Time to consider licking the marshmallow again :)
- Thread starter TomL
- Start date
As the feasibility from Metropole is being discussed, may I please have some input?
Let me firstly explain, I am not giving you with intricate details of Tom's project so these points are general points. There are currently over 104 residential developments under Metropole's control, and they are under the stewardship of Gavin Taylor my business partner and director of Metropole Projects.
So the general points are:
1. The feasibility studies are just that. A viability study. They are not strict budgets. They are a continually changing spreadsheet. Hundreds of things change from the time the project is first proposed to when the project is completed. The numbers are keep changing continuously. Things such as building sizes, materials, finishes, building costs, market influences, interest rates all vary during the project and change considerably.
2. One reason building costs may have changed in this project is the levels of finish. From what I understand a number of special features were asked to be incorporated into this property which would considerably add to the building costs. Also building costs rose dramatically over the last 2 years yet property values haven’t.
3. The valuation seemed very low. I just recently completed my property development in the next street and my bank valuations were considerably higher than these, but I can give clear market examples of market sales occurring. Yes sales - not valuations in the adjoining street are considerably higher than this valuation.
4. Rental return on end values is not a good test. Of course the rental return on end values is low - we know that for high growth properties. It would be more appropriate to see what the rental return is on real costs. Here you will find it is higher.
5. Remember - this development took place during the flatess two years in the property market over the last ten years. It still showed a profit.
6. A much better assessment of investment success is using Jan Somers PIA working out what is now going to happen based on funds invested. This would be a very interesting exercise to do an Internal Rate Return.
Let me firstly explain, I am not giving you with intricate details of Tom's project so these points are general points. There are currently over 104 residential developments under Metropole's control, and they are under the stewardship of Gavin Taylor my business partner and director of Metropole Projects.
So the general points are:
1. The feasibility studies are just that. A viability study. They are not strict budgets. They are a continually changing spreadsheet. Hundreds of things change from the time the project is first proposed to when the project is completed. The numbers are keep changing continuously. Things such as building sizes, materials, finishes, building costs, market influences, interest rates all vary during the project and change considerably.
2. One reason building costs may have changed in this project is the levels of finish. From what I understand a number of special features were asked to be incorporated into this property which would considerably add to the building costs. Also building costs rose dramatically over the last 2 years yet property values haven’t.
3. The valuation seemed very low. I just recently completed my property development in the next street and my bank valuations were considerably higher than these, but I can give clear market examples of market sales occurring. Yes sales - not valuations in the adjoining street are considerably higher than this valuation.
4. Rental return on end values is not a good test. Of course the rental return on end values is low - we know that for high growth properties. It would be more appropriate to see what the rental return is on real costs. Here you will find it is higher.
5. Remember - this development took place during the flatess two years in the property market over the last ten years. It still showed a profit.
6. A much better assessment of investment success is using Jan Somers PIA working out what is now going to happen based on funds invested. This would be a very interesting exercise to do an Internal Rate Return.
There's a few Isabella's getting around now. Peter 14.7's daughter is an Isabella and my baby-sitter's daughter is also an Isabella. Seems to be popular right now...
Cheers,
Michael.
Thankyou Michael Yardley for your explanation and l do apreciate that you cannot discuss TomL project specifically.
I just think that its always good to get all sides of the coin before one ventures into a new area.What should and could be the end result is not always the case.Be prepared for the odd hickup.
cheers yadreamin
I just think that its always good to get all sides of the coin before one ventures into a new area.What should and could be the end result is not always the case.Be prepared for the odd hickup.
cheers yadreamin
The Washup
What went wrong?
1. Paid too much for property – I rationalised the price by looking at the initial feasibility and decided that paying more than what I thought was a good deal was ok. My analysis indicated that a good price for the property was around $385K. So much for making money when you buy! Residex and RP Data reports indicated that what I paid was at the ‘upper end of what was reasonable’.
2. Not checking and understanding feasibility. There were too many items in the feasibility that I had no direct understanding of. Consultants fees etc were a mystery to me, but the biggest problem was the building cost. I didn’t take time to verify local rates per square meter for the various levels of finish. The final feasibility had an error in it in the building cost that I didn’t even pick up, as I didn’t have a clue what to expect. For some reason the build cost was 100K lower than the first 3 feasibilities, and kept this feasibility looking pretty sweet. I don’t know what I would have done at the time if I spotted this.
3. Delays
·[FONT="] [/FONT]Council – I guess this wasn’t too unexpected, but it was still a pain. Had to to-and-fro a lot, they just didn’t like the upstairs on the front townhouse. Ended up being pressured to compromise with only 2br upstairs, and a study/br downstairs. For some reason we weren’t allowed to talk to the architect during this time, we would have loved to see what the hell was going on. I still wonder whether a better solution could have been found, given that there must be at least 50 double story townhouses in the area with 3br up top. Lesson learnt.
·[FONT="] [/FONT]Neighbour – challenged development. Kicked up a fuss about an upstairs toilet facing their prayer room. Could have gone to VCAT and won, but instead Metropole invited them to amend our drawings (at the neighbours cost) to something that would suit them, then both parties signed off on the revised plans. I’m happy with how this was handled, but was a painful delay. Maybe in future I will talk to the neighbours first, invite them to look over the initial plan to see if there is anything they have concerns about.
·[FONT="] [/FONT]Removing house instead of demolishing. This was a biggie. We thought we could save the 8K demolition and site clearing fee by having the house removed. Big mistakes made all around here. Didn’t check on the ‘company’ doing the removal. Absolute rogues – scum of the earth, If I recall correctly, the last word uttered out of my mouth to one of their representatives ended in “*uck you”. We did save 4K by them removing the house, but they left an absolute wasteland on the site so we had to pay to have it cleared. This cost us at least 3 months delays. If I recall, Peter Comben once mentioned that at the lowest rung on the chain in the building industry sits the house removers. I believe him now. He is a wise man.
·[FONT="] [/FONT]Selecting builder. A builder was all lined up, and pre-approved by Metropole for our project. When the day came for them to quote they indicated that they didn’t want to play ball anymore. Had to issue quotes to more builders. Luck has it we got an absolute gem of a builder.
·[FONT="] [/FONT]Laying slab – rain delay. Mother Nature decided we needed a large pond on our site for ducks to swim in. For 4 months. Surely there must be a way of draining a site? I would have used a bucket If someone said it would make a difference!!
4. Building
·[FONT="] [/FONT]Architect screwed up outside wall dimensions, designed for regular brick, not sandstone. We indicated right from the start the product we wanted, but must have fallen on deaf ears. Apparently this is a real pain for the builder, and a real basic mistake to make for an architect. Resulted in extra labour for builder, and a slight delay for all the cutting required on every single corner. I should have suspected the quality of the architectural workmanship from these twits by the spelling mistakes on all our plans.
Lessons
1.[FONT="] [/FONT]I am responsible for everything. There is no blaming anyone for anything. It’s my money, I have to accept full responsibility for what I do with it, who I give it to and how I allow them to treat me. I have no regrets whatsoever; I hold no animosity in my heart. I simply won’t use certain people and certain companies again, and will tell anyone who cares to listen the same.
2.[FONT="] [/FONT]Always get references for anyone you are about to give money to. Inspect their work, talk to the people that have employed them before.
3.[FONT="] [/FONT]Listen to your gut instinct about people. Don’t ignore it. Especially listen to it when your wife has the same feeling.
4.[FONT="] [/FONT]Make sure a builder (preferably the one you intend using to build) gets involved with your design from the start. This I guess is especially important if the design isn’t a tried and tested cookie cutter plan. It turns out that the design of a house if left to an architect can be an absolute disaster because they lack certain ‘real world’ view of the product they are designing. I lost count of the number of times my project manager and builder mentioned this point. Maybe I should have put this as the first lesson.
Positives
1. I understand the development process now. Will the next one be more successful? Who knows? We are definitely doing more. Eventually the probability of success will swing more and more in my favour. I can’t ask for more than that. Well I could but I’m not that sort of person. There’s just something about developing that I like, I cant explain it.
2. I understand the roles of the people in the development process, what they do, what they shouldn’t do, where the vested interests lie and how I will approach these people in the future.
3. Found a great builder. He thankfully never held back on expressing his opinion or point of view on anything, and always had solutions to our problems. Nothing was too hard or mundane for him to do or explain. I learnt so much from this guy, we treated him and his wife along with our project manager to a nice dinner out. Not sure if that’s the done thing but it’s the least we could do. In fact once we finally got the go ahead to build he made up lots of time and brought the building phase in way ahead of schedule.
4. Realised that I never want to be a project manager. It’s just not me, I will always employ someone to do this for me.
Cheers,
Tom.
What went wrong?
1. Paid too much for property – I rationalised the price by looking at the initial feasibility and decided that paying more than what I thought was a good deal was ok. My analysis indicated that a good price for the property was around $385K. So much for making money when you buy! Residex and RP Data reports indicated that what I paid was at the ‘upper end of what was reasonable’.
2. Not checking and understanding feasibility. There were too many items in the feasibility that I had no direct understanding of. Consultants fees etc were a mystery to me, but the biggest problem was the building cost. I didn’t take time to verify local rates per square meter for the various levels of finish. The final feasibility had an error in it in the building cost that I didn’t even pick up, as I didn’t have a clue what to expect. For some reason the build cost was 100K lower than the first 3 feasibilities, and kept this feasibility looking pretty sweet. I don’t know what I would have done at the time if I spotted this.
3. Delays
·[FONT="] [/FONT]Council – I guess this wasn’t too unexpected, but it was still a pain. Had to to-and-fro a lot, they just didn’t like the upstairs on the front townhouse. Ended up being pressured to compromise with only 2br upstairs, and a study/br downstairs. For some reason we weren’t allowed to talk to the architect during this time, we would have loved to see what the hell was going on. I still wonder whether a better solution could have been found, given that there must be at least 50 double story townhouses in the area with 3br up top. Lesson learnt.
·[FONT="] [/FONT]Neighbour – challenged development. Kicked up a fuss about an upstairs toilet facing their prayer room. Could have gone to VCAT and won, but instead Metropole invited them to amend our drawings (at the neighbours cost) to something that would suit them, then both parties signed off on the revised plans. I’m happy with how this was handled, but was a painful delay. Maybe in future I will talk to the neighbours first, invite them to look over the initial plan to see if there is anything they have concerns about.
·[FONT="] [/FONT]Removing house instead of demolishing. This was a biggie. We thought we could save the 8K demolition and site clearing fee by having the house removed. Big mistakes made all around here. Didn’t check on the ‘company’ doing the removal. Absolute rogues – scum of the earth, If I recall correctly, the last word uttered out of my mouth to one of their representatives ended in “*uck you”. We did save 4K by them removing the house, but they left an absolute wasteland on the site so we had to pay to have it cleared. This cost us at least 3 months delays. If I recall, Peter Comben once mentioned that at the lowest rung on the chain in the building industry sits the house removers. I believe him now. He is a wise man.
·[FONT="] [/FONT]Selecting builder. A builder was all lined up, and pre-approved by Metropole for our project. When the day came for them to quote they indicated that they didn’t want to play ball anymore. Had to issue quotes to more builders. Luck has it we got an absolute gem of a builder.
·[FONT="] [/FONT]Laying slab – rain delay. Mother Nature decided we needed a large pond on our site for ducks to swim in. For 4 months. Surely there must be a way of draining a site? I would have used a bucket If someone said it would make a difference!!
4. Building
·[FONT="] [/FONT]Architect screwed up outside wall dimensions, designed for regular brick, not sandstone. We indicated right from the start the product we wanted, but must have fallen on deaf ears. Apparently this is a real pain for the builder, and a real basic mistake to make for an architect. Resulted in extra labour for builder, and a slight delay for all the cutting required on every single corner. I should have suspected the quality of the architectural workmanship from these twits by the spelling mistakes on all our plans.
Lessons
1.[FONT="] [/FONT]I am responsible for everything. There is no blaming anyone for anything. It’s my money, I have to accept full responsibility for what I do with it, who I give it to and how I allow them to treat me. I have no regrets whatsoever; I hold no animosity in my heart. I simply won’t use certain people and certain companies again, and will tell anyone who cares to listen the same.
2.[FONT="] [/FONT]Always get references for anyone you are about to give money to. Inspect their work, talk to the people that have employed them before.
3.[FONT="] [/FONT]Listen to your gut instinct about people. Don’t ignore it. Especially listen to it when your wife has the same feeling.
4.[FONT="] [/FONT]Make sure a builder (preferably the one you intend using to build) gets involved with your design from the start. This I guess is especially important if the design isn’t a tried and tested cookie cutter plan. It turns out that the design of a house if left to an architect can be an absolute disaster because they lack certain ‘real world’ view of the product they are designing. I lost count of the number of times my project manager and builder mentioned this point. Maybe I should have put this as the first lesson.
Positives
1. I understand the development process now. Will the next one be more successful? Who knows? We are definitely doing more. Eventually the probability of success will swing more and more in my favour. I can’t ask for more than that. Well I could but I’m not that sort of person. There’s just something about developing that I like, I cant explain it.
2. I understand the roles of the people in the development process, what they do, what they shouldn’t do, where the vested interests lie and how I will approach these people in the future.
3. Found a great builder. He thankfully never held back on expressing his opinion or point of view on anything, and always had solutions to our problems. Nothing was too hard or mundane for him to do or explain. I learnt so much from this guy, we treated him and his wife along with our project manager to a nice dinner out. Not sure if that’s the done thing but it’s the least we could do. In fact once we finally got the go ahead to build he made up lots of time and brought the building phase in way ahead of schedule.
4. Realised that I never want to be a project manager. It’s just not me, I will always employ someone to do this for me.
Cheers,
Tom.
Tom.. great info.. really well presented.. thanks so much.
How big were the units (floorspace..) ? Have you worked out a per-sqm cost for the construction?
Hi Tom,
thank you for all that valuable information, greatly appreciated... the end result looks superb... What suburb was this project in?
Going through the figures, it does seem like the Town Planning figure was quite high, what did that entail? (ie. $14,701) in addition to the Engineering & Work Drawings?
Also, you indicated that you are responsible for everything, but by paying $40k for Project Management, shouldn't that be what the PM is hired for? (ie. find problems in drawings early in the piece) For that price you would expect everything to go clockwise...
Well done once again & hopefully you have even greater success in your next development project (hopefully utilising the knowledge you gained from this process)...
Cheers,
Manny.
thank you for all that valuable information, greatly appreciated... the end result looks superb... What suburb was this project in?
Going through the figures, it does seem like the Town Planning figure was quite high, what did that entail? (ie. $14,701) in addition to the Engineering & Work Drawings?
Also, you indicated that you are responsible for everything, but by paying $40k for Project Management, shouldn't that be what the PM is hired for? (ie. find problems in drawings early in the piece) For that price you would expect everything to go clockwise...
Well done once again & hopefully you have even greater success in your next development project (hopefully utilising the knowledge you gained from this process)...
Cheers,
Manny.
thanks for the info tom - i've taken away a few gems (like talking to the builder before taking plans to council).
i do have a question. if you were the one doing all the running around and organising of site clearance, architect, builder, council etc - what were you paying metropole $50k to do?
i do have a question. if you were the one doing all the running around and organising of site clearance, architect, builder, council etc - what were you paying metropole $50k to do?
No no no no ...
The only running around I had to do was with the house remover.
Everything else was done by the project manager, to whom I am eternally greatful.
Also ...
(Manny) I said I take full responsibility for the outcome, I didnt personally do the work. I dont have anywhere near enough time or experience to do it myself effectively just yet, thats what MEtropole was used for.
(Dunc) Units were 19 and 17 sqm. Roughly $1200/sqm.
(Turk) Mt Waverley Vic.
Tom.
The only running around I had to do was with the house remover.
Everything else was done by the project manager, to whom I am eternally greatful.
Also ...
(Manny) I said I take full responsibility for the outcome, I didnt personally do the work. I dont have anywhere near enough time or experience to do it myself effectively just yet, thats what MEtropole was used for.
(Dunc) Units were 19 and 17 sqm. Roughly $1200/sqm.
(Turk) Mt Waverley Vic.
Tom.
Thanks Tom, kudos to once again you for sharing so many facts, figures and thoughts.
Thanks TomL for your honesty. Sounds like you learnt a great deal from the experience. Must of got a bit stressful at times.I have to admit it doesnt sound like "armchair developer" to me. If you take what you have learnt from this onto your next project l am sure you will do very well.
cheers yadreamin
cheers yadreamin
