G'day all,
I have done a few property development deals but i am unsure if the profits i am getting are at a good standard compared to what else I could be doing.
An example would be the following:
purchase 280k
deposit: (56k)
costs(subdivision,interest,development costs,selling costs etc) 85k
sale of existing house: 270k
sale of new block: 140k
profit after 8 months time span: 45k141k of my own money was used with it all being returned at sale time plus 45k profit.around 30% return on money invested. how does this compare to development deals others have done?
I look forward to any feedback
Anthony
How long is your money tied up for?
You'd generally be trying for a min of 25% and more likely 30% profit margin on the whole deal.
Normally, developers look for at least a 20% profit in a deal. However, in this depressed market, where there are loads of bargains, I don't look at anything unless it has at least a 25 – 30% return. So, based on your total costs (purchase price plus subdivision, holding etc costs) I would be wanting at least a profit of $90,000.
Cheers
K
Hi, your 8 mth timeframe is very efficient work. 45K profit is not bad.
I did one similar to yours. It was supposed to take 1 year & profit would be 90-110 thousand.
It took 2 years, I sold for approx 100 thousand profit, the buyer built and will make 100 thousand +
Another one [4 houses] took 3 years and 75 thousand nett before tax so 300 thousand off a 1M project.
Therefore nett profit of 30%
KY
gday crj,
money is tied up for 8 months
anthony
gday propertunity,
do you mean 25%-30% profit on the deal including purchase price or just on personal money put in to the deal?
anthony
gday linar,
have you done any deals around the price bracket i speak of that gave 25%-30% return? Or does that relate to higher priced deals you have done. Whats your normal time frame for that type of return?
anthony
gday kum yin lau,
thats a great profit, why did it take 2 years instead of 1? how come you did not build if you could have made another 100k?
How come your 4 house project took 3 years? how long did council approval take? did your buildr hold you up?
what state are you developing in?
anthony
ajsc79 wrote:gday propertunity,
do you mean 25%-30% profit on the deal including purchase price or just on personal money put in to the deal?G'day Anthony. I mean 25-30% of final selling price should be your profit to keep (before tax etc).
ajsc79
We have just finalised a deal, with settlement tomorrow, that we bought in January 09. It was a relatively straightforward subdivision and reno of the existing house
Purchase price $250,000
purchase costs $10,000
subdivision $20,000
reno $45,000
holding $15,000
agent fees $ 9,000Total costs: $349,000
House sale: $310,000
Land $145,000Total sales: $455,000
Total profit: $106,000 on a 9 month turnaround.
We do need to pay GST on the deal but before GST the whole deal has about a 30% profit on total costs.
Cheers
K
HI ajsc, my subdivisions were in Adelaide.
The 3 year was because the builders were very slow to submit the final paperwork, at one stage I decided to let it slide because I saw the house prices shooting up. Didn't improve my profit margin cos interest rates rose as well. Just meant that my end value calculations were very good.
The other one was a subdivision + reno. I'm not good at reno. The council didn't approve our plan, again my agent was very slow to submit & the planner we spoke to originally went to US & another planner didn't like what we proposed.
My backup plan was to knock down the back add-on to give us the width & I presented council with a regular lot that they couldn't reject. So it took nearly 2 years + $4000 more.
If I built, I'd have to hold for 5 years & I'd probably make 120 thousand more. I sold for cash cos the 90 thousand that I put into the stock mkt has given me 30% in 4 months + 8.5% interest in the 12 months that I had it in FD
I've come to the stage where I want a very high rate of return for my cash [40%]
The 4-house subdivision was all on borrowed funds. 300 thousand in 3 years before tax is a very good return for little funds of my own. What I had was unencumbered property to offer as collateral.
The reno + subdivision is on 80% LVR so we put in about $90 thousand all in. We made roughly 90+ thousand. So 45% p.a.
The lesson I've learnt is this: without cap gain, whatever I did would have very ordinary. It was the capital gain that made those investments above the ordinary.
And to intending developers, do be careful. I've seen numerous people compete like hell for 'subdividable' property & overpay. As many lost money as those who made money.
Good luck,
KYgday linar,
what state was your sub-division?
anthony
gday KY,
The subdivision plus reno that you did made 90k. You mention that some was capital gain, did you do your sums when you bought the property of what the improved values would be if you were able to sell when you bought. eg: what the profit would be without any capital gain?
i am from adelaide also, I would like to further compare notes/deals etc if you are interested.
Anthony
Hi aj. yes, the sums were so compelling my agent said it was a bargain even without the subdivision.
I sold in April 08 amidst all the GFC jitters. If I'd hung on I'd easily have made more with the FHB new house bonus. When I sold, that wasn't in the equation.
The bank valued it $5K higher than what I paid originally & 6 months later, the valuation went up another 10%
Should have bought a stack more of them. There were lots of them in 06 in Blair Athol. 25 The Grove asking price $250000 probably sold for under that would be worth $350000 today.
KY
I'm in Adelaide also
linar,
where abouts in adelaide did you buy the deal in your example?, I bought mine in parafield gardens.
anthony
Hi ajsc79
I have my own little turf in Adelaide so I am not going to disclose where I do my deals. One of the benefits of doing what we do where we do it is that there we have a really good relationship with the local real estate agents and I normally get the first call. The lack of serious competiton enables us to sit back and really look at the deal and do sums and due diligence before we make an offer. I will say that iwe don't work in the metropolitan area.
I have a friend who is doing a development in Parafield Gardens and he has just had to reconfigure the houses to make the deal work. He doesn't normally work in that area and originally he was going to build quite good houses. He then realised that the market in that area is completely price driven so he dropped the quality of the houses and dropped the prices to below $300,000 and has had a lot of interest since then.
I agree wholeheartedly with KYL. In a market where there are a lot of people competing for development sites, you have to be very careful not to pay too much. I recently went to an open inspection for a subdividable property with a house that needed to be demolished. The marketed price was about $380 – $420,000. To make the deal work, I was not prepared to pay any more than $370,000. The place was crawling with potential buyers and I heard later that it sold at above asking price on the same day. At the maximum asking price the profit margin dropped to about 12%.
I am just in the process of signing a contract to buy another property. When the contract is stitched up I will email you the proposed figures on that site.
I suggest that you get involved in Investors meetings, of which there are a few in Adelaide. Pick the brains of the people there.
I think you are on the right track, and while your deal is not as profitable as some out there, $45,000 for 9 months work is not to be sneezed at.
Cheers
K
g'day Linar,
Thanks for your feedback…it is great to hear from people that are doing similar things. I dont buy anything unless it is going to make atleast 45k anymore, thanks to your feedback and feedback from KY it seems I need to increase my minimum profit margin even further. Even at my modest profit rate I still lose out on properties to other investors, I hate to think what minimal profit they are getting.
That will be great to see the figures of your next deal…my email is [email protected]
Anthony
Hi Anthony, another poster, I think it's RumpledElf, said that she now looks at established homes rather than subdividable brokendown houses & I agree with her. I've seen houses show steady yield without the hassle of building. Building is much higher risk.
If you can get 45K for 9 months work, by all means but I know someone [my brother in law's sister] who was aggrieved to make 5 thousand from a building project. Build to own rather than build to sell seems to be the better way.
If there's not enough in it, just ignore. I'm actually in the present slowing, paying down & getting more & more cf+ through the properties paying themselves off.
But I now buy shares too.
KY
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