"To Keep or Not To Keep, this is my question?"

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From: John M


Hello to all.
I am a newcomer to the investing scene and i was wandering if those of you with some experience could help me get my head around a burning question i have?
I'm currently looking around my local area at investing in some property gathering knowledge of my own backyard and trying to build some confidence with what i learn as i go, but i have hit a stumbling block.
Well here it is as best as i can explain it. I purchased my home 5 years ago and now have about 50k equity in it.Its worth 150k.
What i am wandering is am i better off using that equity to invest in property or sell my home to an investor and rent it back off them. Use the cash from the sale to pay off outstanding debts and with what is leftover use that cash to invest.
If anyone has any ideas on this and or the advantages/disadvantages i would greatly appreciate to hear from you.
Looking forward to reading some of your replies,

Thanks John
 
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Reply: 1
From: Michael Yardney


John
You are asking investment advice and I am not licensed to give that.
But some general comments....
You become wealthy through property from the capital gains- the TAX FREE growth in your equity over time.
If you keep your home and buy a new one you will have 2 properties growing in value making you rich.
If you sell one to an investor you will only have one property and you will be helping make your landlord rich and pay him rent as the tenant - it should be the other way around.
Unless you bought a dud property in a bad position, don't sell.
Michael Yardney
Metropole Properties
 
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Reply: 1.1
From: RM .


Michael,

Sorry for the long post.....

I know that you have responded along similar lines in previous posts but I thought I would pass this by you in order to benefit from your wisdom and experience in relation to property ah ah developments??

The Domain MPG magazine in Melbourne recently had a question in relation to property development. The reader wanted to know how much it would cost to demolish the house the reader had and build two units (for approximately $100K each) on the land. (Land Size was not mentioned?)

Archicentre Media Manager Shane Moritz responded to the question with the following -

Quote: "You will be unlikely to build for $100,000, With ResCode planning has become complex with more stringent regulations. For a conventional design, dual occupancy, the town planning costs are around $10,000 and working drawings cost between $5,000 and $10,000. Current construction costs are around $900-$1100 per square metre and with the average unit being 15 squares, the cost will come to $150,000 to $170,000." Unquote:

So, being an amateur, I would like to ask you if you agree with the above?

Now, lets assume I had a 1000 square metre block of land and I also demolished the house and have a clear base on which to develop.

Q1: Under the stricter rules of ResCode, what is the maximum number of units I could build on the land?

Q2: What would be their allowable maximum size? (Allowing for common areas, lock up garages, small courtyards etc?

Q3: Are the town planning, permit and working drawing costs per "development" or will they increase based on number of dwellings?

Q4: Are the construction costs above reasonable or are they on the "high" side? (This will obviously vary dependant on fittings used and potential market)Lets say a little better than basic.

Q5: Ignoring the purchase cost of the land, the clearance cost of the old house but including permits, drawings and construction costs, what would you estimate is a reasonable cost per dwelling to finished stage?

I know some of the questions above may be a little general. All I am hoping for is enough information in which to do a basic cost/benefit analysis. That is, if I were to keep all dwellings, what would would the cost be as compared to what the likely rental yields would be.

If you require more information in which to build up this hypothetical scenario for the many others on this forum, please respond and we can build this into a "real" example.

Thanks in advance.
RM.
"Nothing shapes our journey through life so much as the questions we ask - Greg Levoy"
 
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Reply: 1.1.1
From: Michael G


Hi,

Sorry to but in, but in NSW, our councils have things called DCPs (Development Control Plans), which cover all the technical aspects of block size, set backs (from streets), height envelopes, site coverage (ie ratio of land to building coverage), etc.

This I think would cover most of your questions, they shouldnt be any more than $15 each, the other thing to compliment a DCP is a zone map, which tells you where the zones are (different zones cover different density requirements).

Just a thought

Michael G.
 
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Reply: 1.1.2
From: Michael Yardney


RM
I saw the article and thought the answer was innacurate, well actually i used other words that i won't repeat on the forum
Your questions are general but lets have a go at answering them:-
>
>Q1: Under the stricter rules of ResCode, what is the maximum number of units I
>could build on the land?
The old notion of densities or number of units per sq mt no longer applies so there is no simple answer. The way we work it out is to start with setbacks, how far we have to be from the front and sides, then leave space for "private open space" there is a set area required depending on the size of the units then leave space for driveways and carparking / garages and what you are left with is the footprint of your units. Then you have to work out if these units can be single or double storey.
So there is no easy formula like 1 unit per 350 sq m or build on 50% of the land. Each block is individual under ResCode- it's a real pain!
>Q2: What would be their allowable maximum size?
>(Allowing for common areas,lock up garages, small >courtyards etc?
I sort of answered that above
>Q3: Are the town planning, permit and working drawing costs per "development" or
>will they increase based on number of dwellings?
The costs depend on the number of units in the complex and the complexity of the work.
>Q4: Are the construction costs above reasonable or are they
>on the "high" side? (This will obviously vary dependant on
>fittings used and potential market)Lets say a little better than basic.
I think the costs mentioned in the article are very high
>Q5: Ignoring the purchase cost >of the land, the clearance
>cost of the old house but including permits, drawings
>and construction costs, what would you estimate is a
>reasonable cost per dwelling to finished stage?
How long is a piece of string?? It really depends upon the finish the facades the height of the buildings off the ground etc,etc etc.
>I know some of the questions above may be a little general.
>All I am hoping for is enough information in which to do a
>basic cost/benefit analysis. N
No you haven't given enough information and while I'm sure you're not just trying to get a free feasibility analysis and this is really for the benefit of forum members.
For lots of reasons, including litigation and licence to give advice, I do not think this is the right forum to do these sort of sums.
If you have a specific site you would like to discuss ring me on 9532 8889 or email me.
If enough people would be interested in a little evening chat on property development and how I do these sums for myself and my clients I would be happy to run such a session. Please email me at myardney@metropole.com.au
Michael Yardney
Metropole Properties
 
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Reply: 1.1.2.1
From: RM .


Michael,

Firstly, thanks for the response.

Secondly, No I am not after an evaluation as a freebie. Hell I don't even have the block of land.! All I have been hearing is Rescode this Rescode that and I wanted to get an understanding on whether it is still feasible, profitable and/or worthwhile to develop or simply wait till the developer up the road (literally speaking of course!) finishes and then negotiate to buy the lot off him at below market and/or valuation?

I know I was stretching the what ifs by being very general, I did that purposely. I had even mentioned in my original post the bit about "how long is a piece of string" and then removed it from the final post.

Being rather naive, I was (hoping) that I was going to get a contrary response to the MPG article that would have defined a boundary at which point rental yield becomes negligible leaving only the prospect of capital growth. (In the short term).

Finally, I would be interested to receive details on your next discussion on this topic as well as the possibility of "buyer syndicates. You have the email address above.

Thanks RM.
"Nothing shapes our journey through life so much as the questions we ask - Greg Levoy".
 
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