With regard to all the discussion on development- Has anyone with minimal experience successfully completed a development in the last twelve months to a point where they made decent profit, adequate enough to continue to do more in the current market?, meaning subdivisions, removal homes, building units, townhouses or duplexes?.
I`ve seen and been involved in a few developments of late which returned a profit- but it was a LOT less profit than expected.Anyone at all?.
I am doing two subdivisions in Melbourne. But I am finding that building a house on the subdivisions is a wastre of time and money, selling the land makes money. By building a house on subdivided land, you only recover the cost of subdivided-revalued land. So why build?
Any other person having similar experience?
Rakesh
We’re doing a dual occ subdivision in Sydney’s North shore, however we did buy in 2001.
So part of the profit has come from a good buy at the time ( about four weeks after 911) . A large part of the profit has come from the fact that we paid no premium for a large block , because the vendor didn’t think it was subdividable.
In fact when I got to the place I looked around and asked the agent how big the land was., She said 3000m2. I said ” why the …. didn’t they have the land size in the add ” .. The agent said the Vendor had specifically said they didn’t want it advertised as they found the up keep to hard , and thought that people might be put off from seeing the place if they were concerned about the land size….
As a result of this anyone else who might have been looking specifically at large blocks didn’t target it as some where to look at.
See Change
Sounds like a good one Seachange but doesn`t really count in the recent category, I am interested if development is a option in any market.
Rakesh, yes seen similar around Brisbane, even if someone is a builder can still be pointless building when you can cash in without the extra work and worry.
There is a good site http://www.investinginland.com which points this out as the way to go from a long time developer in the US, among other ideas. Get in and get out with a quick profit.Holding costs and interest seem to be the real profitkiller with developments.
Thanks, this is what I arrived at. I am planning to develop a kind of model on this principle of subdivision and quick turnaround. If I can do one such thing a year, I dont need to work. Is this right and achievable?
Rakesh
Anything is possible but I don`t think it`s very realistic, especially in the current market.
Problem is when you don`t have that regular income money just seems to disappear and it would not take much to put you in fact behind where you started, really think to make it viable it will become a full time job anyway so if you enjoy it I would say go for it!.Hi Mark, yes, QLD is being good 2me even in todays market, have a look at Ipswich and Toowong.
Rakish, quick turn around???????????????? – good luck but don’t bank on it as you really neeeeed to know what u r doing and if u r not experienced ………..
resiwealth
Originally posted by markpatrick:There is a good site http://www.investinginland.com which points this out as the way to go from a long time developer in the US, among other ideas. Get in and get out with a quick profit.
Thanks for the link. I think this is the first time I’ve found a internet link to a guru that John Treed hasn’t panned…..
http://www.johntreed.com/Abalosreview.html
Not sure if that’s a good thing or a bad thing…
[biggrin]
See Change
Hi resiwealth,
Quick turnaround means buy a house with big land. get subdivion done in 4-6 months, then sell off subdivided land after 12 months are over (for 50% rebate of capital gains tax).
I have seen one work out this way.
The only pitfall is if IP is in an area where planning permit is needed before subdivion, as that takes time. But if the old house is sited correctly and clear subdivision is done, its profit all the way!
So why can’t it work? Please give me pitfalls in this strategy.
Regards,
Rakesh
Seachange you are right there!.
Not sure if Reed knows Alabos but I have spoken to both particularly Alabos on an American forum for a while a yr or two back.
One is a former judge the other a former Lawyer, and it struck me they both have very similar personalities, they both are extreme in there beliefs which is not always bad most of it good in fact.
Robert Alabos can also be a very funny guy, he`s a true comedian, not sure if he realises it though.
Go to the Reed review and look at the section inspecting land it is hilarious beyond words, Alabos talks about when inspecting remote or vacant land in outlying areas what hazards you should look out for including “Isolation facilitated crime of the Deliverance variety”.
[strum][biggrin][biggrin]Rakesh go do one then post your success, my view is that these deals r 1:100, in life there r hypotheticles and realities. In a perfect world you should be a millionaire now.
I hear people every day that say “if i do one of these a year” but at the end of the day they don’t??? i’m confused.
The only way to make money is to take the plunge, i remember when i spent 12 months paper trading in the stock market before i put real cash in, things change when real cash is involved.
Rakesh, my point is be aware of the three d’s, death – divorse – disaster. We borrowed 5 million dollars in 1990 then the interest rates went to 19.33% – shot that theory out the window mate.
resiwealth
Hi,
I think you can make money in most markets by giving the market what they want. i.e. putting a house on vacant land can actually give you quite a good return in the right area as long as you build the right type of house as well. Really it comes down to the same thing, researching your market!! and make sure you do the figures.
In fact subdivisions can take ridiculous amounts of time in certain areas due to different restrictions and efficiency of the departments & services you need to deal with.
Most options usually take longer than you think, especially if you havent done it before or havent researched things properly.
If you research well and decide its worth doing then you should have a good idea of what you will come out with no matter what option you take.Mark Partick
I can give you some of the information you are looking for. We manage the following duplex project on behalf of a client. Since we started our negotiations on the land the market in Brisbane has worsened however, we used conservative estimates in our feasibilities and the numbers were still in our favour. This prompted our client to proceed with this development.
Land purchased price $190 000 (90 day settlement)
Purchase costs $ 8 000
Development costs $ 25 000
Interest $ 11 000
Construction cost $220 000
Total Cost $454 000Sales
Currently we have a contract on one of the duplexes at $280 000 without any marketing. Construction begins in approximately 2 weeks and will take between 3 to 4 months to complete.
Assuming the second duplex sells for the same money the total income would be $560 000
The expected outcome would be as follows:
Development sales $560 000
Less sales commissions $ 12 000 approx
Less GST (margin scheme)$ 10 000 approx
Net proceeds $538 000 approxProfit $84 000 approx
The overall project duration is 8 months however due to the delayed settlement on the land the funds will only be tied up for around 5 months.
While the above return may not excite everyone the annulised return will be fairly healthy.
ps other factors such as personal tax and loan early discharge fees have not been accounted as this will vary based on the individual.
Personally, my recommendation is to buy develop and keep. You can utilise the equity in the first project to move on to the next.
As mentioned earlier this is not a completed project and we have assumed that we will be able to achieve the same sales result as the first duplex.
When selling off the plan you will find that your income may not be as good as selling a completed product. Therefore is is possible to achieve better results by selling on completion.
I hope this provides some motivation to budding developers to look harder until the right opportunity arises.
Sailesh Channan
http://www.developersedge.com.au
“Helping you select,develop and profit from property”
Developing in the current market is definitely harder but not impossible. During the boom we would make ave $80,000 per property or even more where as now we may be looking at $15,000. I say maybe because I still have two on the market. During the boom I had one put on the market on Thurs & we took a deposit on Sat. These ones have been on the market since late Apr. There is the difference.
Hi, Sailesh, how long did it take you to get through the council (subdivision ) or planning authority to get strat tyled?
I purchased a block of land in Rockingham 6 months ago. The development will be finished in 5 months and the total gain will be 100k in equity.
Sailesh C is correct – best to buy, develop and hold atm as the costs involved are generally less and the long term cumulative gains are much better for your back pocket.
<KS>
Is it about the money?
DAMN STRAIGHT IT IS!
Originally posted by KS:I purchased a block of land in Rockingham 6 months ago. The development will be finished in 5 months and the total gain will be 100k in equity.
Hi KS,
How can you be certain of the profit the development will generate without either (a) a sale, or (b) a bank valuation of the finished product?
How many units/townhouses in the development?
Thanks,
Jay.
Originally posted by Amused:Hi, Sailesh, how long did it take you to get through the council (subdivision ) or planning authority to get strat tyled?
The Development approval process in this instance took around 3 months. Now that the council is familiar with our plans we are finding that this process is even quicker now.
We will be applying for strata titles upon completion…this process usually takes around 2 weeks.
Sailesh Channan
http://www.developersedge.com.au
“Helping you select,develop and profit from property”
Originally posted by Jay:Hi KS,
How can you be certain of the profit the development will generate without either (a) a sale, or (b) a bank valuation of the finished product?
How many units/townhouses in the development?
Thanks,
Jay.
Because this is a conservative estimate Jay. I purchased the land for 118k and the house will cost me about 137k to finish off with paving etc.
Thats a total cost of $255k
The development is a house based in the Anchorage which is a whole new small suburb, much easier than dealing with units etc, imho.
Now if you look on http://www.realestate.com.au you cannot get a very nice and modern 4×2 with timber floors and stylestone paving etc for under 350k in this suburb. *Note that my block is classified as being in Shoalwater (closer to the beach) and not Rockingham.*
With the Anchorage estate continuing to increase at a rate of 16.6% per year I have all confidence I will breach a gain of 100k in equity by EOY.
Not to mention the fact that the overall development only has 2 small stages left and that once complete the values will increase and then again when the train line comes through next year.
It is the general concensus that a well built 4×2 with good finishing will be worth 380-400k by the time the area is fully developed.
This is not just simple conjecture as there are blocks identical (or smaller) than mine now selling privately for up to 175k. And the developer is setting a minimum price on the new release at $155k for the smallest blocks.
<KS>
Is it about the money?
DAMN STRAIGHT IT IS!
Thanks for clearing that up KS.
When you said you were doing a “development”, I figured you meant you were developing multiple units and wondered if you had secured presales – I didnt realise you meant “development” to mean building a single house.
Thanks for the clarification.
Jay
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