Hi
I am looking into purchasing a block on land and then building three townhouses on it. I would appreciate any advice regarding the process, financing, structure, builders, anything really. I live overseas so want to do it all remotely. Do you think it is possible?
TaniaHi Tania,
If you are doing this remotely i suggest you employ a good project manager, they can also give you most of the advice you are after. In terms of finance most banks will fund the lower of 80% of costs and 65% of end value for a commercial construction loan. If you are willing to pay more you can often get more money from a specialise development lender. The easiest structure to finance is a new trust with nothing else in it and a non trading corporate trustee. If you want to ask any more specific questions i'd be happy to expand on this.
Regards
AlistairHi
An ambitious project for a “newbie” as you call yourself – best to educate your self and learn lots first.I big challenge at present is finance – you’ll need deeper pockets than you think.
The other is developing in a flat market – where prices are not rising and are falling in some areas.
There’s a great series of articles here on property development that should give you a good start in your education:
http://propertyupdate.com.au/categories/property-development.html
Good luck!
I'd have to disagree there Charles. Three units is not overly large for a first time development, probably too small if anything. It is generally pretty hard to get decent margins on smaller projects, although there nare always exceptions. Finance is pretty simple for projects where the loan required is within $1 mill and $3 mil, depending on the geographic location, as there is no need to rely solely on banks as potential financiers.
Hi Tania,
I think 3 townhouses is a great size – not too small – not too big. In fact one of the advantages of being no more than 3 dwellings in the one development is that you will meet most of the major banks criteria for residential rather than commercial funding requirements. Not only is this cheaper and easier finance to access but also alot less involved in terms of the criteria. As long as you can demonstrate servicability and have sufficient equity, you won't need presales and able to borrow up 80% of acquisition and construction costs. We have done an number of different size developments for both ourselves and clients and I don't believe that a deal has to be big to be profitable – I've had 'small deals' (ie., just two dwellings) have higher return on investment and less risk than large ones – plus you have them complete in a shorter time frame.
Few questions:
– What geographic area are you looking to do this in?
– Do you intend to hold and rent out the townhouses on completion for long term growth and tax purposes in the medium/long term or to sell them on completion?
– Although you are overseas – are you an Australian resident for tax purposes?If you have a good relationship with a reasonably senior staff member of your existing (Australian) bank I would suggest contacting them in the initial stages to ascertain your borrowing capacity. Then do some broad figures to start with on:
– purchase of land costs
– anticipated holding times prior to being able to commence construction (town planning), construction and sales (if you are selling) time frames (factor these into your budget for holding costs)
– Development costs: town planning, design, construction, holding (insurance, rates, interest) and if selling sales costs
– Ongoing income and costs if you don't intend to sell: obtain an approximate rental appraisal (I've had this done off plans in the past) and factor in ongoing rental managment, maintenance, rates, interest etc., against the rental income.
– End Value estimations and demand – what is selling, how long does it take to and what for in the area you are looking at, consider demographics and level of spec (finish ie., stone versus laminate kitchens etc., )
– with the right team in place I don't think it a 2-3 dwelling development has to have a project manager, this would simply be for your comfort. Your builder will be able to provide you regular updates of where things are at including photos, site reports and copies of required by council (or private building certifier) inspection reports carried out during the project. Your financier will only pay the builder once each stage is complete and has been inspected by their valuer.I wouldn't rule out the option of even a two dwelling development (on say a splitter block) as well – the advantage here is that if not in a demolition control precinct you might only require building approval as opposed to development and building approval which is a much lengthier and costly process – worth weighing up different scenarios.
Kind regards
Meg
Hi Tdavies,
We deal with a number of overseas based clients on a "remote" basis. It's not so difficult with the modern technologies at hand. As I always seem to be saying, planning theory is universal and planning law is local, so as long as everyone is on the same page and communicates adequately things tend to get done as they should.
There's some great information in the thread above, but I'd perhaps encourage you to look closely at a dual occupancy project whereby the existing dwelling is retained and a second dwelling constructed on the land. This is lower risk, it's less capital intensive and our feasibilities (for clients) generally indicate they are more profitable than demolishing and developing – as long as the land is the "right" size and the existing dwelling is well sited and not an absolute dump.
Having successfully completed a "dual occ" you will be well educated in the town planning process and perhaps more confident about turning your hand to more complex development types.
As a footnote I'd also suggest that 3 unit sites are very well sought after and the good ones do tend to command something of a premium. A dual occupancy site may not be suitable for a three unit development so you won't necessarily be competing against other developers.
Best of luck whichever way you go.
We’d direct you to Troy Harris on this forum – or his site http://www.rookiedeveloper.com.au
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