Forum Replies Created
I think residental property investors should focus on the growth potential rather than cashflow.
If cashflow is what you are after then commercial properties, property trusts or even shares will offer you good positive cashflow.
You can add value to properties by developing or renovating to create equity to improve your cashflow but you will need close to 10% return (depending on the level of depreciations)
Also remember that interest rates are on the way up and could rise to 12% over the next few years. You may have positive casfow for a short time but then fall back as interest rates rise.
However if you can create equity at least you can sell and keep your profits to reduce your home loan when the going gets tough ( this should be only be done if you are risk adverse)
Regards,
Sailesh Channan
http://www.developersedge.com.au
“Helping you select, develop and profit from property”
1300 73 5934
I somehow dont think this rough guide works with this type of development. I have heard people using this method for land development.
If this method was true for this unit then $800k for the site would be a bargain.
Depending on the type of units you are building your construction costs will start at around $1200 persqm. If it is a walk up type construction then your costs will be far greater.
Therefore construction will be the greatest component of your cost base.
The best guide on the value of your Da approved site is to look at what comparable sites are selling for.
Regards,
Sailesh Channan
http://www.developersedge.com.au
“Helping you select, develop and profit from property”
1300 73 5934
Trisha
You will need to define your investment goals in order to determine why you are investing in the first place.
For most it is to achieve financial independance. The you will need to define what financial independance means to you. For some it could mean an income of $40kpa and for others it could be $200k or more.
For an income of $40k you will need around $800k in net assets. If you use borrowed funds to achieve this and have a gearing ratio of 50% then you will need a property portfolio of $1.6m in todays dollars
Therefore once you have a plan then the rest will be easy.
Regards,
Sailesh Channan
http://www.developersedge.com.au
“Helping you select, develop and profit from property”
1300 73 5934
The MBA contract is the better one to go for. However the builder can legally ask for extensions for things such as wet days, delays due to unavalibility of materials, etc
You may want to put in market rent as a clause if the builder goes over time then he pays market rent
Personally, I dont understand how it is in the best interest of the builder to take his time any way because the longer he takes to finish a job the slower he gets paid.
But it seems that some builders get too greedy and take on more than they can handle.
So one of the questions you may want to as is how many jobs he has on the go and compare this to how many carpenters he has or how many gangs he has working for him.
If you suspect he has too much on then expect delays.
Regards,
Sailesh Channan
http://www.developersedge.com.au
“Helping you select, develop and profit from property”
1300 73 5934
Before you decide to sell and then purchase a cheaper property think about the cost involved in such a transaction.
Some of the costs will be agents commission on the sale of your property, legal fees for sale and purchase of new, bank fees and charges for set up of new loan, stamp duty on the purchase of a new property, etc.
Once you add this all up you could possibly loose around $30 000 or more.
Your better option is to draw down on the existing equity and purchase an investment property that will give you good growth prospects.
Or if you are game enough you can do what I am doing which is put around $60 000 of my money to build a duplex to make a profit of around $100 000. Thats a return of over 100% in less than 8 months.
Regards,
Sailesh Channan
http://www.developersedge.com.au
“Helping you select, develop and profit from property”
1300 73 5934
Originally posted by Qlds007:Hi Salesh
We have 3/4 medium to large developments around the city which we will phase in over the next 18 months depending on other work and business but at those rate would get your builder to construct them rather than my partner build them.
If you are interested in a referral fee to provide us with his details I would be happy to discuss.
cheers
richard
Qlds007Cheers Richard
richard at castlewhite.com.au
Email me for details of our Qld wrap service.Richard
There is a catch he works exclusively on the northside of Brisbane Cabolture, Redcliffe, Pine Rivers area and remember he will not touch complicated townhouse type projects. He will only build low rise brick and tile homes.
I agree with most comments on town houses costing around $1200 per sqm to build. We have looked at several possible projects around Brisbane and once you factor in all your costs including selling and GST you are barely making 14% and this is one of the main reasons why we will not embark on such a development. The second resaon is due to the level of risk associated with a large development like this. If however I came across a potential development site offering 30% return I may be tempted however we have a greater chances of seeing pigs fly before this happens.
We also have access to builders that will build a double storey home with lightweight materials for around $900 per sqm. This is especially useful for small lot inner city housing.
Regards,
Sailesh Channan
http://www.developersedge.com.au
“Helping you select, develop and profit from property”
1300 73 5934
Jason
Do a quick search on http://www.realestate.com.au to get an idea on local prices.
IMHO though, you need to be careful investing in an area where there is very little constraint on future supply. This part of the Gold Coast has a lot of land available for future development.
Remember, you generally get price growth if there is a shortage of a scarce commodity. This becomes more important in a flat market as buyers thin out and demand for housing falls. If developers keep developing then it leads to oversupply and prices tend to stay the same or even fall.
However if you are buying in an established area then the only properties on the market will be from people selling existing properties and it is unlikely thet people will do this on mass. If you have purchased a desirable property in such a location then your property stands a better chance of capital appreciation.
Regards
Sailesh
http://www.developersedge.com.au
130073 5934
The builder is mid 40 and has building for a while now. He has also been working for medium sized developers who have a large land bank and are creating house and land packages. The majority of the homes are 4 bedroom low rise with the occassional duplexes.
These developers have been in this game for many years and have build hundreds of homes. My builder is one of several they use and most of the better priced homes are built by him. Some of the cheaper quality houses built by other builders take longer to sell.
I have seen him build several from ground up alredy and am amazed on how quick he is. He uses subcontractors to do work such as roofing, plastering, cementing, tiling, kitchens, etc Apart from this he has a small group that he employees to do the framing and other odd work.
He does work hard himself as he is always on site with a hammer in hand. He usually finishes at 3pm to take care of paperwork till 6pm everyday.
If he was not profitable I am sure his accountant would have told him by now.
Regards
Sailesh
http://www.developersedge.com.au
130073 5934
The Builder I am using is a medium sized builder. He only works for developers and only builds low rise brick and tile houses.
This way he is able to turn over many homes in a short time. He is also on site supervising the work himself.
I have seen his work and it is of a high quality. In fact his completed homes sell faster when compared to other builders work.
There are even cheaper builders around however they have limitations in brick choice and standard inclusions are of a lower quality.
Therefore due to lower office overheads and a willingness to take on simple construction jobs he is able to deliver at a lower cost.
Unfortunately when it comes to double storey homes or townhouses I have to source other builders. This means these types of projects will have a higher build cost. So far from all the potential projects I have looked at none have matched these duplexes in terms of profitability due to the high construction cost.
Andrew, while I understand your scepicism I am confident in his abilities based on the research I have done so far.
Regards
Sailesh
http://www.developersedge.com.au
1300 73 5934
Dev
You also have to consider the suitability of the development based on the dempgraphic demand.
One of the key factors of a successful development is ensuring the development is appropriate. Therefore careful research is required before plans are drawn.
Architects and developers are known to come up with expensive and inappropriate designs.
Now that the investors have left the market you need to ensure your construction will appeal to the owner occupier.
As Michael says, if you start from scratch you mak be able to acquire a cheaper site and get to build a sustainable development.
Regards
Sailesh
http://www.developersedge.com.au
130073 5934
Kayleen
If there is a mark up in prices then it is evem more worrying. I have witnessed marketing companies mark up properties by around $40 000. Defence housing does spend a lot of money in marketing. They even attended a little known property expo in Hong Kong last year to promote properties.
So Ajay if you are paying more than it is worth it could take you 3 years of normal market growth just to break even let alone make a profit.
Therefore the next step is to research what similar properties are selling for within a 1km radius.
Good luck
Regards
Sailesh
http://www.developersedge.com.au
130073 5934
Kayleen
This is a great strategy and many have made excellent profits.
These profits were largely due to rising land prices during the construction phase. Now that the market has normalised it will be harder to duplicate these results.
Currently you will find that due to increased land and construction costs you would barely make a profit. As an example :
Northside land……….$150 000
Construction cost…… $150 000
Purchase costs……….$ 10 000
Holding costs………..$ 10 000
Total……………….$320 000Property value……….$350 000
However once you add selling costs and taxes you barely break even.
Having said that we are currently involved in 10 projects in the northside which will give a profit of around $90 000 in 7 to 8 months.
Regards
Sailesh
http://www.developersedge.com.au
130073 5934
Ajay
I would also like to caution you on this investment. From the photo it looks like a double storey duplex in a group titled community.
Remember that from day 1 of your purchase you will have negative equity 9Once you factor in purchase costs) The market will have to rise around 5% for you to break even. Then you have compounding losses every week as well.
Other factors to consider are things like saleability of the property. By the looks of the estate you will have a high proportion of investors. This can be off putting to any future owner occupier…remember owner occupiers represent 70% of the market therefore your property needs to appeal to this market.
Regards
Sailesh
http://www.developersedge.com.au
130073 5934
[
Sailesh, not all Landlords pay for PM fees, insurances, rates and maintenance.Yeah, Commercial properties are a great investment for this reason. However investors have to start building equity in residental before they can move onto bigger investments.
Regards
Sailesh
http://www.developersedge.com.au
130073 5934
Dev
Care should be exersiced. The council may approve the development but may put conditions that may make developing the property unviable.
There are many such traps when considering a development. Therefore it is importand to consult with a professional advisor who can help you explore all the scenarios.
The next step is to conduct a preliminary feasibility study to determine if the development is going to be viable. Some of the factors that you have to conside here are things like cost of operational works, council fees and charges, constructions costs, house removal costs, etc. This initial feasibility also determines what price you can comfortably pay for the site.
If the site stacks up you can then make an offer subject to due diligence and townplanning advise to buyers satisfaction.
I look at around 10 to 12 development sites each week and 90% fail the preliminary test. A further 50% fail the due diligence test once the property is under contract.
Remember with a development site your profits are made at the time of purchase therefore this is a critical phase. So take care.
Regards
Sailesh
http://www.developersedge.com.au130073 5934
With rising interest rates how long will a property stay cash flow positive?
Your actual yield will need to be 10% or greater as you will heve expenses such as property managment fees, insurances, maintenance, interest, etc.
I think over time your property will be cash flow positive as rents rise but to expect positive cashflow from the start is a big ask.
I feel the aim for investors is to use residental property as a vehicle to create massive equity by tergeting properties that will maximise capital growth or create equity through strategies such as renovations or property development
You then use this equity to repeat the process until you have a substantial asset base.
After a few years of repeating this exersice you diversify into other assets such as commercial and industrial properties or business to maximise your returns hence generate more income.
Residental property is generally not reguarded as a high yield investment therefore you need to use your equity to find investments that will generate better yield.
Once your income from your investments exceeds your income from your work you now can afford to stop working if you wish.
Regards
Sailesh
http://www.developersedge.com.au
130073 5934
Duplexes are great for cashflow and that is why we are involved in developing these ourselves.
Your options for getting a cheap quote may be a bit limited due to your location however, keep looking.
I recieved another quote today from a builder and his price was $1120 per sqm.
Most builders will give you quotes around this range.
I guess I got lucky with my builder at $730 per sqmRegards
Sailesh
http://www.developersedge.com.au
130073 5934
Jess
Where is your block located?The council will be able to let you know what your building requirements are. You will also need to enquire about council contributions and strata title costs.
I am currently involved in building 10 duplexes in Redcliffe and my builder is charging $730 per sqm to build…this is a turn key price.
I spent months looking for a builder. I started by asking project builders then started to look at other options until I got lucky.
Your profitability relies on you doing as much homework as posssible.
Also research what type of property is in demand before you start…..talk to as many agents as you can.
Good luck.
Regards
Sailesh Channan
http://www.developersedge.com.au
130073 5934
I am currently involved in a duplex construction in Redcliffe…a beach side suburb 20km north of Brisbane.
The cost of land and construction comes to $430 000. The duplexes are worth $550 000 and will rent for $500 per week.
Once you take depreciations into account this property will pay for itself.
Therefore you do not need to put large amounts of deposit of buy in small country towns in order to have good cashflow.
The other major benefit from this construction is that I will have over $100 000 in equity once the construction is finished in about 6 months. This allows me to utilise this equity to repeat the exersice.
So Maria0911 have a look around I am sure you will find there are other similar opportunities. If you need any further information please feel free to contact me.
http://www.developersedge.com.au
130073 5934
Yield is calculated using the following formula.
Current Rental Yield %= annual rent recieved divide by cost of property
You should not put in higher deposits just to make a property cash flow positive as you could be using that money to purchase other properties.
It is also important to remember that the main reason to purchase an investment property is for capital growth. Therefore you will need to purchase in major centres…perferably capital cities and close to water or within 10km of the CBD or within 20km of a larger city like Sydney.
Property is a long term purchase and you have to consider how it will perform in a normal market. There are many examples of nil of negative growth in many parts of Australia therefore you will need to research well.
http://www.developersedge.com.au
130073 5934
