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We build around 10 duplexes a year in Brisbane at a turn key price of around $930 per sqm for a 4 bedroom duplex with dlug. This price includes plans an approvals and some extras such as ceiling fans, air conditioning stone bench tops, etc Our rate for houses are very similar.
With bank funding to developers getting very strict due to liquidity issues most developers are keen to negotiate on off the plan sales. However, in this case the developer would have achieved the required number of sales to get started.
He would generally be reluctant to discount on the last few as he may have already discounted the first few to to secure bank funding.
There is money to be made with this strategy however, as with everything timing is the key. This is crucial if you are looking to buy and sell. If you have a long term strategy then it is a great way of acquiring an investment property and you should look into areas that will help you create at least $50k in equity. Once again do your research first.
I believe we will see further rates rises as the economy picks up. As the infrastructure stimulus packages start there will be a lot of money in the economy and possible over stimulation. The only way to slow the economy down will be to increase interest rates to stop consumer spending.
I believe we may see double digit interest rates within three years or so.
How do you measure affordability and peoples basic need for shelter.
It was only a mere 20 odd years ago that you could have purchased a run down old Queenslander in Bulimba for $60k the same property today would sell for around $550k. The person who purchased the property would have borrowed a large percentage of the purchase price to get into the property and based on the wages at the it would have been a struggle. Wind the clock forward a person buying the same property will have the same struggles and the person who purchased the property 20 odd years ago.
Therefore, I believe property prices are relative to the time we live in and we should accept that prices will continue to rise and will not fall back to where they where in the past.
Markets correct themselves in the short term therefore it is not a good idea to buy in the tail end of a boom. If the market has been stagnant for a few years then it is always a good time to jump in as soon as there are positive signs.
Every house we build has air conditioning and dishwasher as standard inclusions. Our research has shown that you will achieve higher rent with these inclusions.
You will generally do better if you purchased a block of land and built a turn key home yourself. This takes away the middle men and the tens of thousands in commissions that are involved.
I truly sympathize with home owners being put through such hardship. It is even worse to hear of the difficulties people go through when the builder goes into liquidation.
In this instance people caught with delays should address complaints to the right people within the organisation. However if you go overboard then you might get ignored.
As a builder we aim to finish a dwelling within 6 months from starting. If we where to take any longer the increasing costs would erode our profits. Therefore, I do not understand why any builder will want to take so long to build a home.
I guess being as big as they are can have its own problems.Our strategy in keeping costs down and build time within 6 months:
- build between 60 to 100 homes per annum for good discounts from suppliers
- concentrate building activity within 20km radius of each other as it makes supervision easy.
- keep office overheads to a minimum
- to keep quality up get the supervisor to inspect each site daily if there is contractor activity and I personally inspect each site weekly.
- good quality and reliable sub contractors
I guess a mass production builder will have great difficulty in keeping things under control.
Thanks Jon
We can build these duplexes at such prices because we are large enough to get very good discounts from suppliers on material costs. Yet, we are not too big where we have very high overheads.
We do not have display homes, sales people or franchise fees either.
This way we are able to pass on the savings to our clients which translates to greater profits. We end up benefiting in this win win relationship as we get a lot of repeat business and referrals. This saves us tens of thousands in advertising. To date we have not spent on advertising apart from our business cards and website (which has not been updated with new phone numbers for the last few years)
ps the 1300 number is correct.
Jon Chown wrote:Sailesh, Can't argue with those figures as this projest is almost positive geared.I'm assuming that you built a low set duplex and I'm impressed that you could do it for $282,750.
You say that the land came with a DA. Does the Caboolture shire council differ to other councils as I thought that a DA included design plans and concept drawings for the property being built. Oh and by the way, it's not unusual to not be able to get a straight answer no matter which council you are trying to work with, at least it only took weeks not years like it does with the BCC.
The land was purchased in a major northside development undertaken by QM properties.The developer obtained a material change of use (MCU) from the council on designated lots in the estate. This was written into the overall DA for the estate. Generally the approved sites where corner lots that where 800sqm or greater. This meant that the developer did not have to submit plans or building envelopes.
The Caboolture council generally only allows duplexes on blocks that are 1000sqm or greater. This means a lot of the design parameters are based on the assumption the land will be of a certain size. Therefore, very little consideration was given to the impact the duplex design policy will have on smaller blocks.
The project managers at QM properties where unaware of the existence of a duplex design policy. Other builders had built duplexes in this estate prior to us and they did not follow the guidelines. However, we did not want to be the ones to get caught out and blindly follow what the others had done previously.
The duplex is a 4 bedroom low set dwelling with double lock up garages with a under roof area of 180sqm each. It is reasonably spacious and can accommodate a small family. The construction cost was based on last years prices. With recent increases in material cost the same dwelling will cost around $290 000. However we have improved the specifications slightly as well.
The following is an example of the latest results obtained by our client. The property was tenanted about 6 weeks ago.
Project background:
We helped a client locate a duplex site in Caboolture. The land was located in a new estate close to town center, train, hospital, schools and easy access to the freeway. The site came with an existing DA approval. This was the first of many that we recommended in this estate. However, being the first led to us going through some learning experiences as the DA approval was granted outside the planning guidelines of the Caboolture council. This meant that no one in the council could give us a straight answer on what design parameters we should employ. After weeks of discussions we managed to come up with an acceptable solution that satisfied the council, covenant police and certifiers. Fortunately the block was purchased on a delayed settlement pending land registration. However design costs where abnormally high. We managed to defray some of the concept costs to other clients who where developing in this estate as they benefited from our earlier learning experience.The figures are as follows:
Land purchase price: $193 500
Stamp duty, etc :$8 750
Consultants fees( includes drafting, engineering, BA and our PM fees): $40 000
Construction cost : $282 750
Interest: $22 000
Rates, etc: $2317
Total Cost: $549 317End valuation: $704 000.00
Profit: $154 683
Equity injected $130 000 which means the margin on equity was 118%
Total rental income: $680 per week
The above returns are fairly typical of what our clients generally achieve. However, when we initially presented the figures to the client he was only expecting a profit of around $70 000. The market moved up over the duration of the project which led to a better result.
This client initially approached us in 2006 where we helped him with identify and split a block in Rothwell. He had similar profits in his first project.
Mid way through his second project he purchased another duplex block and we expect to start construction on his third project in 6 to 8 weeks.
In this way we have helped quite a few clients with the majority going on to multiple projects. A number do develop to sell however, we encourage our clients to develop and hold where possible.
The only difficulty with this type of investing is the availability of viable sites. The vast majority of sites are overpriced which makes finding affordable sites suitable to the small investor/ developer quite a challenge.
michaelparis wrote:Sailesh C wrote:Jon Chown wrote:SaileshC wrote – The project should have a return of at least 60% return on capital invested…… Please explain?With most small developments you will need around $100k of funds from existing equity to help you fund your purchase. This money will be used towards purchase costs, interest and development costs.
Therefore, if the project takes 1 year to complete you will need to make a profit of at least $60k to get a 60% return on your capital invested. Fortunately most projects have shown profits far greater than this.
Setting a minimum standard allows us to assess potential sites and we only recommend properties that pass the test.
Doesn't that assume that the borrowed funds are paid back in full (and with interest capitalised)?
Return on funds (hurt money) of 60 % is one perspective, however aren't the lenders/backers going to want to see a return of 20 % and then some on the project end value as part of the feasbility before advancing their funds?
It depends on what your objectives are when looking to develop. If you are a developer who develops for a living and is approaching the bank to fund the development as a development loan then the returns will need to be at a minimum of 20% and naturally the margin on your capital would be a lot higher. So far we have had only 1 client choose this method of funding. The loan was approved after a lot of delay. However, since the project was being undertaken by a joint venture the joint and several liability issues was off putting and they ended up going with conventional finance.
Most of our clients are investors looking for small duplex, splitter or house and land investments. They fund the projects using their own equity and obtain a loan at 80 or 90% to fund the land and construction cost. These investors are just happy to have made the transition from buying at retail prices and now going to developing and owning new properties at wholesale prices.
Buying wholesale also leads to having better cashflow.
Jon Chown wrote:SaileshC wrote – The project should have a return of at least 60% return on capital invested…… Please explain?With most small developments you will need around $100k of funds from existing equity to help you fund your purchase. This money will be used towards purchase costs, interest and development costs.
Therefore, if the project takes 1 year to complete you will need to make a profit of at least $60k to get a 60% return on your capital invested. Fortunately most projects have shown profits far greater than this.
Setting a minimum standard allows us to assess potential sites and we only recommend properties that pass the test.
Hi
We charge a fee of $10k to help source a site. This includes conducting a feasibility study, help with due diligence and negotiation. Apart from the above charge we also charge a 10% success fee upon project completion.
The feasibilities are done using resale estimates in todays market value. The project should have a return of at least 60% return on capital invested.
We have been providing this service for the last 5 years with many satisfied clients. Most clients have now moved onto multiple projects.
For house and land packages we do not charge a fee.
Investing into property by adding value is an excellent way to start in property. Typically a strategy such as this should see you create at least $50k in equity.
However, I would encourage you to do some research first as not all areas will enable you to realise such a gain. The research is very simple as it is just a matter of looking at your total build cost versus what similar properties are selling for in the estate. If the area is good you will fing that there will be several builders selling spec homes. If builders are staying away then you have to wonder why. I would encourage you to do the same in look to buy into an areas where builders are confident in investing.
Good luck.
Why not consider buying land and engaging a builder to build a house for you. This way you cut out the middle man and keep the profits to yourself.
Here is an example of land we recommended land in Carseldine…5 blocks where just purchased last week and a batch of 8 where purchased late last year. (15km north of Brisbane CBD) the numbers are as follows:
Land price: $250 000 (average cost)
Construction cost: $190 000 (turn key 4 bed, dlug,2 living areas, 2 outdoor living areas,ensuite, dishwasher a/c)
Other costs: $ 20 000 (interest, stamp duty etc)
Total cost: $460 000Completed value: $530 000 ( based on recent resales and current listings of smaller properties in the area)
Equity: $ 70 000
Rent was initially estimated at $450 per week however recent letting at $480 per week may set a new bench mark for the area.
trakka wrote:Wow, you guys are all talking way lower figures than I'd anticipated. I'd planned on budgeting >$2,000/m2 for my new PPR.Are you guys talking brick and tile Tamawood-style project homes?
The cost to build a house should not be anymore than around $1000.00 per sqm for a split level house. The extra costs come in once you start adding features to the house. The cost here can be endless and is only limited by your imagination.
We built our home on a sloping block and we used a split level design.
Split level blocks are unique therefore you should have a house designed specifically for your block.
madproperty wrote:Saliesh do you guys operate in Ipswich as well??Currently we operate exclusively on the Northside of Brisbane. However, we have plans of setting up a new division that will cover the Ipswich area. This should happen around mid 2008.
Regards
Hi
We are currently charging around $800/sqm for a turn key product which includes a reasonably good level of finish. This includes the latest price rises for 2008. Our standard finish includes the following items as standard:- air conditioning to lounge area
- ceiling fans to all bedrooms
- Blanco stainless steel appliances
- dishwasher
- vertical blinds
- security screens to all windows and doors
- carpets to bedrooms
- tiles to all other areas
- two TV points
- two phone points
- oyster light fittings
- fence
- exposed aggregrate driveway
- turf
- TV antenna
- letter box
- clothes line
- free access to colour consultant
- price based on M class slab (beware of the added cost some builders charge when you go from S to M)
I hope this helps give you an idea on current construction costs. Our cost is based on a slab on ground house on a relatively level block. For a split level house you will have extra charges for the following items:
- site cut
- retaining
- scafolding
- extra charges by brick layers working on the high side
- edge protection for roofing
Good luck with your decisions.
Petrie is a nice quiet pocket to own an IP in. It is close to train station, schools and shopping.
