The best option to build and on-sell an IP?

[juggernaut]

Hi all. I am in the early stages of researching the scenario of purchasing a vacant block of land, construct a house to turnkey and on-sell for profit. I would be utilising a Low Doc loan with 80% LVR with financed approved upon review of the fixed price contact of the build plus land cost.

What I am unsure about is the best way to go about it. Below a few options I have considered:

1. My business partner will soon acquire his accreditations to be a licensed builder. Have him build the house and project manage the affair using subcontractors as required.

2. Have a 3rd party independent builder build the house.

3. Have an established large building company build the house (i.e. Devine Homes, Coal Homes, etc)

Of the three options listed above, which will lead to the least expensive construction of a turnkey property? From what I understand to date, variables would include:

- Trade discounts - A larger company would receive higher trade discounts due to the overall volume of materials handled. Is this true? And if so, what would the typical percentile discounts be for a building company and an individual builder?

- Architect / draftsmen fees - These would be less expensive via a larger building company? And is so, by how much?

- Profit margin built into the fixed price contract via a building company and 3rd party independent builder- What are the typical percentile profit margins that larger building companies and independent builders build into their fixed price contracts?

If there are any other major variable I am missing, I would be grateful for any feedback that could be provided.

Thanks.

 

[ChristianB]

It seems that using an "off the shelf" design from a major builder is by far the most economical approach. This is especially so if you can find a project home design that you like and don't need to alter. The cost benefits of using a project builder diminish as you start to make changes - the changes are often expensive. When a home can be built using an existing design, the documentation is already done, along with the materials take offs and the other administrative costs that can add up.

You may find that you can work out a good deal with your business partner, especially if you can use his expertise in informing the design. Avoiding mistakes in the design and documentation of a project is a good way to save money. "Measure twice, cut once" as they say!

 

[bradje]

Just last night I was talking with a builder mate and he is just starting a new house. I asked him directly, how much the house would cost for him to build, vs get another builder to do the lot. (3br, 2bth, 2 garage) Very small block of 380m2.(long and narrow) Flat block

He had already done the estimates which I think would be pretty close since this is his 6th or 7th house.....$125K himself, $200K another builder. 3months work.

Anyway, let's see what others think too.....
JB

 

[juggernaut]

Thanks for the replies to date guys.

JB, i take that one of the primary reason your mate could do it so much cheaper is because he not factoring in wages? If my partner was to build the house, we would have to pay him wage to replace the income received from his current employment.

Still even if I am correct in my assumption and further assuming that my partner was paid $2000 week for the 3 month build, that still leave us approx. $50,000 better of when using your example.

As for the house design Christian, we would do whatever is less expensive: draft the designs from scratch of purchase existing design drawings off a building company, owner builder, etc and ultimately make zero changes to them.

 

[Sailesh Channan]

It appears you have researched this well to come up with your reasoning. If you subcontract the job out then you will not save much on the labour side of the total build cost cost. Therefore, your savings will be essentially on the builders margins and overheads. Most builders work on around 15% margin and overhead allowance is determined by the cost to get a customer.

You also need to consider that even if you use established designs it still needs to be sighted on the new block which will require a drafting fee wind load rating and energy report.

DE Homes, receives the maximum volume discount from most suppliers and we keep our overheads low this allows us to build turkey homes at very competitive prices. Where possible we alter designs to suit the layout of the block or to meet client requests.

 

[wobbycarly]

this allows us to build turkey homes at very competitive prices. Where possible we alter designs to suit the layout of the block or to meet client requests.

Are these bigger than doghouses?

 

[Pa1nter]

I have a mate who has a current builders licence ,retired and last year he built a spec house to sell on.
He used all subcontractors,didn't do any of the work himself.
The house was 200 metres 4bed 2 bath.The total cost was $165K building costs.
A project builder in the same area for a similar house was $180K,you have to think is it worth the effort??
The only difference is he did it right,but does that really matter if you're selling it on.The price he got for it was a similar price as the project builders house.

I would like to go owner builder,but while I have a good income it isn't worthwhile.
Maybe when I retire and don't have an income "sure"