Forum Replies Created
Hi Tania,
I think 3 townhouses is a great size – not too small – not too big. In fact one of the advantages of being no more than 3 dwellings in the one development is that you will meet most of the major banks criteria for residential rather than commercial funding requirements. Not only is this cheaper and easier finance to access but also alot less involved in terms of the criteria. As long as you can demonstrate servicability and have sufficient equity, you won't need presales and able to borrow up 80% of acquisition and construction costs. We have done an number of different size developments for both ourselves and clients and I don't believe that a deal has to be big to be profitable – I've had 'small deals' (ie., just two dwellings) have higher return on investment and less risk than large ones – plus you have them complete in a shorter time frame.
Few questions:
– What geographic area are you looking to do this in?
– Do you intend to hold and rent out the townhouses on completion for long term growth and tax purposes in the medium/long term or to sell them on completion?
– Although you are overseas – are you an Australian resident for tax purposes?If you have a good relationship with a reasonably senior staff member of your existing (Australian) bank I would suggest contacting them in the initial stages to ascertain your borrowing capacity. Then do some broad figures to start with on:
– purchase of land costs
– anticipated holding times prior to being able to commence construction (town planning), construction and sales (if you are selling) time frames (factor these into your budget for holding costs)
– Development costs: town planning, design, construction, holding (insurance, rates, interest) and if selling sales costs
– Ongoing income and costs if you don't intend to sell: obtain an approximate rental appraisal (I've had this done off plans in the past) and factor in ongoing rental managment, maintenance, rates, interest etc., against the rental income.
– End Value estimations and demand – what is selling, how long does it take to and what for in the area you are looking at, consider demographics and level of spec (finish ie., stone versus laminate kitchens etc., )
– with the right team in place I don't think it a 2-3 dwelling development has to have a project manager, this would simply be for your comfort. Your builder will be able to provide you regular updates of where things are at including photos, site reports and copies of required by council (or private building certifier) inspection reports carried out during the project. Your financier will only pay the builder once each stage is complete and has been inspected by their valuer.I wouldn't rule out the option of even a two dwelling development (on say a splitter block) as well – the advantage here is that if not in a demolition control precinct you might only require building approval as opposed to development and building approval which is a much lengthier and costly process – worth weighing up different scenarios.
Kind regards
Meg
No problem at all Robby, let us know if you are currently investigating any particular sites and we'd be happy to take a look for you from here. Feel welcome to give me a call to discuss if you'd prefer – contact details are on our website.
Kind regards
MegHi Scotty,
A short answer from me – plenty of great ones above….
You don't need to stick to one strategy.
Work out where you want to be (in terms of assets and cashflow) at a target date.
There are numerous ways to get there and you don't need to stick to one.Hi jhk31,
I'd have no issue if your plan is to renovate and refinance (as opposed to flip in the short term). Many of the suburbs that were partially flooded are well established and remain desirable places to live. The increased rental yields are likely to carry you thru nicely. If you've got a sound equity position and don't need LMI – with the right place go for it.
I'll throw a red herring out there but I definately believe that the extent of the flood in Brisbane this year was due to mismanagement of the dam – not being used for what it was meant for – flood mitigation. We drove over the dam wall the week prior to all the rains and were close enough to having wet feet. Watching the dam levels on the weather channel in December and early January, prior to the floods made us think 'what the…. are they doing'. It doesn't take $15m to work out this was largely avoidable and hopefully enough butt is being kicked / responsibilities put in place to ensure that the dam operates as it was intended to into the future.
All the best
Meg
Hi Jake,
Just want to congratulate you on being a young gun – only 20 and getting your Builders Licence – awesome.
We are bit longer in the tooth than you (but not old enough to be your parents!) but similar background. My partner Carl is a Builder (Carpenter by trade). Our strategy is a mix of build & sell, build & hold (rent out) and buy existing / renovate & hold (rent out) – with development on the same block where possible (ie., buy an old house on large block, reno and build 2nd dwelling at the rear). Our sole goal with the build and sells is to generate income to enable us to increase our long term property portfolio. You may be surprised but very few Builders actually have an investment portfolio – many just see the lights of the quick development dollars and thats where it ends. Our sell developments are the equivalent to someone else's job – they are the fuel for the whole engine, in fact we have done almost solely our own work over the last few years and only at the moment (as I no longer work outside the business and we got affected by the floods on our farm and not eligble for any assistance due to having the outside business, building) ramping up our client work. Over the long term holding property will put you in a sound equity position and enable you to gradually get into larger projects. The FHOG wasn't around when I bought my first property at 20 and putting the 20% plus purchase costs together that were required then in the early 90's meant sacrifice. I bought another few properties down in Victoria in my 20's which we still own (10 years down the track) and when I met Carl the growth in those properties enabled us to leverage into other projects. It is very rare to hear someone say 'gee I wish I'd sold that property' more often than not we look back and kick ourselves for selling out when we look at current prices.
I think your strategy of buying an older property using the FHOG, doing a reno and then leveraging against the increase in value for future investments as the opportunities arise is sound.
When you do start to look outside of PPOR reno's I definately recommend getting some Accountant advice on structure. It may be that you don't put everything under one. Some of our property is under the Trust entity, the build / sell often in the company name and some of it in our personal names.
All the best.
Meg
Hi John,
We are active developers and investors.
My advice is to do some research and put your toe in the water with a small project. If you haven't gone thru the building process before – simply build a spec house (in the right area where you'll make a few dollars). Praps graduate from that to a 2 unit (duplex site). Put into action what you already know, learn along the way from your first project, keep your ears and eyes open to others (take everything in but not neccessarily apply everything – that where you come in) and apply the lessons from one project to the next.Not every deal needs to be a big deal – we sometimes have a few smaller projects on the go and other times have one larger one. There are no fixed boxes – each project on its merit. Get good at and understand your numbers. Once you have understand the macro factors influencing your market, do a back of the envelope feasibility then work this out in finite detail including scheduling if it looks like a potential project may fly.
All the best
Meg
Good evening Awdevelopment,
Definately have a chat to a town planner, you could also give council a call direct – if you already have your application underway will be able to check on it via PD online.
We have most recently dealt with Josh of Brisbane Certification Consultants
http://www.buildingcertification.com.au/services.phpI'm also hoping to meet with Marc Joyce of AAD Design this week
http://www.aaddesign.com.au/profile.htmlWith many of the properties there are simply revised, common sense changes that may come into to my understanding including some relaxation around the 8.5m height restriction rule.
Feel welcome to contact me direct, kind regards
Good evening Robby,
Well done on wanting to get into property development, it's exciting – you are right if you have the starting capital and plan well you should do well – there are always risks in any line of business but by understanding the risks and how they can be mitigated you can decide on whether a project is worthwhile and minimise your exposure. You've done your initial numbers and they look good, yet you are right to research them further. Too often people go into their first development only considering the raw numbers (cost of land, build and sell) and not ALL their costs – even many 'professional property advisors' won't take the whole picture into account as often they are paid a buyers agent's fee on your purchase of the property and if they went thru the full numbers with you (if they know them) the picture wouldn't be as rosy.
From the indicative figures you've done I'm guessing you are looking to purchase the property in a regional rather than metro area? We are not one-eyed on either regaional or metro – there are opportunities in both – just make sure you are doing normal research ie.:
– is the property in an area that is growing (what is causing this)?
– is the type of development you'd like to do suitable to the area (do people like to live in duplexes there)?
– what is the general rule of thumb with time on market post completion?
– what is your fall back option if sales don't eventuate at the figure you'd like – what is the rental return and demand for that sort of property – will it help or hinder your ongoing goals if you had to hold them?We have done a number of unit developments for both ourselves (built and held in rental portfolio) and clients. By far one of your biggest costs will be time.
Contributors to the Time in Project:
– DA (Development Approval) – unless you buy a property with a valid DA already in place you will need to go thru the process of getting one, if it is approval for the property you are considering buying. We always use a private town planner as it stream lines the process and is definately worth the few extra dollars. During the last year we have been fortunate to pick up two developments in a regional town where DA's were already in place that normally would have taken around 2 years to get (we know from experience with this particular council). The first property was a bare block with plans already approved for two detached 3 bedroom units and the other had an existing house on the front with a DA for a second dwelling to be built at the rear. While your proposed development property is in the DA application stage you will still need to meet all the costs of owning the property – you will need to factor in interest (or opportunity costs), insurance, rates, council and town planners fees. Obviously if you buy a property with an existing dwelling you can offset some of the costs with the rental income from it while you wait. Not all councils take that long or are as difficult to find out where your application is at however. For example if you were applying in the Brisbane area you can track your application thru the council's PD online system – and things seem to move alot faster:
http://pdonline.brisbane.qld.gov.au/MasterView/masterplan/enquirer/default.aspxIf you are considering the purchase of a property without a DA in place then contact the local council and find out what the general guidelines are over the phone, let them know the exact address of the property you are considering and potentially even make it a condition of purchase that it be given approval prior to settlement (this will be a negotiating point in the purchase – so you could go either way here). I'd always recommend also talking with a local private town planner before signing any paper work.
Builder:
Let's assume you have approval to go. You will need to factor in the time from settlement or DA approval date to when you can actually put the properties back on the market. Again you need to calculate your holding costs. We aim to start our projects whetherever possible on or before settlement of the land. If as part of your negotiation on the purchase you have a long settlement period then you can use that time to have your plans completed and BA (building approval – this comes after DA if one is required) in place. Sometimes you may even be able to arrange access to the property between the time that it has gone unconditional and settlement however this wouldn't be for any major works but could include such things as trimming vegation, having soil tests completed, even doing the site set out. Before signing a contract with a builder ensure that you have agreed start and finish dates. Too often we see people choose a builder based on them being cheap and then half way thru the project they wonder why its taking so long and why they can't get hold of the builder. Cheap is not always cheap. Big is not always better. Make sure that you agree on every detail possible upfront and have your finance in place so that there are no hold ups from your end. With your developer's hat on it doesn't make sense to make unnessessary (some unexpected ones inevitability occassionally arise) changes during a project, if you have to leave that for when you are building your own PPOR (primary place of residence). Changes once a project has commenced cost you time, money and frustration. While we are on the Builder topic it is really important that everything required to complete your project is identified in your contract / proposal as to whether it is included or not. Doesn't neccessarily matter if it's not included but you need to be able to factor that cost in if you are comparing more than one (ie., one builder might quote you to include looking after all permits, landscaping, tv antennas, window furnishings and plans etc., and another will keep their upfront fee appearing low as it won't include those things)Time on market:
You can find out the average time on market for an area from some of the major property magazines, rp data, local agents and valuers. Unless you are financing the project from cash, your bank will likely require a valuation 'as if complete' before approving finance for the project – this will be under their instructions but you could ask the same valuer, even if it costs you extra for them to reassign a copy of the valuation to you extra information in it about how long they would expect the property to be on the market at a certain price.Strata Fees:
As you plan to see the properties individually to maximise their value you will need to factor in the cost of a Surveyor, potentially a lawyer (unless you tackle it yourself), body corporate organsiation and government fees. Without knowing the specific project you might like to work off say $5K for this at a preliminary stage.Some of the other costs that may or may not apply depending on the project and where it is (you may have already factored some or all of these in):
– government and bank fees (aside from the interest) such as establishment, progress draw costs, discharge
– transfer (stamp duty) check out the Office of State Revenue for costs
http://www.osr.qld.gov.au/duties/transfer-duty/index.shtml– conveyancing costs allow $1200 – $1500 to a law firm in Qld (unless you do your own – I do our's and it costs me about $300 in search fees plus administrative time and attendance at settlement)
– draftsperson / architect plan fees
– engineers (now generally always required to design footings)
– soil tests
– surveyors to both confirm boundry of property and in some instances to confirm site setout
– permit fees for things such as capping of a sewer, demolition permit, build over sewer, plumbing and drainage permits
– traffic control and associated permits (we have this on our current development of two houses in Brisbane)
– land titles office fees
– coucil rates
– insurance
– contingency costs (important no matter how good the planning always plan for some unexpected, if you don't dig into your contingency bonus!)
– staging the properties to sell (furniture and decor)
– advertising on completion
– agents costs on sales (commission)
– conveyancing costs (law firm) on salesIn terms of what sort of structure you plan to do this thru there are pros and cons. I'd definately recommend having a chat to a couple of Australia Accountants who specialise in property. There will be many but here are a couple of links to firms that state they specialise in it (I haven't met either Sharon Plant, came across her website yesterday or Tony Lee, but Carl has met Tony at a property seminar and said good things about him) – hopefully you might also get some replies from other Accountant that are up to speed in property:
http://www.plantandassociates.com.au/
http://www.leeandlee.com.au/
With your first project, you may decide to put your toe in the water of developing without setting up a company and can always set one up down the track for a future development. We personally have a mix of what is held in personal names, what our building business builds and sells in company name and what is held thru a trust which the company acts as trustee for. As a general guide my understanding (I'm not an Accountant) is if you do it in your personal name, with the intent to sell the properties and do so in under 12 months from their purchase date then you will pay capital gains tax on the full profit at your marginal personal tax rate. If you hold the properties for more than 12 months your CGT will have a 50% discount applied. ie., tax at your marginal rate on $47,250. Company tax is currently 30% and there is no CGT discount applied unless in specific situations the company is acting as trustee to a trust. Definately get some professional advice in this area if not on your first project then on your second if you decide to pursue property development ongoing.Hope the above is helpful rather than daunting. I do full blown cashflow projections for our developments which is both for our own and banks' purposes. I update these on at least a weekly basis thruout the project. We are currently considering adding a service to our business that will be charged out separately to the building being assisting people like yourself undertake initial project feasibility and then walk thru the process including taking care of everything required from cashflows for you and the bank, obtaining approvals etc., Let me know if you would like to discuss further. The key thing is that as builders who specialise in property investment and developing, we want our clients to make money so that you'll benefit from working with us again and again. Until then, all the best and again well done!
Kind regards
Good evening Matty,
Best spot to check is the Office of State Revenue either on their website or call them:
http://www.osr.qld.gov.au/duties/transfer-duty/index.shtmlHi uaic3,
Kingaroy is a lovely town not overly far from our base (farm at Kilkivan but we make a crust as Builders, mainly in Gympie, and property investors both in SE Qld and interstate). I myself have only been in Qld for 2 years, my partner has been here about 6. Having heard some of the hype around Kingaroy I spent some time researching, talking to local real estate agents and property owners and at this stage decided it seems in between, ie., has had some good growth to about 2008, seems to be currently stable and in the longer term further upside but to us there are currently more attractive areas to invest. I look for towns with in excess of 15,000people currently, multiple industries, proximity to both commerical and lifestyle facilities – ie., close to options for people to work and the coast.
Kingaroy isn't completely off our radar but with land prices more expensive than larger towns closer to the coast with multiple industries – I think we may have missed the boat for now. ie., by the time a place is nominated as a 'hot spot' it has possibly already had its most substantial growth for some time.
There does seem to be some undervaluing in the established properties in central Kingaroy on large blocks where you may have the option to develop further (ie., check with council about the options of second dwelling and obs corner blocks could be more attractive for this).
Kind regards
Meg
