Queenslander relocation and residential subdivision

[brendio]

Waiting, waiting, waiting ...

Still waiting on solicitors before we can get things moving. Doesn't help that he only works three days a week.

In the meantime, I got the fee proposal from the engineer I mentioned a couple of posts back, but it didn't include everything I asked for. We want a preliminary report on sewerage and stormwater to lodge with the DA application and will then get the full designs done once we have DA and lodge the operational works application. They also haven't quoted on preparing tender documents and and preparation of the operational works application or contract administration. I wanted to get them to quote on these things and then decide whether they are worth doing ourselves. On the one hand, I don't have the experience, so it may even be cheaper paying them to do this stuff rather than mucking it up and costing money in delays, but on the other hand, it would be good experience if I do find I like the development thing and want to do some more in the future. Does anyone know how hard it is to learn how to prepare and lodge IDAS forms or prepare tender documents? Anyway, I rang on Friday and but the engineer was busy and didn't return my call, so I am waiting on that too.

I also got in touch with Ergon and they sent an application form for network connection services. However, the application needs a copy of the council approval notice, which of course we don't yet have, but I was wanting some info from them to help in deciding on the lot layouts, which we need before putting our application into council, so I'm in a bit of a catch 22. Anyway, I rang the phone number on the form, which is just an answering machine, so I still waiting for them to return that call too.

Basically, there are three power poles currently along the street, which would fall about 8 m from the boundaries of our original layout (option 1). I had the thought of changing the layout a little so the lots coincide with the poles (option 2). I then had the idea that we could maybe even squeeze an extra block out of the subdivision if I steal some more land back off mum's block (option 3). We would run into the problem with the power poles again, but I reckon that the extra block should net an extra $100k or so after the extra costs, so it is well worth considering. This would put the power poles smack bang in the middle of three of the lots. Shifting them may get tricky, as they service the houses over the road. Also not sure whether council will require underground power to the lots, or whether overhead power will be okay with it being an infill development. Overhead power would still require two extra poles anyway, plus the poles couldn't be away from the boundaries as the wire can't encroach on a neighbouring lot. Mum is warming to the idea of the smaller lot for the relocated house, but may need to get council approval to have the garage (to be built) closer than the usually required 6 m setback from the front boundary. Mum's preferred location for the garage in from the Scott Street side to minimise driveway area and have it close to the kitchen. She saw a draughtsperson yesterday who said that council generally won't give approval for a closer setback if the garage can be located elsewhere on the property, so she went in to council to get their opinion, but the guy she needed to see wasn't there, so she is waiting for him to get back to her.

If anything, I guess this development business sure requires a lot of patience!!

 

[profit]

Been going through some old photos.

That house is beautiful.

 

[MissMuffitt]

I just had a look on Google earth for your site, I am guessing that the tennis court was behind your mums house. Or should I say the direction the house is facing looked out at it.
I am sure you will do well with your subdivision, very close to the CBD.
Please keep us posted on all of your progress.

 

[Kath Russell]

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).

Hi Brendio

As per my new thread re relocating a QLDer onto acreage in Buderim, I know shires differ with their rules, but has Mum come up against anything unexpected with her relocating / reno plans for the QLDer?

Maybe her & I can do the owner-builder license together . Actually, has anyone done the course online? I'm in WA & if we're going ahead with it, I'd rather get on with it & be ready before we leave.

Cheers

 

[brendio]

Trust set up

Well, today we signed all the documentation to set up the family trusts that will hold units in the unit trust that will do the development. The solicitor only took 6 weeks to prepare the documents. I wouldn't have thought it should take that long to essentially press Ctrl-C and Ctrl-V a few times. We just need to get bank account and ABN and then we are finally right to be able to engage consultants. I will arrange to get the site surveyed and get them started on the DA application. I need to clarify a couple of things with the engineer before we sign the consultancy agreement with them, but we have chosen whom we will go with.

Also found out from a real estate agent we spoke to to get an idea on values for the property and the subdivided blocks that they mentioned it to some developers who are interested in doing a deal whereby they buy the land off us and sell back a smaller block for mum to put her house on. The price they mentioned was enough to pique our interest, but I tried calling, leaving messages for and emailing the agent and she has not got back to me since last week. Found out from someone tonight who thought the agent is away at the moment, which I guess explains the silence. We would need to find out more details of the conditions of any deal and the experience and reputation of the developer before we know if the offer really is attractive in terms of timing and certainty. We don't really want to muck around with them only to have a contract fall through in four months time and then be back at square one, so we are proceeding with our plans regardless.

Kath, I just noticed that I had not reply to your post (at least not on this thread). I'm not sure what would be classed as "unexpected" that mum has come up with. So far, she is still at the planning stage. We were playing around with some real-life cut and paste (well, without the paste) plans on graph paper to try different variations of fitting the house and to-be-built garage on various sized blocks. She spoke to a draftie and the building certifier and town planner at council because some of the options would have involved get a relaxation on the usual 6-m setback for one of the sides of the corner block, but it seems like it will be tough to get through, so we have pretty much scrapped that idea.

 

[brendio]

Development apllication

Well, we've applied for our ABN and engaged the surveyor/town planner who'll be preparing our DA. He lives down the road, so called in on his way home to discuss some amendments to our plans since we first spoke with him, and then he sent me an email the next day with some pencil sketches (he measured out the positions of the power poles, hydrants and telstra pits on the way to work the next morning). He also sent through a drawing with a suggestion for reworking lots 8 and 9 (we're going with Option 2 above, but with an extra 2 m frontage on lot 3 with a view to building a dual occupancy) to get 3 lots out, with areas of 739, 717 and 600 sqm. The extra lot should get at least another $60k in the bottom line after the extra head works and (minimal) extra civil works costs.

I wanted to get an impression on the saleability and prices on the smaller blocks, so I called in to a real estate agent (different one to last time—still not heard from the other one), who said that going down to 600 sqm shouldn't be a problem to sell and people generally don't want a big back yard to mow any more. He even suggested the quarter acre blocks to be too big and underutilising the land we have and that we would get more out of it selling to or joint venturing with a developer to put units on it.

Today on the way over to my brothers we passed an open house for a 3 br unit for sale down the road from him. We had a look through to get ideas of what is around. These were built 3 years ago and I think will be growing in demand here with the aging population as baby boomers seek to downsize but still want a bit more room and a reasonable quality product.

So, I'm getting the impression that the initial numbers we ran were fairly spot on for the land subdivision, but a bit on the conservative side for sale prices of units. It only came out at around $100k difference for the units, which would be more risk and involve more than we would be able to borrow. However, I am beginning to think there is more upside potential in the units. (Our calculations were for 10 2br units, and 5 allotments, but we could probably go up to 15 units with a mix of 2 and 3 bedders plus 2 allotments including one for the relocated house.) So I'm not sure now whether to continue with the DA for land subdivision or hold off for a bit and put out an invitation of offers from developers for JVs or an outright buy, or put in a DA for units and then try to JV with a builder to help with financing. We have a "unit holders meeting" tomorrow, so will discuss options then.

 

[Amadio]

Thanks for posting - really interesting following this journey.

 

[brendio]

Update

Well, I rang around a few builders whom I knew have built multi-unit developments here to get an idea of per square metre construction costs to plug into my increasingly complicated spreadsheet. From running the numbers, it seems that there is indeed more in it to put something on the land than just selling blocks, but the biggest variables (aka risks) were the construction cost, the length of time you need to borrow money for, the interest rate and the eventual valuation or sale price. I think a lot of the variation in construction costs is also related to the eventual sales price as variation may be due to the quality of the build, so that you can build cheap and sell cheap, or build slightly higher quality and hopefully get a better price out at the end. Running these numbers for building was slightly an academic pursuit, as we would not be able to service the loans require for such a venture, but I was interested in doing it anyway to evaluate the interest in the land from the developer to see that such a deal could indeed be win-win. Also, the thought was that if the numbers work out then we could approach builders directly about doing a joint venture to get around the financing issues.

I also rang again the real estate agent who had mentioned she had developers interested in doing a deal, and this time she rang back and came over the following day. It turns out that she is one of the "consortium" of developers that is interested (and as such we would not be liable for real estate commission on the deal). Also involved is a builder, who was one of the builders I had rung about getting construction prices, not knowing he was one of the interested party. He told me he is no longer building, just doing a few of his own projects now.

So we are quite excited by these new developments, as some of our concerns about selling to a developer would be knowing that they would do a good job, and we knew these developers and they have done quite a few projects around town. Having a builder in the consortium, they also can improve the bottom line on the construction costs, and they have enough financial standing to derisk that aspect of the development.

I had mentioned that we might be open to taking payment for the land in the form of a number of completed units/townhouses, although each of the family members have different personal circumstances, so we may not all want the same thing. I would like a continuing exposure to real estate, as I do not own any other property, but do have a reasonable share portfolio and margin loan. I'm keen to get an IP (possibly first as PPOR to save on CGT) so I can borrow for future share purchases at residential interest rates, rather than margin loan rates. My brother and sister who have other properties may prefer just to pay off their mortgages. They still have to decide.

Anyway, as I had mentioned we were thinking of holding some units as a longer term investment, the real estate agent came over again yesterday with a couple of options. The original idea was to build 15 or 16 units in a mixture of two and three bedrooms and some with double garages. The agent's son is involved in developing units under the National Rental Affordability Scheme (NRAS), which currently gives investors $9140 per year (CPI indexed) in exchange for renting out the dwelling at 20% below market value. The trick if you like is that the NRAS subsidy is a fixed amount regardless of the dwelling size. So the biggest benefit is gained on smaller properties. That is, you could conceivably build 30 units in a mixture of one and two bedroom units and get the NRAS subsidy on each, which is a real kicker to the yield. We had looked into the NRAS scheme previously when we were looking into all our options, but dismissed it as it is aimed at larger scale developments. However, there is a group called Aspire that work with developers and take care of the NRAS side of the development project. I am waiting on their call to get more details.

My main concerns with building for NRAS are that I expect it would be harder to get approval from council at the slightly higher density and that capital growth on a one bedroom unit would not be as great as that on a three bedroom unit and hence at the end of the 10-year NRAS lease you are left with a less-marketable property. Also, I had read on SS that there can be more problems getting finance with NRAS properties as collateral, although this may have changed. Has anyone has experience (good or bad) with developing for or investing in NRAS properties?

 

[brendio]

Things are moving again

Well, four months since the last post. Things were pretty much put on hold after we had interest from potential buyers, and delayed further by one of the buyers then going on an extended holiday. I eventually chased them down to find out what was happening and they got back to me that they had rerun the numbers and with the amount that council fees are now the numbers no longer stack up and they withdrew their offer. (Council contributions went up a lot a couple of years ago post amalgamation, but reading between the lines I think the flat market here also had something to do with them pulling out.)

I also solicited an offer from a friend of the family who is a developer and has given us heaps of advice. He was keen, but couldn't make the numbers work for what the others were offering. We were initially keen to do a JV with him, but he is a little hesitant of mixing friends and business and has instead been encouraging us to DIY.

So, we are back to where we were four months ago. I got back in touch with the town planner and told him to reopen the file. I got in touch with the engineers to see if their fee proposal was still valid. They came back with about $850 extra because we have squeezed an extra allotment out of it and will increase the complexity of the design slightly. We are happy with that, so I returned the consultancy agreement to them today and they are now at work on it.

Mum had the drafter out today to discuss getting plans drawn up for the house. We want to get the house moved at the same time as getting the DA for subdivision so one doesn't hold up the other, but will have to take into account the engineer's recommendation about how sewerage and drainage will be addressed.

I also wanted to look again into the numbers for building townhouses on the land, so I spoke with a builder to get an idea of build costs. Have concluded that the margins are not really there for the extra risk and financial outlay involved. For example, there would be about an extra $250k profit by my best estimates, but it would involve an extra outlay of about $1.8m, so the ROICE (return on incremental capital employed) is only 13.9%. I am looking into building on one of the blocks as a dual occupancy, although even there the profit margin is relatively slim at about $20m per dwelling. The builder I spoke to reckons they work on about $20-25k profit for units or $30k for stand alone spec houses, which I worked out at only around an 8% return I suppose for a builder they have their margin on top of that and they usually presell so it's okay for them, but for a developer I feel this is sailing a bit close to the wind in a flat market. If we hold what we build we save on the agents fees and GST, which helps the margin somewhat, but still leaves it negatively geared by quite a bit.

 

[brendio]

Site visit by engineer

This morning the engineer visited the site with possibly bad news regarding costs for the new sewer main. She had been hoping to be able to hook into the manhole a couple of metres from the rear boundary of our neighbours at number 12, but unfortunately the slope of the land means there is insufficient fall to reach all the way to the new block that will be in the south east corner. That means we will need to hook into the sewer further down and possibly have to dig across the entire back yard of our neighbours at number 29 and into the corner of the property on the corner at number 2. There is a large Poinciana tree in the back yard that will probably not survive having its roots hacked at and also three large palm trees along the back fence. So I could be up for some interesting negotiations with the neighbours to get their consent to that.

There is a glimmer of hope though. On council's old-school sewer plans (see photo), there is a sewer line shown that crosses the backyard of number 29 into our property and ending in the middle of nowhere. However, this line is not drawn on the current infrastructure maps, including the online interactive mapping. This could mean its a dead line that's of no use to us, but the engineer is making enquiries of council. If we can use it, it is a get out of jail free card for us and would greatly simplify things, but we'll have to wait and see.

I rang the council this afternoon to get more info on the procedure for moving the house, but the guy could only give me some bits of info and suggested I call into the council office tomorrow so I can talk to him and the people from other relevant departments at the same time face to face. We'd like to get started on moving the house now while our DA application in under consideration so one does not hold up the other. We would hook back up to the existing sewer connection for now, and then change the connection over to the new sewer once it's built. We are moving the house to the corner, so it will be out of the way of the new sewer going in.

Our block slopes slightly towards the neighbouring property and current regulations do not allow reconfigured lots to discharge storm water across property boundaries. Council have indicated informally that they will accept interallotment drainage along the boundary in this case because the alternative of backfilling the allotment to slope towards the road is impractical because it would require a huge retaining wall, which is something council hate more than interallotment drainage.

As a side note, I found the old council sewer map quite interesting in that it includes the old field of pineapples (which haven't been there since at least the 1970s), the old chook pen, and the well that remember as a kid being covered over with sleepers and warned not to go near. It even informs us that some of our neighbours used to grow grapes in the backyard!

 

[brendio]

Visit to council

Visited the planning and development desk at council this morning to check that our plan will work to move the house before the development application is approved and carried out. It will mean an extra sewer connection fee, as we will hook into the existing sewer line when we move it and then once the new sewer is in we will switch over to it. But it will mean that the house relocation shouldn't delay the completion of the subdivision, so may save more than the extra fee in reduced holding costs.

The proposed subdivision generated a bit of excitement among the staff, and I reckon I could have nearly sold a block or two off the plan to them if I tried. The guy from the plumbing department lives in the newish estate right nearby and said he initially missed out on the initial sales from the developer and a year or so later while driving past saw an agent hammering in a for sale sign on a block and so did a U-ee and told the agent to take it down, "I'm buying it!". He also told me that the previous owner of the last unbuilt lot in that street, which recently sold for $165k, had previously turned down an offer of $200k at the height of the market.

Makes me think selling our blocks shouldn't be too hard.

I also got the names of the owners of the properties whose backyards we may have to dig up. Mum is Facebook friends with the owner of the corner unit block! A nice surprise. The owners of the other property live is Ipswich and aren't listed in the phonebook, so that makes it a hassle getting in touch. I will wait to hear back from the engineer whether we can use the phantom sewer and not need to trouble our neighbours, and if not I guess I'll be sending a letter registered post and hope they don't just ignore it. Otherwise that could cause some delays.

 

[brendio]

Today was a quieter day on the development front. Solicitor returned my phone call early in the morning and will start preparing the contract for sale of the property to our trust. Our trust has managed to negotiate a pretty good deal out of us with generous terms, including being subject to obtain DA approval for subdivision within 12 months and subject to obtaining finance on satisfactory terms. Having the contract in place will allow the trust to apply for the DA and incur expenses related to it but not have to incur stamp duty until settlement actually takes place. If we don't proceed with the subdivision because the DA gets knocked back or we can't obtain finance, then we haven't unnecessarily paid the stamp duty.

 

[jsoe]

thanks!

thanks for this very wonderful real-time thread. I'm very interested to see how things pan out. please keep posting. best of luck with your journey.

 

[jsoe]

interested

Pardon my ignorance but whereabouts is your block of land in QLD?
Also, have you totally abandoned the idea of selling it to a developer? e.g. if a developer wishes to take all blocks off your hand and handle everything from filing DA to building multiple dwellings (and take care of all fundings themselves)? I mean all you have to do is negotiate the sale price and the settlement in the form of either the number of end products and/or lump sum payment (up to you and your family of course). I asked because your previous posts mentioned about your concerns around the difficulity with the funding side for a multiple unit development, as well as various needs of family members, and your looking for a win-win result.

I'm unsure what the previous developers have proposed/considered building when crunching numbers. i.e. the REA or your family friend developer. (Is there anyone else I missed?) Would you be able to give me some ideas? Also, please let know the location so I can look up what the market and the local council desire.

 

[brendio]

Pardon my ignorance but whereabouts is your block of land in QLD?
Also, have you totally abandoned the idea of selling it to a developer? e.g. if a developer wishes to take all blocks off your hand and handle everything from filing DA to building multiple dwellings (and take care of all fundings themselves)? I mean all you have to do is negotiate the sale price and the settlement in the form of either the number of end products and/or lump sum payment (up to you and your family of course). I asked because your previous posts mentioned about your concerns around the difficulity with the funding side for a multiple unit development, as well as various needs of family members, and your looking for a win-win result.

I'm unsure what the previous developers have proposed/considered building when crunching numbers. i.e. the REA or your family friend developer. (Is there anyone else I missed?) Would you be able to give me some ideas? Also, please let know the location so I can look up what the market and the local council desire.

The land is in Bundaberg. If a developer comes along and offers enough $$$, than we are not averse to selling, but we have come far enough not to let it go too cheaply. In our initial calculations comparing subdividing as land only versus half land and a larger block with 10 two bedroom units, there was only $100k extra profit in it for the units, which is not much for the extra work, risk and financial outlay involved. We could look into doing a JV, but then any partner would require a lot more than $100k in their share of the profit to take on such a task, so we would in fact be worse off. The biggest development profits for building units are available when the land would otherwise be underutilised and developing it increases its utility against the next best option. A good example of this is with long or odd shaped blocks. To put a house on such a block results in a lot of "wasted" land. The cost per square meter of such land for a developer will be lower than a normal shaped block, allowing them to profit from the value they add to the land by building. Our block could fit 10 houses on good sized blocks in an established area close to shopping and medical facilities and the CBD, which makes the land component more valuable and the development profit for units lower.

 

[brendio]

Daily Update

Brother came over today during his lunch break for a "directors' meeting". Our solicitor had passed on to him the name of a guy he uses for getting valuations. We need to get a valuation to support the contract price for transferring the property into the trust, since it is a related party transaction. I rang the valuer and he will get back to me after discussing some details with our solicitor and my brother.

The draftsman rang mum back and will come out next week to measure up for the plans.

 

[brendio]

Had a great weekend away camping, so just catching up on stuff today. Neither of the valuers I rang on Thursday has rung back

The draftsman came today and measured up.

On Friday while I was heading out, I noticed a skip bin in the "horse paddock" (well what used to be, but which is now vacant and unfenced) next the fence of the neighbours in number 29. "That shouldn't be there", I thought to myself as I quickly stopped and parked the car and wandered over to investigate. Peering into the neighbour's backyard, I saw a big pile of rubbish, mainly old furniture and stuff, and the fence cross bars had been cut at the posts, but the section was standing back where it came from. I knocked on the door and asked to obvious question "Is that your skip bin?". "Yes", came the reply from the mother helping her kids with a cleanup, "they couldn't fit it through the fence and so had to leave it on our side. They will come to pick it up next week." I wasn't all that concerned about it being there and the fence will need replacing anyway, but it would have been nice of them to ask first. I will keep this incident on hand though as leverage should we need to dig up their backyard for the sewer main. Won't be much use though if they are cleaning up to move out, and they are only tenants, so the real negotiation will be with the owners.

 

[brendio]

Got a call back at quote from one valuer to do a valuation. Came in at $1000+GST for property as is and $500+GST for to-be-subdivided blocks. Valuer stated the price is high because they will need to do a feasibility study for subdivision as that is the highest and best use.

Still waiting to hear back from other valuer.

Got an email from solicitor with draft of contract for sale to trust. Purchase price and finance amount to be determined. Contract is subject to DA within 12 months with conditions satisfactory to the buyer, and finance for development costs. Settlement is 40 days after all conditions are satisfied. The contract states that payment is due 2 years after settlement, but that a percentage (to be determined) or any parts of the land sold before the whole purchase price is paid is to be paid on settlement of that part. This was new to me, although sounds reasonable, but I had thought that we would effectively loan back to the trust the purchase price. Now it is effectively vendor financed.

The solicitor also raised an alternative option of excluding the house from the sale to save on stamp duty:

alternatively consideration could be given to the house being excluded from the land sale. This would have the effect of reducing the stamp duty payable on the Contract, so I guess that the Contract would simply note that the residence is excluded and the seller has the right to remove same. The seller could then at the seller's expense re-locate the home elsewhere on the land (with the consent of the Trust). In due course a Contract could then be prepared between the Trust as seller and [mum] as buyer for the land. Normally the Stamps Office would require duty on the total value of the property which would include the house then on the land but exemptions can be given for the house provided that the Stamps Office can be shown in a paper trail that the house is owned by the buyer. Because of stamp duty savings, consideration to this course of action should be given. This stamp duty saving was not discussed with [brother].

We will have to run the numbers on this and check that this doesn't create problems elsewhere. We could up the price of the house and lower the price of the land (within reason), since no duty would be payable on the house if sold separately.

 

[Mia86]

Thanks for the updates! This will definitely help so many others thinking of doing the same thing. I appreciate the way you go into detail Can't wait to hear the next update..

 

[brendio]

I was out of town for a job interview at the beginning of the week, so that slowed things down.

Still never heard back from the valuer recommended by our solicitor (despite multiple calls to his secretary, and a couple of emails), so have gone with a national chain and the valuer is actually a friend of my brother's. We will get a value for the property as is to support the purchase price for the sale to our trust, as well a valuation of the gross realisation for the 10 subdivided lots. They pretty much need to come up with a value of the subdivided lots first anyway and work backwards from there to value the land.

Have a revised sale contract that is just waiting for the purchase price from the valuation. We concluded that the solicitors suggestion of excluding the house from the sale would not work.

I need to look into insurance, as one of the terms of the REIQ contract states that the property is at the buyer's risk from the day after the contract date. As the contract is conditional, I take it that we would need to doubly insure the place until settlement, since it's at the buyer's risk, but the contract is still conditional and could crash any time up to settlement, so the seller would still need insurance. So, I need to talk to our insurers about whether the current insurance can be assigned or shared.

Town planner has sent through the consent form for the owner's of the property (us) to sign allowing lodgement of the DA, as well as an invoice for council's lodgement fee. This is about $1k more than initially budgeted for owing to increases in their fees as well as the extra lot we now plan to divide off.

The engineer emailed to say they should have preliminary plans for the sewer by Monday that I can use in discussions with neighbours about ripping up their backyards.

Have been rejigging the numbers for the development cost updating them for CPI any other tweaks. Will provide them to the valuer to assist in his valuation, and will also need to update our development plan, because we need to move forward with working out how to finance the whole thing. Need to discuss with the other family members whether we can scrounge up enough among us to cover the costs of getting the house moved (as well as the DA lodged). If we can, that will save quite a lot of hassle with having to arrange finance for moving the house now while the property is in personal names, but having the trust pay the expenses, and then obtaining move finance later for the civil works for the subdivision.

Mum's still waiting for the plans and to hear back from the house mover, who is away at the moment.