Forum Replies Created
Where do you live?
The returns on developing vary greatly depending on the market you are developing in.
I aim for 30-40%+ margin on costs in the markets I am developing in, but you may be lucky to get 15-20% in Melbourne or Sydney and they are currently very soft markets to sell into. The lower the margin, the harder it is to finance and the more money you need.
Less than 4 units will be residential loans which can assist financing, above this you are looking at commercial lending which has stricter requirements.
If you send me a private message, I’d be happy to discuss various options further with you. Your private messages are currently switched off.
I should add that you want to make sure that you maximise the investment yield for the cost involved. You need to be very efficient with space, given the high build cost, either for you or for the eventual purchaser.
I’d be happy to critique the designs your builder has provided if you wish. Just send me a private message.
At the very least get a DA approval, will add at least $200k to the value when you sell. Then decide whether to actually do the development or not. Build costs are expensive (allow $2000 per sqm turnkey), but the upside for the sale value and rental yield would be great.
I recently sold in Melbourne. I had to drop to be the most competitive property on the market and it still took 8 months to sell. In total I had to drop the asking price by around $100k, but sold it.
Anything will sell at the right price. Most markets in Australia are slow at the moment, many are concerned about job security and interest rates are really uncertain due to the actions of RBA and the banks. Also valuations are coming in low in many areas, was this why your sales fell through?
I just got a valuation back for Gladstone, rated as 2 risk rating.
Hi Simone,
I’m trying to send you a private message to discuss further, but it appears to be switched off at your end.
Cheers,
MattThat is far too tight and not worthwhile. You will always have unexpected expenses also.
I just sold in Melbourne, had to drop the asking price by $100k and was on the market for over 8 months. Not an easy market at all.
Where is the property located? Many developers are struggling to sell, especially at their expected prices. When the project is completed in the next year or so, the market may have dropped further.
Lenders will typically finance either 80% of build cost or 65-70% of completed valuation.
Based on your required 20% of $1.3 million costs that comes to $260k, but you would want some buffer just in case
At 70% of completed valuation that comes to you needing 30% of $1.57 million less the $200k profit = $471k – $200k = $271k. So they have similar results.
$300k would really be the minimum to allow for unforeseen costs along the way, delays etc.
I have just quickly run your numbers and they sound about right. Don't forget interest holding costs (allow 2/3rds of the annual interest holding cost of the total build cost), GST (based on the difference between your costs and sale values) and any demolition of existing buildings.
This would see a margin on costs of around 15%, which is pretty slim. Many developers wouldn't do a deal for less than 20%. I personally won't do one for less than 40% (I currently have 3 developments that meet this criteria).
By my calculations you are short of the funds required for this development as you would need approx $250-300k cash in hand to see you through to the end. If you can find another project with a higher profit margin, the amount of cash needed decreases.
Hope this helps.
Cheers,
MattIf you can answer these questions I can assist you with a general idea of whether its an ok deal.
What size is the land?
How many stories are the plans?
How many sqm is the build?
What is the expected sale price of each unit?
How much money do you have to invest?My quick attempt at putting numbers to the situation:
If you had done the same refinance with CBA rather than going to AMP, you should have received 90% of the $30k difference = $27k cash to reinvest / do what you want with that you didnt have before, less the LMI, lets say maybe $5k = $22k This is the amount that you would have had sitting in your offset account with the same lender, but you would have expected the same result, when moving to a different lender.
I was slightly incorrect, “only” 150 sqm / unit!!
Peter Koulizos was saying that at Christies Beach they are allowing high density multi-unit development. From memory something like 100 sqm/unit. Just not sure that there is demand for this type of unit development in that location though. Interested to hear your thoughts?
I’m in a similar position to you, but am trying to take a slightly different path getting there.
I am doing small developments, currently have 3 and trying to set up a 4th at the moment. The first one will be completed by the end of this year and I expect that the net income generated by this one development will replace my current 6 figure salary in middle management at a bank.
I lined up developments 2 and 3 by getting others to invest money, I find the development site and manage the process, designs etc to ensure a great profit, which is shared with the equity partners.
Life is pretty crazy at the moment and it is very hard to concentrate on the day job, but with the light at the end of the tunnel in sight, I am willing to accept the long hours over the next year to eventually leave my current job.
I was looking at development management jobs too, they pay well, but always require an engineering degree or similar. Another thought I had was trying to find a large property investment fund, source deals for them in return for a salary and a share of the profits. I know of a guy that has this kind of role, but I imagine it is very much about who you know.
If anyone knows of this kind of opportunity, all of my current development projects are returning around 40% on costs and I can source many more that would fit this profile or better and are in high demand property sales locations in Australia. I would just need a decent salary and a share of the profits and I would be happy to manage everything on the developments on your behalf.
Cheers,
MattI love that HTW are doing my revaluation in Gladstone this week
Current committed projects in Gladstone in the next 4-5 years are worth $88 billion.
They will have a peak construction workforce of an extra 15,000 workers, with an operational workforce of 4,500 for current committed projects. They are constructing temporary accommodation for approximately 10,000 of the construction workers.
The major LNG projects have additional trains planned, but not yet committed to, which will see the peak construction workforce maintained for around 10 years. This will see the concurrent additional workforce after the current committed projects at around 19,500.
Add additional projects which are now being announced on a regular basis, with a state government happily agreeing to any companies wanting to set up in the industrial hub of Queensland, with a deepwater port and unlimited power generation capacity and it is a huge opportunity still.
If you had the right job at a major mining company. you could make a killing. Buy when you know things are going to happen and sell before staff layoffs. No insider trading rules in the property market.
Depending on the market it is in, you could receive significantly higher rent plus depreciation benefits from renting it out fully furnilshed.
In Gladstone for example, it can add 30-50% to the rental return. I don’t see alot of point staging it if you aren’t going to keep the nice furnishings in the property.
The difference between Gladstone and the rest of Queensland really stands out in this report…. actually amend that to everywhere in Australia, not just Queensland.
