Suggest development types for L Plate developer

[Evgen]

Hello everyone!

I've been thinking about trying myself in property development for quite some time now. In the meantime I've been educating myself with all available information on property development, finance, marketing, etc.

I think I may soon decide to move from theory to practice and start my first development project. As most people recommend and I understand it that I need to start with something quite small (e.g. subdivision of a lot with existing house with following construction of a new house).

Could you please suggest types of development projects for a newbie? All suggestions are welcome.

P.S. As for the location I'm thinking western Sydney as it's a bit more affordable and growing area.

Thanks!

 

[Propertunity]

Could you please suggest types of development projects for a newbie?

A granny flat development in the backyard of an existing house is possibly a good place to start & is fairly low risk.

After that, as you've suggested, a subdivision of one lot into two.

Then maybe a small duplex or 3-4 unit development.

All things considered, I would not be suggesting a newbie start in Western Sydney right now.

 

[Evgen]

Thanks Propertunity!

I'm considering a granny too. Why not Western Sydney? Is it too hot? Which areas of Sydney can you recommend (if any)?

 

[Propertunity]

Thanks Propertunity!
I'm considering a granny too. Why not Western Sydney? Is it too hot? Which areas of Sydney can you recommend (if any)?

W Sydney for a novice is like swimming with sharks. Additionally granny-flatable properties (if there is such a word) are typically selling for $650K in the Blacktown area - on very low rental yields. Even adding a granny flat only brings the yield up to a bit over 6%.

Many investors have moved on to the Central Coast or Brisbane (Logan) to do the same strategy at present.

 

[Evgen]

Thanks Propertunity. I may want to keep the properly with granny flat and rent it. I though that in Qld (maybe except for some areas) it is/was only possible to rent a granny to a relative of a resident which very much limits the market. Is it the case? If so, CC sounds better to me as it is closer to Sydney and I'll be able to keep an eye on the construction easily.

 

[Evgen]

Any recommendations as for the specific CC areas?

 

[belvoir]

Bad advice from above. You want to develop, build then sell.

With a granny flat you never get 100% of the cost back.

I.E. Spend $500k on block, spend $90k on granny flat. Unless there are direct comparables you would be lucky to get $600,000.

Factory in holding costs and outgoings/agent fees you will lose.

If you want to develop you need to begin with a duplex. You can save costs by being on site and managing the project, easy and straight forward process. You can sell and make circa 10% after one year, 20% if you are good developer.

 

[Evgen]

Quick question guys. From your experience what requires less funds and is easier/more straightforward: subdivision and construction of a new house or building a duplex?

 

[S.T]

Maybe have a chat to LeoT he's a gun.

 

[Brian84]

I have heard recently that the legislation in Sydney has changed, that being an owner builder can no longer do a duplex development on any site. I would advise to look this up first before purchasing land then find out you can't do the development.

 

[gach2]

In the same shoes as you (maybe slightly more experienced as i started around 15 months ago). Yet to actually finish of a development.

You have a few options

1) Buy and Subdivide and sell - Easiest option in terms of development and cost (excluding purchase of land). The issue is finding a suitable and the cost of suitable block. Gains are actually pretty minimal and you would be close to breaking even but you would get experience and has least risk.

2) Buy, build a dual occ and subdivide eg duplex - Costs are pretty high and unless you have experience in building a duplex be very careful when budgeting your build.

Be careful in western Sydney!!!! While land price is generally cheap(er) there isnt too much difference in build cost so it might not be worthwhile building duplex's unless your a builder. Comparative with other parts of Sydney that have higher land value.

Eg 500k buys land and 700k build, cost of Duplex = 1.2 mil cost price when the end value of is only 550-600k per duplex. After holding costs this could be a big loss.

Other eg 1 mil buy lands 700k build, cost of duplex = 1.7 mil and each unit is worth 1 mil. This is a viable option.

Another option is to buy a house + land that has dual occ potential with retaining the original house. This way your not loosing money on the house, you may be able to rent the house during the process and build will be a lot cheaper. Only issue is finding the right place can take a lot of time.

If i was you look into prices (land and end value) and pick regions you are interested. Then thoroughly go through council LEPs and DCPs to see what the requirements are. Western Sydney has Penrith (not bad but do have stupid rules), Blacktown (not subdivision friendly but possible in certain scenarios), Holroyd (good rules but time consuming) and Parramatta councils.

 

[Evgen]

Thanks for all the responses guys!

I do feel that at this stage one the best options for me would be to build a granny as I've already got a house with land allowing for a granny (SW Sydney). The numbers look good so far and the demand is there. It's also going to improve the cashflow.

Later on I'm considering buying a house with potential for subdivision, renting the house and proceeding with subdivision and construction. For me it looks a bit easier and cheaper option than building a duplex. After that I may consider a duplex.

I'm not 100% sure though if it is worth spending money on a granny right now vs buying a "subdivisable" house and say renting it for now. My thinking is that I can always proceed with a granny/subdivision when there is a downturn in the marker.

 

[Canberran]

Thanks for all the responses guys!

I do feel that at this stage one the best options for me would be to build a granny as I've already got a house with land allowing for a granny (SW Sydney). The numbers look good so far and the demand is there. It's also going to improve the cashflow.

Later on I'm considering buying a house with potential for subdivision, renting the house and proceeding with subdivision and construction. For me it looks a bit easier and cheaper option than building a duplex. After that I may consider a duplex.

I'm not 100% sure though if it is worth spending money on a granny right now vs buying a "subdivisable" house and say renting it for now. My thinking is that I can always proceed with a granny/subdivision when there is a downturn in the marker.

You probably did not read all the posts especially No 7.

As a developer/builder, i will say buy a green site and build a single first if u can not afford a duplex.

 

[Ace in the Hole]

Is a granny flat really considered a development?
When's the last time someone sold a granny flat successfully?
I'd go for a 2plex to start off with at the minimum.

 

[oc1]

Maybe have a chat to LeoT he's a gun.

I'm sure he's caught up to Harry Triguboff by now

 

[vaughan]

The process of getting a gf built is good practice for a "real" development. Approvals, quotes, builders, certification, cost blow-outs and all the other stuff that can go wrong, on a smaller scale.

 

[oc1]

The process of getting a gf built is good practice for a "real" development. Approvals, quotes, builders, certification, cost blow-outs and all the other stuff that can go wrong, on a smaller scale.

True, but, if you are well capitalised, haven't paid too much for the land and have some contacts in the industry to call on for help you are better off not wasting your time on a small development like that you have mentioned.

 

[Ace in the Hole]

The process of getting a gf built is good practice for a "real" development. Approvals, quotes, builders, certification, cost blow-outs and all the other stuff that can go wrong, on a smaller scale.

Practice is good, but do it on the real deal.
Going into something knowing that if you fuk up, that you'll only lose a little bit is not the right attitude in my opinion.
You need to be confident of your abilities and problem solving skills right from the start.
Don't get into development if you're not 100% sure you're going to crush it, or if losing money doesn't phase you in the trade off for experience.

 

[Evgen]

For me the gf option sounds good as I may not have enough finance at this stage to build a duplex in Sydney. Also, as commented previously, it will be some good practice for me. If I decide to proceed with gf I'll be keeping the house and gf as it will improve my cashflow and I can't see a reason to sell it. Once done I'll be looking for subdivisable options on the market.

To sum up, I think I may go the following path:

1. GF construction.
2. Subdivision and construction of a new house.
3. Duplex.
4. Will figure out later...

 

[Evgen]

Btw, I have been through the process of my own home construction recently which has been a great experience. Still lots of things to learn though.