Since doing a bit of research to the costs of developing it became apparent that there are ten main expenses. Under each of these expenses there are a number of smaller expenses.
Actually there is a lot of expenses to developing, its pay…pay….pay all the way. Then you get this great lump sum at the end of it which is what you receive from the sale of the property(s). Which is the only money you receive (apart from some possible rent income) which is most likely swallowed up by the Interest repayments on your mortgage. Or any profit made from a sub-divide along the way. All this takes a considerable amount of time to complete. The rest is your profit.
I’m only speaking from knowledge not experience, so don’t confuse that. I’m not running it down. It’s a good idea to develop, that’s just my way to explain it.
This is if doing the classic scenario of buying a suitable property with an existing house on it with a large enough block to develop. Then later going in and knocking the old house down, building two new residential town houses and selling them both off. As per scenario we have been hearing from the Martin Ayles audios.
The Ten Main Expenses to Developing
1). the total closing costs including deposit and stamp duty.
The closing costs are known as the additional costs that you pay out of your own pocket when purchasing a property. These costs to name a few can include the deposit, legal fees, Stamp Duty, Mortgage fees, Building Inspection etc.
2). the property management fees.
This is the percentage amount of the rent that the Property Manager keeps for the management of your property and is usually between 7 to 10 percent.
3). The Interest while holding property.
This is the Interest repayments you make on the first mortgage, the one that you bought the property with. This is the property to rent before it gets demolished (if it’s getting demolished?) and developments begin.
4). the total amount to payout first existing loan.
This is the mortgage to buy the property that you intend to develop as referred to in number 3. Once the developments completed you will most likely need to pay this loan out, hopefully with your profits, once you sell the completed developments.
5). the development loan for building the house(s).
This is the second loan you need to take out and is the loan to develop the property(s).
6). the total development closing costs.
These are the additional costs that you need to pay out of your own pocket to do with the development costs. Simular to the closing costs in number one!
7). The Interest while developing property(s).
This is the Interest you will need to pay on the second mortgage which is the development loan. Unlike the first loan to buy the initial property where you could rent the existing house to cover some or all the Interest payments, whilst there is a house there to rent! It is unlikely that you will be able to rent the property while the development is going on because the existing house is now demolished, and the new house(s) are in the process of being built. So this is a payment you will need to be able to pay out of your own pocket.
. the Sub-division costs.This is the cost of Council Applications etc. They say around 10-15% of the properties purchase price.
9). the total annual expenses.
These are holding costs or annual expenses payable to council for rates, water rates, rubbish bin removal, land tax etc. These are costs you need to pay each year that the development is in process. If the development takes two years to complete, until they are actually sold and you receive the profit. These expenses will be ‘x’ by two in this example.
10). the total costs to market the property.
If you choose to use an agent to market and sell your property the amount to pay here will be an agents commission fee, usually around 2.5 percent of the sale price. So an agent’s commission fee for a 200k property sale would be $5,000.
Thought I would share that.
Jaffasoft
. the Sub-division costs.You must be logged in to reply to this topic. If you don't have an account, you can register here.
