To develop or not?

[RoyalBlue]

Hi All,

I have been a reader of this forum for 6 months or so but my first post today!

My partner and I are in the position to now buy our first IP (looking in Adelaide), and been considering buying a block to subdivide and build two homes. We have experience with building homes so I am not daunted by that process. What I am concerned about is that I am underestimating the costs involved and that the profit at the end of the project may not be worth it. Rough calc so far:
Purchase price $320,000
Stamp duty $11830
Holding costs $20000
Cost of subdivision $30,000
Demo costs $10000
Building costs $380000
For a total of $771830

Assuming the properties will be valued at $450,000 each the profit margin looks pretty healthy to me. We would look to sell one and keep the other to rent out. Can anyone provide any feedback, experiences, advice please? Our other alternative to developing is the old buy and hold, which I know is the safer option.
Cheers

 

[softmonkey]

and if you can only get $400k each? can you afford to hold them while waiting for some gains?

 

[Bazza]

Welcome aboard RoyalBlue.

I'm looking at developing myself at the moment (haven't done it yet) but I believe the profit has to be >20% to make it feasible. Yours is 14% if you can get what you say.

Why not hold both the properties then the sale price is less important. Maybe you should look at what you can rent them for and whether this will be at least cashflow neutral.

Cheers,

Bazza