Starting subdivision ???

Hi all.

This might get a little confusing so bare with me.

Current ip 1000 + sqm corner block which i intend to build on the back.Currently cashflow positive by about $40 pw.

Current costings for project.

Council contributions $ 5,200
Water $ 6,100
Sewer $ 7,600
Sewer junction $ 1000
Sewer encasement $11,000
Town planner + extras $10,000
Demolish and rebuild shed $22,000
New Shed driveway $2000

Total $64,900
This has the land ready to build and the existing property has a new Garage.

Allowance For construction of 4 bed 2 bath double garage property.

Building
sitecosts
Fittings tiles tec
Grass,driveway etc
Total $195,000

Grand total of $259,000 Property should be worth over $345,000 looking at similar properties that have sold nearby.

Now financing. Bank says my borrowing capacity is more than fine. Problem being that they will lend the $195,000 for the building of the property but they will not lend for the costs incurred with the subdivision and garage build as there is not enough equity in the property and they need security. Things will change when it is completed of coarse. Does this sound normal

OK what i intend to do is use the remaining $ 40,000 i have available in a LOC i have secured against my PPOR to pay for the Sub costs and then borrow the remaining $24,900 to build the Garage etc. Total $64,900. Then the bank pays the rest. After completion i have a loan for $195,000 on the new property that is valued at hopefully $345,000.

I now get a LOC for( 80% of $345,000 minus loan of $195,000 equals)$81,000

I know have a new property with a LOC for $ 81,000 that i can repay the small $24,900 and the original $40,000 borrowed although that amount does not matter as it does not matter which lock it is borrowed against.

End product is a new house that cost me a total of around $260,000 achieving a rent of around $340 that after tax should be neutrally geared.Value should be around $345,000 most likely more.I plan to hold long term.

Is anyone still with me :(

Ok this is all very alien to me but i think it will work. to all those who have tread this path before. Am i heading in the right direction

Cheers

Devo
 
Basically, but there doesn't seem to be any mention of the value of the land you have worked your figures from.:)

Thats true but i dont know how to work that out. The block is around 500 meters from the CBD and there are few blocks left to compare. There is a corner block opposite me for sale at $260,000 but its 1000 sqm. Mine will be only 400 There are a few 600 sqm blocks a bit further out starting at $105,000 they are what i would call lesser quality compared to my location.

A similar 1000 sqm property to mine just 100 meters up the road subdivided and built a 3 bed 1 bath that sold quickly for $340,000. The front original house is now on the market for high $300,000.
 
I suppose what I mean is if you sold it completed for $345k, and it cost you $259k to achieve that, without the land, you would be donating the land to the project. If the land is worth more than $86k, your selling the land cheap, and not making a profit on the overall deal.

It's a bit different when you keep to rent for the income, but it still needs to reflect the land content in it's individual value.
 
I suppose what I mean is if you sold it completed for $345k, and it cost you $259k to achieve that, without the land, you would be donating the land to the project. If the land is worth more than $86k, your selling the land cheap, and not making a profit on the overall deal.

It's a bit different when you keep to rent for the income, but it still needs to reflect the land content in it's individual value.

Yeah i think i get what your saying. I was looking at it from a cost to value aspect. Cost $259,000. Value $345,000. Sure the value of the existing property may drop a bit but from what i can tell it will not be by much. My reno added plenty of value so it will probably only drop back close to purchase value a few months back. And land values are depressed here a bit at the moment. CBD land in my area will only go higher.But you are right if i offered it for sale at $86,000 it would sell in minutes.

ohh should add that part of that $259,000 was $24,900 to improve the existing house with a new garage and attached carport for the granny flat. So that value should be removed from the cost of the new property.
 
ohh should add that part of that $259,000 was $24,900 to improve the existing house with a new garage and attached carport for the granny flat. So that value should be removed from the cost of the new property.

Yep, but it still comes out of your pocket to put the overall deal together.

Please don't think I'm being negative, it's just that your supposed to make a quid out of it.:)
 
Yep, but it still comes out of your pocket to put the overall deal together.

Please don't think I'm being negative, it's just that your supposed to make a quid out of it.:)

Appreciate your input mate. Development is new to me and I don't want to stuff it. So do my numbers sound ok. Is there anything else anyone wants to add. I have been realistic with values so there should be no hidden suprises
 
Why consider current value of land?

Hi Devo76,

In my opinion, you should not consider the current value of the land component of the project. To elaborate:
Case1:
Suppose, you bought that original IP for $100K with the big land 7 yrs back.
And if, after the subdivision now, you can still sell the original house for $200K (appreciation in years), then your investment became double in 7 yrs plus you got free land for new house.
Case2:
Suppose, you bought that original IP for $100K with the big land 7 yrs back.
And if, after the subdivision now, you can sell the original house for $150K, then your cost of the land for new house will be considered $50K.

Both the above cases assuming that the property prices should go double in 7 yrs. You can assume a different formula also.
 
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