Thoughts on potential subdivision

[cyan1978]

Just wanting some opinions/thoughts from more seasoned investors and developers. My husband and I are thinking of subdividing our block and building 2 townhouses, keeping one and selling one. Our block isn't huge so will check with council soon if this is even an option. Will be doing up some preliminary plans though before meeting with the planner. We have a builder in mind as well and he does high quality builds. We are anticipating costs to be around $600k (maximum if possible, less would be better).
The concern I guess is whether this is a good time to do this as the melbourne market is somewhat crashing. We are intending to do a 4BR, 3 bath, 2 garage space townhouse. Its in a suburb about 12-13km from the melbourne CBD, easy access to eastern freeway and good local schools. 4BR townhouses (new) have had asking prices in the mid to high $800Ks and have been selling, not sure how long they are on the market for so still need to do some research in that regards. Also if this goes ahead, completion won't be till end 2012 at the earliest, more realistically would be in 2013/early 2014.

Would it be a good time then for construction etc and sale then. This is of course, thinking the market isn't going to crash for years..

We also have an IP in ballarat that is LT investment.

Thanks for your thoughts.

 

[Propertunity]

The concern I guess is whether this is a good time to do this

One could mount an argument that in times like this, when the market may go flat for a time, that this is a good time to be doing a development for profit. That way you are actively manufacturing gain instead of waiting for organic capital growth.

as the melbourne market is somewhat crashing

I would not call a softening or flattening or even a fall of 5% a "crash".

Also if this goes ahead, completion won't be till end 2012 at the earliest, more realistically would be in 2013/early 2014. Would it be a good time then for construction etc and sale then. This is of course, thinking the market isn't going to crash for years.

That is one of the risks of development. High reward = high risk. The issue is that no-one can tell you what the market will be doing when the development is finalised. That's one reason why you see so many developers go broke.

However, if you are conservative in your estimates, have a buffer built in for delays and overruns, which inevitably occur on all projects, and have, as a fall-back position, of "holding to rent" (rather than "having to sell") at the project's conclusion, then you should be OK. You just need to consider all possibilities and given a worse case scenario, if you're still OK, then go for it.

All the best.

 

[Aaron_C]

You just need to do the numbers, and work out how much money you can make from the project. If it's profitable enough to be worth the risk, then go for it...Council approval takes ages anyway..

Have you consulted an architect or anyone similar about your plans?

 

[cyan1978]

Lucky thing is hubby is an architect himself (so will be saving lots on those fees anyways), so is already doing up preliminary drawings, guess we just need to ring council and make an appt with a planner to see if this is even feasible within their planning regulations and if so, will start doing up the sums. The idea is to hopefully be mortgage free but I would be satisfied just to have our mortgage reduced to $100k if possible.

Does anyone know the rough average price of constructing a double stoery 4 BR, 3 bath, 2 garage townhouse?? I have estimated $300K (but this is inclusive of everything-fees, soil reports, landscaping, etc etc). Hence total cost of $600k for both houses...

This forum is great to bounce off ideas, thanks everybody!

 

[Aaron_C]

What is your quality? What suburb?

 

[cyan1978]

Box Hill North, good quality build with a master builder that hubby has worked with before and was impressed with, haven't gotten proper quotes yet though. We will go meet the planner on wed and take it from there.

 

[Aaron_C]

Just take a look around for what sells in that area, what they sell for etc. I got a feeling that townhouses in Box Hill North aren't very high quality...all you need to do is make sure that the houses are big. The people who buy there don't care whether the benchtop is granite or marble

 

[cyan1978]

So is my estimate too high or just about there?? I mean, we aren;t aiming for the top notch finishes etc but more towards, the better quality/durable/practical finishes though

 

[Aaron_C]

Well I assume that your house, being 4/3/2 will be at least 220sqm in internal size. A pretty ordinary quality house costs about $1000/sqm so after you add up all the consultant fees etc I think $300,000 is quite a good estimate.

 

[cyan1978]

Thanks Aaron C . If all things line up, we'll go ahead..quite exciting really

 

[Tools]

Cyan,
What is a "master builder"?


Tools

 

[Aaron_C]

Someone who is a member of the Master Builders Association.

 

[evshaun]

Hi Cyan,

Can you keep this post updated, in regards to your progress?

We also have a house in Box Hill North that we're looking to build one at the back. Original thought was to build two, but have revised plan to build one at back instead. That way we can minimise our outlay/risk, live in one while the other is being built and if necessary sell the front house without incurring CGT.

You're probably further along in the process than us, as we haven't yet talked to the town planner.

Given your husband is an architect would be a huge bonus. We are looking at some of the big builders Metricon/Burbank which do dual occ solutions. I'm still dubious about their quality and customer service, but attracted by their all in one approach and pricing. I figure if I add about 20% on top of their base price, that would get me to the actual cost to build. Base prices so far have been around $230,000 - $260,000.

 

[Aaron_C]

those big builders' designs are pretty awful....

 

[evshaun]

those big builders' designs are pretty awful....

Any suggestions then? There doesn't seem to be any big builders offering dual occ solutions. Most won't build under 30 sq. houses, or have minimum block size of 500+.

The other option is to get a draftsman/architect, however, not confident in my selections and it's hard for me to visualise the final the product from drawings.

 

[Aaron_C]

A bit hard for me to say without knowing more about your block dimensions/location/frontage

 

[cyan1978]

Hi Evshaun,
We will be meeting the planners tomorrow. You can go and have a chat without making an appointment as a starting point. My husband has done up some preliminary plans and drawings and we will see what they say. We will have to demolish our home as we don't have the luxury of a huge yard to just build another one. The plan is to demolish and build 2 townhouses. The houses that we have planned for aren't too huge but decent sized ~22-23sqm (inclusive of a double garage). We will see if we can make the upstairs a bit bigger if allowed but looking at the plans, its pretty decent for a family of 2 adults and 2 kids, possibly with grandparents as well. Well, I personally don't want a McMansion anyways so am happy with what we have come up with.

It is really handy to have hubby as an architect as we can switch and change things till we are happy with it. The builder has also worked with him on some projects so my husband is happy with the standard that they do. I guess right now, we are concerned that council will knock us back as our land isn't huge and the facade we are keen on building is quite modern and not seen much in this suburb yet. But if there is a glimmer of hope, we will proceed to get proper quotes from at least 3 builders. Have est ~ $300k for each house (hoping it to be much less if possible)

 

[evshaun]

Good luck with the planner tomorrow.

On a side note, make sure you do your sums and factor in everything. My understanding was when you demolish your home you'll lose your PPOR exemption. Talk to your accountant and take into consideration the tax implications also when you sell. CGT and GST will eat into your profit margins.

Aaron,
To answer your question, we are in Box Hill North. In the backyard we have a block size of approx 15.24(w) * ~25(l)m to play with, not taking into consideration required setbacks.

 

[cyan1978]

Yeah...that is why we just want to have a chat with the planner first before taking it too much further...cos if its not feasible, there's no point proceeding much further. However, if there is a fair chance it can go through, then we will have a in depth talk with the accountant and see what ramifications there are. If build costs are too high as well, then might not be worth going ahead. We do intend to keep one though as a PPOR so will check if the CGT will only be on the one we sell. So many questions and so many possibilities....

 

[Aaron_C]

Good luck with the planner tomorrow.

On a side note, make sure you do your sums and factor in everything. My understanding was when you demolish your home you'll lose your PPOR exemption. Talk to your accountant and take into consideration the tax implications also when you sell. CGT and GST will eat into your profit margins.

Aaron,
To answer your question, we are in Box Hill North. In the backyard we have a block size of approx 15.24(w) * ~25(l)m to play with, not taking into consideration required setbacks.

That sounds like plenty but yes, have to consider setbacks. As far as I am aware, under the current planning laws the setback for a new dwelling has to be the average of the setbacks of the two adjacent dwellings.