Thinking of getting into small development?

[Scott No Mates]

Keys to property development

For those fearing the first baby steps, the NSW Master Builders Association are holding another of their regular jam packed one day courses in Sydney next week.

www.mbansw.asn.au/Training/Courses/Keys-to-Property-Development-Seminar/

 

[albanga]

Hey Ace,
If you do not mind me asking, what was the end result on your developments? Was the return worth the hard work?

I am in a predicament at the moment whereby I have DA approval to develop at the rear of my PPOR And based on my sums it will return an ok profit but simply selling the subdivided land will return slightly less but considering the hugely reduced risk, time and Ofcourse mental challenge of the build then it would seem crazy to build.
BUT in saying that if I don't build then I won't get that all important experience which whilst you cannot put a dollar value on is worth a hell of a lot if you want to use a development strategy to achieve your financial freedom.

 

[Aaron Sice]

developing isn't sexy and doesn't come with any kind of surety of the outcome.

it's bloody hard work, trying on the patience levels and one delay in one area can throw everything out.

being time poor points to needing a manager to oversee everything - or risk a bit of backtracking at critical times. make time for your developments and they will make money for you.

if you are concerned then i would say stay out.

henry ford is quoted as saying - "if you think you can or you think you can't - you're right".

if you know you can make it work - not just give it a red-hot go - then go for it.

 

[Ace in the Hole]

Hey Ace,
If you do not mind me asking, what was the end result on your developments? Was the return worth the hard work?

Accumulated 11 new IP's, great for depreciation, built equity and gained valuable experience. There was no hard work involved in my case as I had an awesome project manager, except to pay the progress payments, I hate paperwork.

I am in a predicament at the moment whereby I have DA approval to develop at the rear of my PPOR And based on my sums it will return an ok profit but simply selling the subdivided land will return slightly less but considering the hugely reduced risk, time and Ofcourse mental challenge of the build then it would seem crazy to build.

BUT in saying that if I don't build then I won't get that all important experience which whilst you cannot put a dollar value on is worth a hell of a lot if you want to use a development strategy to achieve your financial freedom.

Well if you ever want to get into developments in future, you've got to get experience somehow, so this small project may be good for you.
Our first 5 unit development was for practice, would have been fine to make no profit as the purpose was to accumulate properties. May have made 1/4 mil from it. 2nd 6 unit went better, may have made 1/2 mil+ ?
I saw it as very low risk so the rewards didn't need to be anything special.

Determine what your future goals are, assess the risks based on your circumstances, and then see if it's worth proceeding in your own case.

..........

 

[Hexawood_1310]

Working out where to go from here

My husband and I recently just bought our 3rd property, of which we now live in.
The other 2 - a unit on the north shore and a house on the central coast are currently rented out and ticking along quite nicely.

We are in the midst of working out what our next step is. Paying down debt is number one, but beyond that, we are debating what our next steps are.

Top of the list is subdividing and building on the land on the central coast (the block is big enough to do this, with side access for a dwelling at the back of the block) Selling the existing dwelling at the front and keeping the new dwelling to make the most of depreciation benefits of the new build.

Other options include simply selling either the unit or the house and using the forecast profit to start a completely new development, or keeping everything as it currently is and expanding into a commercial purchase.

My question most generally is, if you were in my current position, what would you be doing?
Both investments are moving along nicely, this financial year the unit became neutrally geared.
I guess we are in a position where up until this point we have made sensible, straight forward purchasing decisions that we have been comfortable with.
Now we are at a point where we need to make more strategic decisions to try and make these purchases work for us the best way possible.
Obviously, I know there is no right answer and there are many avenues we could take. I am just interested to hear what other people would or have done in a similar situation to us.

Thank you

 

[techie]

For those fearing the first baby steps, the NSW Master Builders Association are holding another of their regular jam packed one day courses in Sydney next week.

www.mbansw.asn.au/Training/Courses/Keys-to-Property-Development-Seminar/

Scott, this is cool - thanks for sharing. I would've loved to go for this but everyone on my team is away that particular day I have to work

Pity because I'm very close to doing a small project

 

[MTR]

My husband and I recently just bought our 3rd property, of which we now live in.
The other 2 - a unit on the north shore and a house on the central coast are currently rented out and ticking along quite nicely.

We are in the midst of working out what our next step is. Paying down debt is number one, but beyond that, we are debating what our next steps are.

Top of the list is subdividing and building on the land on the central coast (the block is big enough to do this, with side access for a dwelling at the back of the block) Selling the existing dwelling at the front and keeping the new dwelling to make the most of depreciation benefits of the new build.

Other options include simply selling either the unit or the house and using the forecast profit to start a completely new development, or keeping everything as it currently is and expanding into a commercial purchase.

My question most generally is, if you were in my current position, what would you be doing?
Both investments are moving along nicely, this financial year the unit became neutrally geared.
I guess we are in a position where up until this point we have made sensible, straight forward purchasing decisions that we have been comfortable with.
Now we are at a point where we need to make more strategic decisions to try and make these purchases work for us the best way possible.
Obviously, I know there is no right answer and there are many avenues we could take. I am just interested to hear what other people would or have done in a similar situation to us.

Thank you

Only you can work out what will suit your particular scenario moving forward and it will be dependent on many factors, including age, the numbers, location, property cycle, risk, learning a new skill, cash flow, equity etc.

What I can say that has not been mentioned is that when it comes to developing if you make it your day job you will be up for lots of tax if you plan to sell on completion, including GST, CGT and stamp duty of course.

I recommend that with any project in the early stages it would be ideal to run the numbers with a savvy accountant and look at options/strategies where you either do not sell and access equity, set up a trust to reduce tax, or if you have losses use them in the early stages of developing to speed up the process and to build up cash flow and sell down.

Tax is something that many overlook including myself.

 

[benofbrisbane]

Qld

Great thread. Does anyone know if the qld master builders (or similar) run a seminar on property development in or around brisbane?

 

[bumblegoodie]

Dear Ace - question for you please

Hi Ace,

well done with your achievement.... if i were in your shoes as beginner i would have started with a duplex locally which is what iam trying to figure out now. But instead you've got the guts to go straight to a 5 townhouse development and interstate as well!!!!

Good on you mate!!!

I think the most concern i have is what sort of cash you will need in a bank to even do a duplex?

Iam reading the forum and most developer say you will need at least 20%.

So if the full land and development costs $1 million then i will need $200K in the bank to start? this mean cash in hand and not in re-financed equity?

 

[Blacky]

You will likely need a bit more than that.

Most banks lend 'up to' 80% of 'hard costs'. That is basically the land value plus the builders contract amount.
The value is usually done "in one line" that is, they don't accommodate for increases in value when you split the title, or "on completion value".

It also excludes any items outside of the building contract. That may include; subdivision costs, demolition, connections, settlement/purchase costs, designs, holding costs etc. etc, etc.

So on your example below - if the land was $300k and the builders contract was $700k ($1mil total). You may have a feaso which looks like this

Land - $300k
Purchase costs (5%) - $15k
Demolition - $10k
Subdivision/Connections $25k
Interest/holding costs $50k
"other" $50k
Construction $700k
Contingency $50k

Total - $1,200,000
Source of funds
Bank Loan $800,000 ($1mil@80%)
Own funds $400,000


there are ways to increase the value of the 'land' by changing the timing of the subdivision, however, this usually adds costs/time to the development.

In short - development requires a lot of cash. Which is one of the reasons why it is so important to find one which 'works' and the Due diligence is so important.

Regards

Blacky

 

[bumblegoodie]

Thanks Blacky.

i think i understood what you are saying.

 

[Shahin_Afarin]

Generally speaking, as the number of units increase so does the amount of cash required. As a starting point you would require at least 30% cash (of the overall value) for a duplex construction.

 

[Colin Rice]

You will likely need a bit more than that.

Most banks lend 'up to' 80% of 'hard costs'. That is basically the land value plus the builders contract amount.
The value is usually done "in one line" that is, they don't accommodate for increases in value when you split the title, or "on completion value".

In short - development requires a lot of cash. Which is one of the reasons why it is so important to find one which 'works' and the Due diligence is so important.

Regards

Blacky

If you have a securuty in WA and have a sub dividable property (up to 3 units) with an LVR of 75% or less on the land value its possible to do a 3 unit sub division with no cash down.

I actually did one recently and will get 100k cash out on completion as the lender will asses the project on end value as opposed to the usual inline value or land plus building contract at 80% LVR.

I have made inquiries for interstate developments with this lender and it was a big no unfortunately, unless you are originally from WA and have property here which I personally found strange

 

[Scott No Mates]

New dates for 2015:

skillassessment.com.au/enrolment-form/property-development-seminar/

 

[Skuttles]

If you have a securuty in WA and have a sub dividable property (up to 3 units) with an LVR of 75% or less on the land value its possible to do a 3 unit sub division with no cash down.

I actually did one recently and will get 100k cash out on completion as the lender will asses the project on end value as opposed to the usual inline value or land plus building contract at 80% LVR.

I have made inquiries for interstate developments with this lender and it was a big no unfortunately, unless you are originally from WA and have property here which I personally found strange

BOOM, get me some of that! Also need to take into account the big hurdle of meeting the bank's interpretation of serviceability.

 

[bob shovel]

Im a "finance issues" guy.

The medium term plan is to get into it myself to project manage and do a fair amount myself. I have worked as a project engineer/manager looking after up to $10m in infrastructure works (mostly poop related) but the plan is to go to uni to complete a degree then get experience with an engineer dealing with subdivisions and residential work to get more experience. Once I get hands on I should be able to tackle it myself, Id give it a go now but need more cash. Ive gone through the DA process for a small extension and parents have subdivied a block and understand the process

 

[Colin Rice]

BOOM, get me some of that! Also need to take into account the big hurdle of meeting the bank's interpretation of serviceability.

Also favorable as they take other banks debt at actual repayments.

 

[Blacky]

Also favorable as they take other banks debt at actual repayments.

Which bank Col?

Im guessing BW or RAC finance?

 

[Colin Rice]

Which bank Col?

Im guessing BW or RAC finance?

Neither.

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