Small Development in Adelaide

I have decided to take the leap into Property Development. I have just sorted what I hope will be sufficient finance but need some advice, I was initially looking at knocking down and building 2, however have been advised recently that there is not a lot in it unless you do a 3 Pack.

Any comments on this?

Also what areas in Adelaide should I look at. I have been looking at Marion etc however the margins look like they are really getting squeezed in that area. Suggestions?

Jas
 
Jas, there's still good money building two. 3 pack sites are just so expensive to get a hold of and then you have to be comfortable with the holding costs and delays while the 3 are getting built. I would suggest you would be better off going through the learning process with a double instead?

I don't want to give away my current favourite area at the moment but can I suggest that I think the best value areas at the moment for development are in that 7-10km ring from the CBD. Don't pay too much for the site and make sure you get the mix right for the price vs build time when you are sorting out a suitable builder. The cheapest quote might not be the best quote as the real cheapies at the moment need 15 months to complete from the first inquiry.

The sites at Marion are getting pricey for the suitable ones but the finished product seem to be getting good prices but as always study closely comparable sales for the sites and the end product and include everything in your calculations. There are lots selling at the moment where it just doesn't add up.

Keep us posted.

Gools
 
Builders

Hi,

We are planning to sub-divide one of our sub-dividable blocks in Clearview this year and been doing bit of research.

1.What is the process and approx costs involved, considering there is a house on the block?

2. Any suggestion which builders to look at ? or one that you have used?

We might keep both the houses.

Regards
 
sorry :Di would have to kinda disagree to a certain point....there is very very little out there with a healthy profit margin for 2 x builds....certainly 3x makes the numbers look better but that also means alot more money down/involved to do the development.

we have been struggling for the past 6-8mths to find good solid profitable sites for building 2...and we look from north, east, south and west - mind you there are some good ones but much much higher buy prices ($700K plus) which is probably not what you're looking for i presume???

take note here also though that not everyone has the same expectations profit-wise...you may be very well happy with a 40K nett profit whereas others wouldn't even look at something with a 140K nett profit (sorry using $$ instead of % returns because thats what we normally look at first).

for someone starting out i agree i would be sticking with the 2's first but its definitely alot harder to find a really good deal with 2's.
 
Thanks for the comments,

I would also not look at doing it unless I could see min 100k at the start. I have so far been unable to find a property that fits this criteria.

I was told by a friend who has done a few of these over the years that a very simple starting point is to add the buy in cost (eg 400k), plus 200k per house and if you can sell both for 100k more (900k) then it is worth having a closer look. If it fails this then don't even bother looking at it. The olnly problem is that I seem to only find places that fail this test.

I have looked extensively in Marion council etc however the buy in price has really jumped in the last 12-18 months. I have also been looking at Kilburn / Enfield, which are not great areas but they are close to the city and cheaper. The resale just doesn't add up.

Keep on looking I guess....
 
I still see plenty going through.

Example:
1 Park Tce Enfield, 903m2 corner block. Just sold for $352k.

Knock down old place and build 3 small villas. Others here will be more experienced than me, but this is the way I'd look at the rough figures:

- $352k purchase price
- $12k stamp duty and charges
- $50k (?) demolish and land clearing
- $40k subdivision costs for 2 additional blocks services
- $130k (?) to build each villa = $390k

Total: $844k

Selling price: $370k each (perhaps more in 8 months time) $1.11M - 2% = $1.088M

Equals profit of $244k for 8-10 months turn around. Not bad if you have the facilities available and are looking for a deal.

Example 2: 9 Central Ave

- $395k purchase price
- $15k stamp duty and charges
- $50k (?) demolish and land clearing
- $40k subdivision costs for 2 additional blocks services
- $130k (?) to build each villa = $390k

Total: $890k

Sale price: $360k, $361k, $372k = $1.093M. Less 2% selling = profit of $181k. This ones an actual deal I've been following, note less profit in part due to higher original purchase price.

Granted, these are 3 block deals, not 2 - but there are still plenty around to choose from.
 
FM, you should be able to find a quote for $1100/sqm.
So it's possible for a small place.

Steve, I think your demo and scrape price is a bit high. $12k should do it even including asbestos. Also about $10k a block for the division fees so $40k is a little high too so your figures are getting even better.

FM, just make sure you start thinking of including paving/concrete, fencing, higher ceilings, landscaping, ducted RC, security system, storm water, floor coverings, window coverings, kerbing..............

Gools
 
Steve, I think your demo and scrape price is a bit high. $12k should do it even including asbestos. Also about $10k a block for the division fees so $40k is a little high too so your figures are getting even better.

That demo cost surprises me Gools, thanks for the info. So even a larger block with solid brick home, or are you referring more to timber frame job?
 
Last one we got done was a 800sqm block with timber/asbestos clad house on it. That was $9k 2 years ago. They get a bit of money for the bricks so isn't that much more for their efforts. I would think $12k would do it now but please double check that figure when you need to lock it into your budget.

Gools
 
Building project sheet

I have finally compiled the list and approx costing selling price for the development project.

Cheers
 

Attachments

  • Building project.xls
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I haven't built myself yet, so don't know the costs of all the interior fittings. However you'd want to be building it to a pretty high spec. if you expect to get $410k per house. Plus you've based your figures on $130k build when you've stated you're finding it hard to get builders below $160k range - that's a big difference, in fact 40% of your profit margin at the $410k sale price.

How big are the houses you're looking at building - this is small yet has double garage and ensuite and sold for $360k. This one on the other hand got $410k but it's a bigger house, with a 2nd living area (and bigger land).

$410k may certainly be achievable depending on the size and spec. and considering completion would be another 12 months off, but I certainly wouldn't be basing a development decision on the best possible price outcome. If I were doing it I'd be basing it on $380-390k sale price, or even less if I was worried about current market volatility and perhaps having it on the market longer than expected.
 
FM, firstly well done on getting your budget together. You have a few things to have a look at but in the whole it is pertty reasonable compared to some I have seen put together.

Some minor things you need to look at:
Fencing. Not included yet. We work on $75/m installed.
Storm Water. Not included yet. $1k a dwelling.
Phone. Not included in some builds. The first phone point in the house is free but the trenching/conduit to get it to from the kerb to footings is not. $400 approx.
Paving. Amount is a bit low. + need to include the cutting of the kerb and concrete for the new driveway. (if applicable).
Window finishings. A bit low too I think.

My major concern with your budget though is the time you have allowed for construction. Builders such as Fairmont and the like have been quoting 15 months from getting your application in to completion for a fair while now. You can use a quicker builder but I think you'll then struggle to keep the build cost anywhere near your exepcted $130k level. Please, please, please make allowance for at least 12 months without rent and paying existing mortgage plus interest on the building loan. Don't get caught short with this part. I don't want to see you having to sell a half finished project.

Make the adjustments and plan for the worst. Anything then above that is a nice unexpected bonus. Steve is on the right track too. To get $410k you will at least need a double garage and that will bump op your build cost too.

Keep us updated with your progress at choosing a builder when the time comes too. I'd be interested to hear their current estimates.

I hope you're learning heaps from this process, it can be nearly as valuable as the future profits.

Gools.
 
I think that the holding costs in your spreadsheet appear to be a little low:-

Some assumptions:-
Borrow 100% - i.e. 20% deposit comes from one of your other properties.

DA approval process = 4 months
Build time = 6 months.
Total completion time of project is 10 months.
Interest Rate = 7%

Therefore,
1) You need to fund the land costs + buying costs ($309k) for the full length of the project = 10 months = $309k *0.07* 10/12 = $18k.
2) The rough rule of thumb for calculating the interest costs associated with the construction is to halve the total build cost over the time of the build (this is because the payments to the builder are made in 5 installments typically) = $364k /2 * 6 months / 12 * 0.07% = $6.4k.
3) Total holding costs will roughly be $18k + $6.4k = $24.4k. This is about $14k more than in your spreadsheet.

Regards
Nick
 
sorry, one other thing.

I agree 100% with GOOLS. Don't underestimate the time involved in doing this.

I built a duplex in Cessnock, NSW.

I had to get plans drawn up and a DA approved by the council, then build the places. The build time was 6 months...however total project completion time was 18 months.
 
Valid point

How big are the houses you're looking at building - this is small yet has double garage and ensuite and sold for $360k.This one on the other hand got $410k but it's a bigger house, with a 2nd living area (and bigger land).

Hi Steve,

Valid points. I had a look at both the places and found out the few differences:

The one sold for 410K had:

1. 410K has ducted reverse cycle air con instead of split
2. It has a pergola
3. Approx 50sq mts more build up area
4. Kitchen looks bigger and better

Just came from a renovation seminar and the guy was talking about how cosmetic things make a lot of difference. It would be nice to know how much difference these things make a difference in the selling price?
 
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