be posting a thread up in the accounting and tax section mate. If you do, please link it into this thread as I don't peep in there too often. Seems like a lot of transferring to do which means dollars to pay to SD office. What will be the final split in ownership?

Here's the new thread.

 

[brendio]

Mortgage Broker Experience

We couldn't get an appointment with our regular Big 4 bank until Wednesday, so in the meantime, we went to see a mortgage broker. If they say first impressions matter, well I think this guy did everything with his first impressions to reinforce some of the negative stereotypes of mortgage brokers!

The broker had a thick gold necklace, clearly visible because he had the top three buttons on his shirt undone. He also wore a gold ring with a huge watch face on it. He reminded me a little of Rene Rivkin. He pretty much lost our business in the first 30 seconds when after we told him what the loan was for, he said "we won't tell the banks that". If he is proposing being dishonest with the lenders about the purpose of the loan, then I don't have much trust in him being honest with us. I have the numbers to support the investment case as it stands, so I don't think we need to dance around the truth to get it funded. When he realised we only needed a short-term loan, he jabbered on about the banks not being interested and we'd be up for all sorts of deferred establishment fees etc., which while quite probably true, all I was hearing from him between the lines was "I can't make enough commissions on this deal to make it worth my while because my commission trail gravy boat will be cut short." We left our draft development proposal with him and he said we would email around a few lenders to see what he could come up with, but on the basis of our first meeting, he is not the sort of person we want to be dealing with.

We popped in at another mortgage broker (the one sis and bro-in-law used and were happy with) on the way home and I have an appointment with them for tomorrow. Our first impressions of that one were a lot better. She asked how we heard of them and I said "my sister had dealt with them." She asked for my sister's name, and then said that, yes, she remembers them and my brother-in-law's brother also who had gone through them.

I guess our problem, highlighted by the first broker not really listening to our need, but seemingly pushing his own agenda, is how do we deal with the inherent conflict of interest in the usual, commission-based broker remuneration? What if the loan we need turns out to be less than profitable for the broker because it will only be short-term? Should we try to find a fee-for-service broker so they are working for us because we are paying them, rather than working for a bank that's paying them kickbacks? What do they generally charge?

Alternatively, should I just send our development plan describing what we are planning to do, along with estimated costings, revenue projection and development timeline, to a number of banks and ask straight out, "This is what we want to do. If you think you can help us, can we come in and chat?"

 

[willair]

We couldn't get an appointment with our regular Big 4 bank until Wednesday, so in the meantime, we went to see a mortgage broker. If they say first impressions matter, well I think this guy did everything with his first impressions to reinforce some of the negative stereotypes of mortgage brokers!

The broker had a thick gold necklace, clearly visible because he had the top three buttons on his shirt undone. He also wore a gold ring with a huge watch face on it. He reminded me a little of Rene Rivkin. He pretty much lost our business in the first 30 seconds when after we told him what the loan was for, he said "we won't tell the banks that". If he is proposing being dishonest with the lenders about the purpose of the loan, then I don't have much trust in him being honest with us. I have the numbers to support the investment case as it stands, so I don't think we need to dance around the truth to get it funded. When he realised we only needed a short-term loan, he jabbered on about the banks not being interested and we'd be up for all sorts of deferred establishment fees etc., which while quite probably true, all I was hearing from him between the lines was "I can't make enough commissions on this deal to make it worth my while because my commission trail gravy boat will be cut short." We left our draft development proposal with him and he said we would email around a few lenders to see what he could come up with, but on the basis of our first meeting, he is not the sort of person we want to be dealing with.

We popped in at another mortgage broker (the one sis and bro-in-law used and were happy with) on the way home and I have an appointment with them for tomorrow. Our first impressions of that one were a lot better. She asked how we heard of them and I said "my sister had dealt with them." She asked for my sister's name, and then said that, yes, she remembers them and my brother-in-law's brother also who had gone through them.

I guess our problem, highlighted by the first broker not really listening to our need, but seemingly pushing his own agenda, is how do we deal with the inherent conflict of interest in the usual, commission-based broker remuneration? What if the loan we need turns out to be less than profitable for the broker because it will only be short-term? Should we try to find a fee-for-service broker so they are working for us because we are paying them, rather than working for a bank that's paying them kickbacks? What do they generally charge?

"

Just a quick question with the 8 blocks you intend to split what will be the end bare land value per block,they will be small blocks..willair..

 

[brendio]

We are working on a low value of $155k for the ca. 1020 sqm blocks, and $140-145k for the 815 sqm blocks, but hoping to get more. We've had a real estate agent say we should be able to get $160k. Unfortunately, there aren't too many comparables around, although there is a new estate about 4 k's away with 930-1030 sqm blocks listed for $175-179k. What adjustments should one make when comparing a new development with a infill subdivision in an established area? The surrounding area contains houses built in the mid '70s to '80s, but across the road on one edge of our property is a recent (last 5 years) 40-or-so lot subdivision on an old high school reserve (never got built), so there are newer properties there. We think that should increase the appeal of our blocks.

 

[ChristianB]

That's a great read Brendio, I look forward to seeing how it all works out.
Liked the bit about the 3 buttons, you're really painting a picture for us!

 

[brendio]

Spoke to another mortgage broker today. Our meeting lasted five and a half hours!!! Glad we're not paying fee for service! He's quite chatty, to say the least, but I can see he is taking a longer-term view of winning a repeat customer rather than just looking at what he can make out of this deal.

Would write more, but I'm pretty tired now.

 

[brendio]

Had a meeting with our regular (for mum and me at least) Big 4 bank, which mum had spoken to previously. They didn't reject the idea completely, but then we won't know until we put the application in. The lady at the bank will run our plan by the development people to get more of an idea. They have no problem with a trust structure with corporate trustee, although it will require personal guarantees from all of the directors of the trustee company and we will all be joint and severally liable. Because it is residential, they will usually go to 80% LVR, but because of the scale and our lack of experience, they may do only 60% (which will still work) and only offer progressive draw down. Even though we plan to capitalise the interest and should have enough buffer in the LVR, we may run into serviceability problems.

I'm going on a road trip for a couple of weeks, so there'll be a pause in updates for a bit.

 

[brendio]

Have still not heard back from the bank or mortgage broker. Will chase them up this week after allowing them some time back from Easter break.

In the meantime, we will see the solicitors on Thursday to the trust set up so we can officially get the ball rolling. While we are waiting to sort out the financing, we have decide to each begin contributing some cash equity to the trust to cover getting the DA application lodged (estimate cost $16k). Once we have approval, we should have increased the property valuation to help secure the funding, and will then transfer the property to the trust and cop the stamp duty (ca. $24k) and start on operational works planning.

 

[brendio]

The bank finally got back to me about development financing. They said:

"With regards to your enquiry for funds to assist with development costs I have been advised that [the bank] would require that applicants be able to meet a minimum of the interest repayments during construction. Capitalisation of interest is not available.

With this type of development [the bank] would lend to a maximum 50% of the completed valuation."

The 50% LVR, while smaller than expected (had hoped for at least 60%), will not be a problem. The servicing of the interest payments (rather than capitalising the interest paying it off upon sale of the blocks) may lead to difficulties, especially for mum who has a double share to the rest of us and also will be need to borrow for the Queenslander project. I am already thinking of ways to convert capital into income for her (involving margin lending and various high-yielding shares and hybrids), as she is asset-rich, but income-poor.

Three hours later, I got this additional email from the bank:

"Further to my previous email.

I have a contact who may be able to assist you with funding for this development.

Please let me know if you are happy for me to pass on your contact details and if so please advise the best contact phone number? "

Interesting. That appears to be talking about a non-bank funding source. Can't hurt to talk, I guess.

We are in the process of getting our development structure set up and I am seeing another engineer tomorrow to get a fee proposal.

Mum was talking to one of the neighbours today and mentioned our plans. She didn't have any objections, which is good to know, as we will have to pull down the low brick fence to goes part way along the boundary and replace it will a fully screened 6 foot fence. It will be done at our expense, but I was worried about whether she might have an emotional attachment to it.

 

[brendio]

I feel like I'm talking to myself here, but judging by the views, people are reading, and in any case it's a good journal of my progress.

Saw another engineering firm for a fee proposal yesterday. They are known to be good, but also not cheap, so we will see how the figures come out. The guy I spoke to was very helpful. I still need to chase up another firm for a fee proposal.

Had a call this morning from the bank's contact. He is from a private commercial lending broker that specialises in developments and short-term finance and a lot of stuff banks won't touch. Sounds like it would be a lot less hoops to jump through and they can move a lot faster on approval, although the downside is their terms, namely, interest rates about 2-3% above those of the banks (he quotes 10.5-11% at the moment).

In the afternoon, we dropped in at a couple of display homes to get an idea of what new houses are like and gather ideas for our possible duplex down the track. Also picked up a brochure with a lot of land prices for some recent estates to go in my market research folder.

Then we visited the mortgage broker again, mainly for mum to get advice. Because she is looking at moving and renovating the house, she will need cash in addition to the development funding. She has another property, 18 years old, former PPOR, but IP for 11 years now, worth by my estimate around $400k with no debt. On her income, she would probably only be able to borrow $200-250k against it though, which won't be enough to buy the house and land off the rest of us and do all the renovations she would like (such as putting on a deck and building a garage/shed). So the other option is selling it, which I think she is coming around to the idea of, despite an attachment to it as a house she helped design and have built. One problem though is that it could do with a facelift, such as new floor coverings and a touch of paint at a minimum, but it is currently tenanted so she wouldn't be able to do anything until they move out. It is being rented by friends, and the rent is below market. The rent stayed the same for 5 years, and mum only just put it up by $10 pw 4 months ago. We had an agent say it could rent for at least $60 pw more than what mum is currently getting. The tenants are looking at buying, but are in no hurry and have been looking around for a number of years. The best solution in terms of selling is if the tenants do buy it. They have hinted at it in the past. Selling the house means that mum would get around 90% of the value in cash (after costs and CGT), rather than being able to borrow only 60% because of serviceability.

 

[wylie]

I feel like I'm talking to myself here, but judging by the views, people are reading, and in any case it's a good journal of my progress.

Don't feel like you are talking to yourself. I have only just caught up with this thread and I am keen to see how this unfolds, as it is something that we may do "sometime".

Please keep posting so that we can follow your progress.

 

[brendio]

Some old photos

Been going through some old photos. It is interesting tracing some of the changes to the place over the years. For example, there are photos of before the sleep out was closed in, and before the toilet was added on the back and the colour was originally a lot darker than it is now. Incidentally, mum wants to paint it a darker colour again.

There are also some photos of the old tennis court that used to be in the front yard. It was opened on the 25th July, 1931, according to one photo. Unfortunately, I can't find any photos with the tennis court and the house in it to see where exactly the tennis court was.