[moved] Property development question

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Hi,

I have a question for all you ‘experienced’ investors out there.

After much thought re PI, we’re seriously considering buying a block of land and constructing two townhouses.

The reason for this decision is due to the fact that it is so hard finding an exisiting property to buy with a respectable rental yeild. So, we figured we’d go out and build our own, which seems to be a cheaper option than buying an exisitng property.

We haven’t researched the cost of construction yet (any advice on this would be appreciated!), but we would be looking at 2 or 3 bedroom w/ensuite. Cost of land is about $100k. Rental would be around $180-$210 p/w per dwelling. As it’s a regional area, CG wouldn’t be too great.

If any one can offer any advice on this, we’d be most appreciative.

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Hi There

My advice is to take time and do a thorough feasibility study before doing any development. I am midway through my first and there are many unforeseen costs involved.
These include the cost of the finance for the 18 months or so from start to finish which is not deductible, plans, clearing, filling, applications, any delays with development and building approvals etc to name a few.
This is not to dismiss your idea out of hand, just be sure to go in with your eyes wide open.

Regards

Clive

As an experienced property developer and a development project manager involved in 50 projects around Melbourne at present I am seeing many investors showing an interest in property development.

While there are some potentially large profits, most begining developers I see make a loss as they don’t understand the development process.

As there is very little written about it and it is not often discussed on this forum, I have copied an article below from our free monthly newsletter that may help you better understand the development process which can be broken down into the following stages:-
1. Pre Purchase Here you look for a block of land with potential. Either to renovate the property and sell or to get a development approval / permit to construct multiple dwellings
At this stage you should already have your finance in place so that you can know your limits. You should also have a team of consultants who can advise you as to the projects viability. These should include a development manager who can coordinate the whole process or individually -a solicitor, an architect, a surveyor a town planner and estate agent (to advise honestly on end values and marketability)
2. Concept stage
Once you find a potential site you must come up with a concept for it. What can you put on it? How man units? How big? What restrictions are there?
To find out what can be built on the block I would next assess the local council’s policy towards development and see how many new units/townhouses can be put on the block. We tend to have these documents in the office but they are generally available over the internet at the local council’s web site, or in hard copy form from their front desks. You must understand the local council’s requirements for minimum lot sizes for a development and their regulations regarding setbacks from the front, for private open spaces and for car parking.
I would also do a detailed analysis of the neighborhood character as an important consideration of town planning is keeping the neighborhood character
It is important to assess what the market wants in that area and what would sell or lease well. It is important to design and build something that is marketable.
We then put pen to paper and do some sketches allowing for setbacks, driveways, private open space (as required by council and ResCode). Ideally private open spaces should be north facing and these areas have other restrictions on them regarding configuration. We place garages and parking spaces and leave room for turning circles to drive out in a forward motion as required by council. The amount of land that is left over after all of this will determine how many dwellings and of what size can fit on the block.
We would also take into account potential objections from neighbours.
Next comes some number crunching in our feasibility program. We include time scales, all costs including consultants and construction costs. We include likely end sale values and the profit margin we want and work out what the land is worth to us.o:
If it is a viable development we would consider putting an offer in for the land.
3. Purchase
We now buy the land at a price that would allow us a commercial profit using the figures in our feasibility study. I am currently finding most properties on the market with development potential too expensive.
4. Town planning Our architect draws up plans that comply with ResCode and the council’s development guidelines. We also involve a surveyor and town planner at this stage due to the increasing complexity of the development process. This stage of the development process can take up to 12 months before you achieve development approval.
5. Working Drawing and documentation. Once the permit has been achieved the architect and our engineers document the working drawings to allow us to get a building permit (interstate called a Construction Certificate (CC). This stage takes 3 – 4 months.
6 Pre Construction At this stage we obtain quotes from builders and bank approval for the development loan.
7 Construction Finally we get on site to build our project, paying the builder progressively at the completion of each stage using draw downs from our bank loan. This stage can last 6 – 12 months depending on the size of the project.
8. Completion The project is leased or sold.

Michael Yardney
Metropole Properties
http://www.metropole.com.au

Michael,

Great post – thank you for the terrific rundown on the development process. Just today I was trying to find out all of that info because I was evaluating a 1000 sqm block with an old 50’s house on one end, corner block running nicely east-west on it’s longest side. I rang a local surveyor who was terribly kind and helpful and gave me the abridged vesion of the process you have outlined.

Can I pose a question? I could get 3 x 300 sqm lots from this block (and all the time and cost of the development process say 2 years) but would I make more profit (and sooner) from simply splitting it in 2 x 500 sqm lots via a straight subdivision (12 mths) and letting the buyer design and choose their own house design, and at a reasonable block size?

It’s just a bog standard Melbourne suburb on the fringe. All 70’s bdr brown brick veneers.

Thanks
skippygirl []

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Michael,

Great post – thank you for the terrific rundown on the development process. Just today I was trying to find out all of that info because I was evaluating a 1000 sqm block with an old 50’s house on one end, corner block running nicely east-west on it’s longest side. I rang a local surveyor who was terribly kind and helpful and gave me the abridged vesion of the process you have outlined.

Can I pose a question? I could get 3 x 300 sqm lots from this block (and all the time and cost of the development process say 2 years) but would I make more profit (and sooner) from simply splitting it in 2 x 500 sqm lots via a straight subdivision (12 mths) and letting the buyer design and choose their own house design, and at a reasonable block size?

It’s just a bog standard Melbourne suburb on the fringe. All 70’s bdr brown brick veneers.

Thanks
skippygirl []

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Skippygirl
Thanks for the comment about the post. You were in luck. I was just writing an article for our monthly newsletter http://www.metropole.com.au/html/Subscribe.htm

when I saw this thread and thought I would post the information here in advance.

With regards to your question:-

I know what you are trying to achieve as we are currently undertaking a number of similar developments on 1000sq m blocks.

It depends upon which council you are in as to the minimum size block, but it no council in Melbourne will let you subdivide into 300 sq m lots -too small. Most won’t let you subdivide into 500 sq mt lots either.
This is because if you have subdivided the lots and then only build one dwelling on each lot, you don’t need a permit and the council has no control over what you are building.

This doesn’t mean you can’t get developemnt approval for 3 x townhouses and then subdivide the lots, but you have to sell them with an agreement to build those particular dwellings.

If this isn’t clear or you want further info you can email me personally.
Michael Yardney
Meropole Properties
[email protected]
http://www.metropole.com.au

Pebbles,

You scared me, we have bought a corner block with 60 years old house on it (which we are thinking to demolish, still exploring the options). The thing is that the area is very good close to shops and train station and guess what a lot of old people live around us we know for a fact that one of our neighbors will be trouble but I think that if we apply with the regulations there is little they can do.(we want to put two double story)

Tell me how did you manage to build even two on that block if they have objected and won, I would have thought that you have to go back to the council and start from the beginning to approve the two units.

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Pebbles,

You scared me, we have bought a corner block with 60 years old house on it (which we are thinking to demolish, still exploring the options). The thing is that the area is very good close to shops and train station and guess what a lot of old people live around us we know for a fact that one of our neighbors will be trouble but I think that if we apply with the regulations there is little they can do.(we want to put two double story)

Tell me how did you manage to build even two on that block if they have objected and won, I would have thought that you have to go back to the council and start from the beginning to approve the two units.

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Maggie
Planning regulations vary from state to state. In Victoria the State govt has implemented ResCode which sets the rules for development in the state, but then each council has its own overlay where they say “well that’s OK for the rest but we are different… we want more open space or more parking etc.”

So what you will fit on your block of land depends where it is. I recommend you get an opinion from a town planner or a development project manager before you get an architect to start work on your project, otherwise you could end up in a position like Pebbles and pay out all the money for plans and invest months of your time and still not get development approval.

Michael Yardney
Metropole Properties
http://www.metropole.com.au

Hi Michael,

Just wondering if you have an office or someone you would recommend for a similar project in Sydney…

I’m still weighing up my options whether to do all the hard work myself or get a company like yours in so i can relax… []

Cheers,
Paul…

“The only thing you get from looking backwards is a sore neck…”

Thank you Michael,

You are very helpful.
Yes, we do intend to draw a plans and go to the council and talk to them first before we do more detailed plans. We know the regulations and the Res Code. Usually the Res Code is not that strict that’s why some people after they have knock back from council go to tribunal and very often they win.
We have done this twice before using builders this time around we will manage the project as we have the knowledge we need and my husband is capable to do a lot of things on the project. We have not been able to do that with builders, as they usually want to do the whole project.
We are both draftsman, ironically we don’t have enough time to actually sit down and do it, and we still keep our jobs from 8 to 5 sometimes I wonder why[]

Michael, my understanding is that you don’t subcontract the work yourself but hire a builder to do it for you. What sorts of builders do you us?
Big establish ones (very often they don’t do subdivisions) or small once?

Kind regards
Maggie