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.
The problem is that the house is very old.... But the land is huge (more than 900m2) and they say the estimated weekly rental is only around 360-380 per week....