Hi guys,
I know this is a very broad question regarding property development and investment strategy, but I’m curious as to what is an acceptable return on an investment.
For example, I have purchased a block of land in Canterbury for around 1.6M. Torn down the house, and built on the block amounting to around 700K, with initial equity of around 450K and borrowing costs of 120K AND more for tax on sale. With a sale of 3M, I’m not sure I’m happy with the expected investment with the whole process taking well over 2.5 years and a few headaches along the way.
So basically 2 questions.
What is considered a decent rate of return on a property dev (maybe even taking into account Canterbury)?
Would I have been better off to spread the risk, and build three houses in outer suburbs, and get a much better return?Any info will help, many thanks.
Hi,
Canterbury,Vic? Or NSW? From what I've been told anything above 20-25% is considered a 'probably' go for it. Was it likely that you were going to make more pre GFC? Can you do an executive rental until the market picks up a bit or do you have to sell?
What you spent on 1 big house was what I spent building 3 small ones on a block. Mine wont be worth 3M (darnit) but hopefully will be able to start funding the next development. We will probably realize more like 16% as the value of where we built did drop during the GFC. But a profit is still a profit and in Jan/Feb when we have them finished and valued I'll be able to tell you if its better doing the little projects!
Good luck I hope some of the developers get in here and tell me what a good profit is.
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email MeCanterbury in Vic is where I have build. Remember it’s not what the properties are worth as you have to borrow a shitload, and have a sizeable capital injection up front. Regardless, I’m still unsure of what would be considered a good ROI in this case?
I generally lean towards 25%+ on an NPV as well as having used a development model to back up my assumptions.
Yeah I get you….. So in essence your costs are 2.42. Sell at 3M. You've laid out 450k out of your own pocket which you will see back when you sell. Not a cost? Unless you are saying the total is 2.9ish (Opportunity cost maybe). You still will sit about 20%, I would go with good!. However when you sell depending on your tax rate is where you will see if it has been worth it. Is it in a company (30%) or is it in your name (lower or higher bracket)?
If you put your equity into something else could you have made more? There are probably heaps of guys on here who made more doing less but I think for a return it sounds ok but hey what would I know I am rather new at this.
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email MeHey Scott do you mainly do units or single houses?
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email MeCommercial, industrial and retail (some mixed use, if I must).
Thanks
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email Me
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