Forum Replies Created
As I understand it the issue is that if you run into difficulties with the new investment then the property that you have the loan secured over is then subject to being sold by the bank to get it's money back. So I guess the real danger would be if you used you own PPOR to cross collatorise, if you defaulted on the investment or development then your own home could be at risk.
At least that's how I understand it but I'm only a baby so happy to be corrected
thommo
I'm just using a local surveyor in Victoria for the survey (he will also put the paperwork together for the application to the council), and my wife and I are managing the rest (site works etc.). I'm not using a 'subdivision company' as such.
We are just dividing the block into two and building single story houses. Starting off as simply as possible
thommo
hi clint,
I'm in a very similar position, although a little further ahead as we have bought the lot and have had a survey completed on it. I don't have any rules as such that I've noticed, but we have done a fair amount of research and I am expecting the following:
land bought for 280K, subdivide into 2 lots (easier for the first time although we could squeeze 3 on) for a cost of 30K, build single story houses for 150K each, and current market proces would suggest around 400K per house to sell.
So 280+30+300 = 610K cost and would aim to sell for 2 x 400 = 800K.
I'd suggest just doing the research to see what's possible. Also definitley put some effort into finding a good surveyor who is experienced and willing enough to offer advice – worth their weight in gold
thommo
No worries.
I have read both of Ron Forlee's books on property development which I thought were quite good, maybe they would help.
Here's how I see it working in an example:
Buy house for 200K (sales price). After 1 year (or any amount of time) the value is now 300K so there has been a capital gain of 100K. If you divide 100K profit by the original purchase price of 200K (100/200 = 0.5) you get 0.5 which as a percentage is 50%.
Therefore your ROI is 50%, which I reckon is pretty goodI'm sure there's some clever property investment way of using the formula but that's essentially it I think.
thommo
Hi WB,
I think the answer to your question is simply which one do you want the answer for? Do you want to measure the performance of the property as an asset or the profit you've made after purchase costs such as deposit and finance etc?
I personally would use the formula here http://www.investopedia.com/terms/r/returnoninvestment.asp and use the final sales price. The ROI for the asset (house) in this case then doesn't matter if you borrow to buy it or buy it outright in cash.
If you want to measure the ROI in the second sense, then in the formula use the costs (deposit, legal etc.) rather than the sales price of the asset.
Please bear in mind that I'm a total newbie, but that's my opinion for what it's worth
thommoI would personally recommend splitting this problem up into two seperate stages.
Firstly focus on collecting the actual costs and informaiton needed for your situation as outlined by the above posts. This is information you will need regardless of whether you use the back of a ciggie packet or purchase software. Get this down on paper first, you should feel a lot clearer about it now.
Secondly you may decide you need to plug this information into a software tool. I may be biased as I use excel a lot for my work but I would recommend creating your own spreadsheets based on the data you have collected and advice from other professionals such as your accountant. This will enable you to both customise to your personal situation and should make you much more confident in the numbers coming out.
I'm currently going through both my first house purchase and first subdivisdion and first build all at once and have found the above process the only way to make it really work.
Make excel your friend
thommo
