Would You do This Development???

[Mindmaster]

Doing some research learning about potential development blocks and came across this one.

It looks doable to me but my knowledge and experience of developments is minimal so I'm very curious to what people think of it in terms of doability as a worthwhile development.

http://www.realestate.com.au/buy/pr...y&includeSurrounding=false&source=refinements

The Block
Fairfield Sydney
$1.15 million
1967sqm
Has approval to build 6x3 bed and 2x2 bed town houses

The Cost
My numbers/assumptions maybe (probably) are way out
$1.15 million for land
$1.21 million for cost of buildings
Assuming total build area of 570 (95sqm per 3 bedder and 70sqm per 2 bedder) and a cost of $1700sqm
$100k for holding cost (6% interest) and other costs
$2.46 mill total development cost

End Value
$2.96 million value ($380k for 3bd, $340k for 2bd)
$500k Gross profit
20% margin

Did not take into acount purchase costs.

It backs onto a railway line but is walking distance of train station

 

[Truly Exotic]

at first glance,
here are a few problems that I can see doing a quick scan,

- you need to incorporate agents costs, so 2% for example, so minus $60k
- from time to build to completion might be 6-12 months, however you might need to hold for a few months extra, so give it 3 months holding costs extra as a buffer minus $35k
- dont forget GST if you are selling, so it becomes 2.69m+ $270k gst

at this point im down to $135k profit which is ROI of 5.8%
say you decide to keep it and then no gst applies, you get a profit of $405k which is 16%

Edit: 6% does seem a little on the low side, but maybe one of the brokers can clairfy what up to date commercial rates are

edit: $585/1000sqm seems a tad expesnive as well

 

[John_]

That site is worth no more then 750k

 

[Shahin_Afarin]

Have you factored all the site costs? What does that look like or are you including that in your $1700 per sqm?

Regards

Shahin

 

[mattnz]

A few key issues:
1. The 2 and 3 bed townhouses are too small. Will either be tiny, or you need more sqm. Need to include garages. Typically allow 120-130 sqm 3 bed, 2 bath, 1 garage and around 100+ sqm for 2 bed, 2 bath, 1 garage.
2. Build cost is too high, unless very high spec. No point doing high spec backing onto a train line. Should be in the $1400-$1500 / sqm range, turnkey
3. You will struggle to sell anything backing onto a train line, unless you heavily discount from what everything else is selling for.

To me it sounds like a lemon that the current owner couldn't get the numbers to work for, get presales etc.

 

[Tigerboy]

at first glance,
here are a few problems that I can see doing a quick scan,

- you need to incorporate agents costs, so 2% for example, so minus $60k
- from time to build to completion might be 6-12 months, however you might need to hold for a few months extra, so give it 3 months holding costs extra as a buffer minus $35k
- dont forget GST if you are selling, so it becomes 2.69m+ $270k gst

at this point im down to $135k profit which is ROI of 5.8%
say you decide to keep it and then no gst applies, you get a profit of $405k which is 16%

Edit: 6% does seem a little on the low side, but maybe one of the brokers can clairfy what up to date commercial rates are

edit: $585/1000sqm seems a tad expesnive as well

Agreement with everything you've said. A project that size will always have other costs.

Just a note on your GST calculation, you could apply the margin scheme and based on the above fingers GST would not be more than $75000.

 

[TMNT]

Agreement with everything you've said. A project that size will always have other costs.

Just a note on your GST calculation, you could apply the margin scheme and based on the above fingers GST would not be more than $75000.

where did you get that $75k figure from, my understanding of the margin scheme is what I Based those figures,

from an extract from ato website

EXAMPLE 1: using the consideration method for property
purchased on or after 1 July 2000
Bob is a GST registered builder. On 1 December 2002, Bob
purchased a block of land for $150,000 from a vendor who
was not registered for GST.
Bob paid $550 in conveyancing fees and $7,000 in stamp
duty on the purchase of the land.
Bob later constructed a house on the land and sold the
house and land for $315,000. Bob chose to use the margin
scheme to work out the GST on the sale.
The margin for the sale of the house and land package is
$165,000, the sale price of the property minus the purchase
price of the property ($315,000 − $150,000). The GST Bob
must pay on the margin for the sale is $15,000
($165,000 × 1/11th).
Bob has a tax invoice for the conveyancing fees and can
claim a GST credit of $50 ($550 × 1/11th) in the tax period
in which the purchase applies to.
Bob also holds tax invoices for $110,000 of business
purchases he made when building the house. Bob is able
to claim $10,000 in GST credits for these purchases.
Bob is not entitled to any GST credits on the stamp duty
as GST is not included in the cost


on the assumption the building costs are "$1.21 million for cost of buildings" + GST?