what is a good raste of profit for development?

Just on KYL's post, we also agree that building carries much higher risk, not to mention hassle and stress.  We recently subdivided and built three new homes on a development site and made no more money than if we had just sold the vacant blocks right at the beginning.  By far the majority of money in the deal was in the subdivision of the land.  Basically the profit from building paid for the extra holding costs.  In the meantime our ability to lend was compromised because we had a $750,000 mortgage to cover the build, rather than a $250,000 mortgage to just cover the land.

Our dream properties these days are houses on subdividable blocks where you don't have to demolish the house.  We then just subdivide and sell the vacant block.  While we renovated the last house, next time I would be inclined to just sell the unrenovated house.  There just doesn't seem to be enough money in renovating houses at the moment.  It seems like you have to spend $30,000 to make $40,000 which really isn't enough profit to warrant the extra hassle.  I am about one million months pregnant and I also have two young children and I don't have the time to be around at the house every day and be on the contractors' backs.  If you can do a lot of the reno yourself then there is probably merit in doing the reno, but we are after the quick turnaround these days and think it would just be easier to sell the unrenovated house.

A strategy that several friends of mine are adopting at the moment is to build two houses, sell one and hold on to the other, using the profits from the first house to pay down the loan from the second house.  While this doesn't actually put money in your pocket, it does make the house you hold on to positively geared.

I'm having an argument with my husband at the moment about buy and holds versus developing and selling.  Having gone from holding about 20 properties a couple of years ago to now just having two, I would like to start having some more long term holds that are positively geared, but my husband is more interested in the cashflow.  I don't think that there is any urgency in collecting buy and holds at the moment because I expect that the market will be stagnant for a couple of years at least, I do think that the way to REAL financial independence is through positively geared properties that are bringing in an income while still appreciating in value.  I think that the compromise we make will be to continue to develop for a couple more years and then start adopting the above strategy of building and selling one.

I guess in summary I am saying that there are lots of ways to go about making money from property and you can combine several different strategies.  Unfortunately, as you have found out, would be developers are not doing their sums and are outbidding each other to buy sites that are unprofitable.

When I first joined this website a few years back, I remember my first post was asking where the cashflow positive properties were because I couldn't find any.  But when I started looking I found they were everywhere and I went on to make enough money for us both to quit our jobs.  It's the same with development sites.  Just keep looking and you will eventually find the profitable ones.  And more often than not, they turn out to be sites that have been sitting on the market for months because no-one can see the value in them.  If you are creative and have a good team around you, these sites end up being the bargains.

Cheers

Hi Linar, I agree with you that the Adelaide mkt will stagnate for a long while. That's why I sold asap in early 08.

aj, just for comparison. There was a vacant block that I offered 380 thousand and lost out. Asking price mid 400, my agent thought 425K.

We thought we could build 7 houses & I played safe & based my offer on 6 'in case we can't do 7'

They actually managed to fit in 8 and some with double garages. Very nice looking almost like a gated community.

It took 3 years & I reckon with holding costs etc, that project would have made 1M+ The houses sold quite easily, they appeal to empty nesters who sold their rambling houses to buy neat smaller ones to retire to. Each house sold for $369-389K

I went to 2 auctions today, both no bids. Price was too high. Mid 500K.

I also saw a derelict one going to auction next week for 270-280K according to the agent. That might have some profit margin if it's possible to build 2 or failing that, a dual occupancy. Land is only 500+m2

Just occured to me, at that price, a total reno from top to bottom may actually be worthwhile. A hundred thousand will do quite a lot & the refurbished house will be worth at least mid 400K.

Interesting.

KY

Hi Anthony

That was the deal that I gave you the details of earlier in the post.  Purchase price was $251,000 with a reno, subdivision and sale of the vacant block.

K