buiding & selling for profit

I reckon that is a great idea. I wish I could do it, but am not really in a position to do so. Hopefully one day I will.

One of the benefits is the great building allowance and deprn benfits you can offset against your rent and other income.

You could also sell one property if you are over geared. But preferably it would be best to keep both. I like the strategy, but you will need a bit of money behind you.

Nathan210,
Building new residences is not a straightforward project. Make sure you get plenty of information from builders, town planners, legal advice and a good mortgage broker.

I think the idea, if succesfully implemented, is great.Funding and the extent of what you might be able to get from a financial institution, will also be dictated by the level of expertise or experience in project managing this type of activity.

James

Boy oh boy oh boy is this your lucky day. After months of research, thinking, looking, I have come up with a strategy for exactly this scenario, because I am about to do exactly that.

Building wise- Architects charge a fortune 2-3K a square metre, your mastertons etc are under a grand. I think a designed house would need to be done, at a much smaller cost than an architect.

Lastly, why build one house “much bigger than the other”? Personally, I would build them of similar size, two story, and the biggest allowable on the land. (In wyong shire, only the front can be two story, the back must be one)

You really must be taking your father in laws neighbour out for lunch (personally, I would shout the both of you)

Btw, what area are you looking at?
My brother in law had often made the comment that the best way of making big $$$ in the prop game was by being a brain dead moron, buying a house in Sydney, knocking it down, and building a duplex (two houses), which can be either attached (together) or apart. Obviously, add some common sense, and ignore the moronic comment.

Firstly, check out the your councils web site and surrounding councils web sites of DCP’s to find out block sizes, frontages, attached/detached DCPs’ AND ASK THEM IF YOU CAN STRATA TITLE THEM- ie sell the two houses to two different people. Example, I live in the Gosford area, where a duplex( be it attached or detached) can only be sold to the one person, whereas 20 min north in Wyong, they can be sold to two different people. So that is where I am looking.

Secondly, the land has to be relatively expensive. It would be no use to try this in the country on dirt cheap land or a cheap farm, but as soon as the land is of a certain value, it will support more than one occupant. (my theory- the more expensive the land, the more people need to live on it- eg sydney harbour skyscrapers vs outback towns- which is more densly populated?) Not sure what $ figure a duplex is needed- but probably anywhere in Syd at the moment. Thus, if you could buy a cheap house for 500k, or a better positioned piece for 650k, go for the more expensive, and delay your construction plans for a year or two. (the bank will revalue it higher in 6 or 12 months, giving you the equity you need)

Get a designer to check the block and designs before you sign on the bottom line, even if you lose a grand or three in the process. You must fit into block sizes, frontage, drainage, street character, and then physically fit your 2 (sellable or rentable) houses on the block (easier said than done, just try it!), This is like a jigsaw puzzle with no correct answer.

Personally, I am looking at doing detached houses for a number of reasons.
i) some people want to live in flats, and there is about to be massive bad publicity over the ensuing years courtesy of HK. Do you want to sell a flat in that market?
ii) People can live in sterile villages.
iii) People can live in their own home.
If they cant afford their own home, a duplex is the affordable option.
Thus, for all intensive purposes, it is their own home, just one is a “battleax” block. (incidentally, in the council regions mentioned, doing duplexes is infinately easier and cheaper than actually doing subdivisions for battleax blocks)
I will try to shoot some holes in some arguments presented above-
i) tax man breathing down your neck- yes, he will grab his share, BUT ONLY IF YOU SELL. Why not do what the reno kings suggest, and try to never sell? THat is, build two houses, then REVALUE to unlock equity, rather than to sell (and pay tax in the process). Do one a year or two, and in twenty years you will have a motza.
ii) sell your IP to raise finance- no, no, no. This will occur cgt tax (full if owned <12months) or half if owned>12months. Rather, revalue (with a valuer assigning to the particular bank you will loan from), and pay no agents fees.
iii) “Thirdly, finding the right property at the right kind of price is a fulltime job.” Rubbish. it is simply a matter of knowing if the property is suitable (eg I personally need a 700m of block with a 15+m frontage on a flat <20% site, in a nice area) That cuts my wasted time with REA to an absolute minimum). When I say that I am not interested, they are sad for a second, and very grateful when I give them my home number and fax, and the specific details I need. They know I am not wasting their time. As for price, then compare it to local recent sales figures. Turn up to auctions, and put in low bids. It is not a full time job, one just needs to know when not to act (most of the time), and when to think about doing more research (maybe an in office exchange to buy a week or two of research?)
iv) finance it like this. find the site, and buy it (preferably long term settlement or an option- you may be able to get the bank to revalue it in six months, rather than use the contract value). You can revalue your ppor and your ip, and will probably have enough equity (even though you will probably need to xcollateralise). Wait a year or three, to allow the prices to increase, da’s to go through, etc. Then, revalue the three props (your ip, ppor, and the development site) and only proceed when a worst case scenario means you can survive all of the pitfalls-cost overruns, delays, etc.)

Or, just checked out a web development site. It basically said that banks will happily lend 70% of the total costs of a project. THus, you need to come up with 30+%.

What about VF for a few years?
Or a JV with a builder?
Or an equity partner? Apparently, the going rate is if a silent partner puts up the 30% (allowing you to go hell for leather NOW), they get 50% of the profit, which should work out good for both of you.

Personally, I am going to be setting up a company, throw in some cash, then find a property, and get a number of investors into the project. This will allow things to proceed quicker than if I had to have the whole thing done by myself.

Elves, I would like to disagree with your two ways to purchase.

i) Buying 2 blocks? Why bother? the whole idea is to squeeze 2 houses on the one block. But, if the 2 blocks could be joined and subdivided into three then I would be inquiring further!

ii) DA approved sites seem to be incredibly overpriced. Owners seem to look at the (inflated) price of a house down the road, take a minimum spec home off, and then say look youll make a fortune!. I think I will search for a site that is suitable (that the owner may not know/care about) and crunch my own numbers

Many thanks for your kind comments nathan, let us know how you are going. What areas are you looking at?

I only mentioned two blocks because this had been mentioned and because it gives ideas. Who says you cant fit 6 on on block as it depends on the size.

the reason people sell da approved IS to make MONEY
the reason people buy them is they might have the funds, dont want the hassels, it is VERY common.

Elves

The only thing constant is change

The only difference between a weed and a flower is a judgement

Oops- didnt mean to offend anyone, and it seems that I may need to explain-

Pisces- Your point is taken on board Re architects. I have misquoted a good source. In the SMH a week or two ago, the 2-3k sq m was quoted in the domain section. On rereading it, it was regarding renos/extensions in the city by very well known architects. I got my wires crossed up and apologies for that. If an architect would effectively be on a cost plus basis of 7-10%, this to me sound very fair and reasonable, particularly as they have the indepth knowledge of local tradies, council whims, and realistic project times. Plus, on any dual occ, one could assume that you would not be able to plonk a couple of mastertons on and they fit perfectly. Councils really want to see an integrated project (ie shadowing, privacy issues). YOur other comment regarding having an overseer on a project home sound like very sage advice.

You are spot on regarding my practical experience (basically zero, I am still in my information gathering stage, and quickly filling in the (still large) gaps in my knowledge).
With regards to site requirements, can we meet each other in the middle somewhere? I was not saying that site selection was easy, but that site elimination (unsuitable for many reasons) is easy and quick. My comments were not meant to be set in stone as for what I would run out and buy, but really to act as a sieve for what I DONT want to buy. Thus, if I wish to do a dual occ, detached, I would need the above mentioned site as a minimum. Obviously, further investigation is still warranted after finding a potentially suitable site. Eg a corner block will always be better because of dual street acess, and a rectangular E-W block will be better than a N-S block, as it will allow larger living areas and courtyards to be north facing.

Pisces and Elves, I understand and accept the fact that sites can be easily bought after das have been passed. But, when an owner has gone to the time and trouble to pass a da, they will want more cash for their place. I would personally prefer to buy the house next door or across the street (with very similar site specs) from a motivated vendor who may be unaware or unprepared to go through council. As another example, I recently was doing my dd on a three block set, which I was told had had the survey, plans drawn up all ready for council on a sepp5 dev. Talked to a consultant Re developments, who told me that the plans “all ready to give to council” had been knocked back for a variety of reasons (primarily bad road access for the elderly which was insurmountable!). THus, the vendor was trying to charge me a premium on a failed da!

My comment regarding the cost of the land, is that I think that the knockdown and dual occ idea is better suited to expensive land (closer to private schools, shops, services) than on the same dimensions on cheaper land (out in the sticks). If the land is more expensive (ie sydney harbour) then it would be better to build a stack of units.

Elves, I think the two blocks is a great idea, as long as you could put more than 4 townhouses on it.

My personal feeling is that in the years to come, units will get a very bad name (due to sydneys future oversupply, and hk), townhouses with concrete backyards will be a dime a dozen, but people will still want a bit of a backyard to throw a footy to the kids. Thus, dual occ dev. would seem to be a better idea than some other developments.

Question for pisces- What other subtleties should we be aware of when looking for sites? Any hints/pitfalls to avoid that you could share with us.