ringwood investment- knockdown and rebuild- good idea?

[zfan111222]

Hey guys at the moment i am looking to put it an offer for a property down in ringwood and wondering if you guys can help me out and give me some tips.

we are planning to buy a very old 3 bed house in ringwood for ~850k and then do a knockdown and rebuild 3 2-story townhouses(~800k) this will bring the total cost to around ~1.75mil (stamp duty and all other costs)


we are going to rent it out first for 2 years (as we cant borrow that much money to build yet) then we will knock it down.

whats everyones thoughts? is this a good idea? do you guys think i can sell all 3 townhouses for around 2.1 Million in a few years time (~7 years)? also what do you guys think of the ringwood area?


i am interested because it is only 7 minute walk from the train.

 

[cimbom]

Have you researched how much similar townhouses are selling for at the moment?

 

[zfan111222]

Have you researched how much similar townhouses are selling for at the moment?

yes, similar double story houses are selling for ~700k in ringwood

 

[oc1]

we are planning to buy a very old 3 bed house in ringwood for ~850k and then do a knockdown and rebuild 3 2-story townhouses(~800k) this will bring the total cost to around ~1.75mil (stamp duty and all other costs)

whats everyones thoughts? is this a good idea? do you guys think i can sell all 3 townhouses for around 2.1 Million in a few years time (~7 years)? also what do you guys think of the ringwood area?

Costs closer to $1.9m. You need to do some research and determine what "all other costs" are.

Ringwood should get better and better. 7 years? Who knows.

 

[zfan111222]

Costs closer to $1.9m. You need to do some research and determine what "all other costs" are.

Ringwood should get better and better. 7 years? Who knows.

thanks for the reply. do you know how much it will cost to knockdown a ~20sq old house? and can you give me some examples for some hidden costs that build up to the 1.9m?

 

[oc1]

thanks for the reply. do you know how much it will cost to knockdown a ~20sq old house? and can you give me some examples for some hidden costs that build up to the 1.9m?

Costs aren't hidden. You just need to educate yourself and find out what costs are involved when developing.

Demo costs vary based on trees on site, whether your block is flat, asbestos (and hidden asbestos) and access to mention a few. Can range from $10-20K plus.

 

[zfan111222]

Costs aren't hidden. You just need to educate yourself and find out what costs are involved when developing.

Demo costs vary based on trees on site, whether your block is flat, asbestos (and hidden asbestos) and access to mention a few. Can range from $10-20K plus.

Ok I will have a look into that. Do you think this is a good investment idea?

 

[oc1]

Ok I will have a look into that. Do you think this is a good investment idea?

Not sure. I would ask Westminster. She is the resident developer guru.

 

[Jamie_]

Not sure. I would ask Westminster. She is the resident developer guru.

 

[strongy1986]

Sounds like a hard way to maybe make 200k

Extremely risky too

 

[albanga]

Sounds like a hard way to maybe make 200k

Extremely risky too

Im leaning towards this as well. Your buy in costs are far to high IMO.
I am taking from your post you have also never developed before? If not I would probably be more inclined to start small, buy a smaller block with lower buy-in and build side by side.
Based on your numbers the profit would be very similar. Don't forget as soon as you get to 3 on a block your looking at council contributions as well.

Also it means you can start developing sooner which is key if you ask me. The longer it takes to develop the longer you are out of the game.
I like your suburb selection and think it will have strong growth but maybe consider your strategy and see if there are not other options.

 

[jpcashflow]

Hi,

We are doing a similar project in Melbourne North West Suburbs and we are only 2 x town houses at once.

Before putting any offer in, I would be calling up the council to get their thoughts on what can be built. If you are looking at building in two years time how will the market be then compared to today?

Also just bare in mind this, when you are building a new townhouses in order to get the best return why not sell it earlier while the house is new? there good be stamp duty exemptions for the buyer, they fill the house is brand new and their and more importantly you know where the market is now.

Allot of people are developing and I am seeing allot of people get burrned.

Talk to your broker and create a plan!!!!

 

[oc1]

Allot of people are developing and I am seeing allot of people get burrned.

Talk to your broker and create a plan!!!!

What does "taking to your broker" have to do with developers getting burned? I am assuming you are talking small scale developments.

 

[jpcashflow]

What does "taking to your broker" have to do with developers getting burned? I am assuming you are talking small scale developments.

What do I mean? Having funds to buy the property is one thing but also having the funds to build is another.

Allot of people buy properties with the intent to build but without a plan in place allot of projects don't even start!!!.

There are certain lenders out there who are great for developing and other not so great.

 

[kmrr]

Costs aren't hidden. You just need to educate yourself and find out what costs are involved when developing.

Do you have any suggestions as to good places to start? Ideally something in text. For me it's the old 'you don't know what you don't know' adage. Anyone that I've spoken to I haven't really known what questions to ask.

I'm undertaking a building course to get an idea as to what the actual construction process is but not actually being a builder i still feel like I've missed out on a few things but it was a start.

any hints from personal experiences appreciated!

 

[pasey25]

Do you have any suggestions as to good places to start? Ideally something in text.

spend a few days searching through and reading this forum. it will be the best two days of education you'll get. Once you've done that, you'll have may more targeted questions that regular posters will feel more inclined to answer.

 

[oc1]

Do you have any suggestions as to good places to start? Ideally something in text. For me it's the old 'you don't know what you don't know' adage. Anyone that I've spoken to I haven't really known what questions to ask.

I'm undertaking a building course to get an idea as to what the actual construction process is but not actually being a builder i still feel like I've missed out on a few things but it was a start.

any hints from personal experiences appreciated!

There was some useful things shared in this thread:

http://somersoft.com/forums/showthread.php?t=88866

 

[kmrr]

Wow, that looks like a pot of gold! Thanks for the link.

 

[gronk007]

Sounds like a hard way to maybe make 200k

Extremely risky too

I've not got any development experience, but even if you bought the place you were looking for, did nothing to it, and hold it for 7 years, you're likely to make the $200K anyway??

I know capital growth isn't linear, but after holding a $850K property for 7 years assuming 5% capital growth (very realistic given the area), the same property will be worth $1.2m, you've got almost $350K in equity there.

This doesn't include the income generation from a tenant Day One; a 3 bedroom in Ringwood could get $400pw in rental returns.

Just my two cents worth.

 

[strongy1986]

I've not got any development experience, but even if you bought the place you were looking for, did nothing to it, and hold it for 7 years, you're likely to make the $200K anyway??

I know capital growth isn't linear, but after holding a $850K property for 7 years assuming 5% capital growth (very realistic given the area), the same property will be worth $1.2m, you've got almost $350K in equity there.

This doesn't include the income generation from a tenant Day One; a 3 bedroom in Ringwood could get $400pw in rental returns.

Just my two cents worth.

I have a few subdividable blocks (keep the house)

I prefer the deal to stack up from day 1, not sure I would like to rely on future growth
Ringwood has had heaps of growth in the past 5 years, will it keep going at a decent rate? Not sure

not sure why your talking about the rental income of $400 a week when you would be down about $600 a week after expenses of about a $k