Hi everyone,
I've got an opportunity to join a property syndicate in toowoomba and am looking for someone with experience in this market and/or with syndicates. It's a small townhouse development of 6 in Newtown. The sales pitch is that you save developers costs of 20% and make instant equity when it's finished after 12 months and then recycle the equity into the next project. It requires an upfront deposit of 50% on the total fixed price cost. Having looked at prices of houses in Newtown I've got doubts whether the figures are going to work out but given that they're new town houses there isn't much to compare it to. The construction costs are 293k and the projected value is listed as 360 k hence the 20% instant equity. However, looking at house prices in this area they seem to be between 250 -300 k for freestanding houses on quite big blocks. Yields don't seem to be too impressive either (around the 5% mark) but I was told they they would rent for about 350/week. The builder is selling it on the prospect of the instant equity and the good fundamentals of this market with strong growth prospects and currently low vacancy rate (0.8%).
i'd appreciate any comments from anyone with experience in this market or with local knowledge generally, especially with regard to how realistic the projected figures are.
Thanks..
I have had quite a few clients run Toowoomba properties past me for similar developments. None have progressed yet as the figures haven't added up for them, but that doesn't mean that this one doesn't.
Is there a land component in that?
What is the JV agreement like.
Are they using partitioning so that you end up with the townhouse in your own name/entity without stampduty CGT GST implications or is it that you are able to buy it at that price and then you will be losing out on return by having to pay those items.
RPI | Certus Legal Group / PRO Town Planners
http://www.certuslegal.com.au
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Thanks for your response RPI.
The JV is a company which by the end of the process gets dissolved and all the directors get the title of their own individual townhouse, although there is another $ 1500 for the strata titling. There is no stamp duty, not sure about GST – that' s a good question I haven't thought of! Not quite sure what you mean by land component, nothing beyond the actual town house probably with a small yard (not sure about this either!).
I've spoken to local agents who've confirmed the figures I've found, ie. making this not a very good prospect: Typical house prices are around the 300k mark with rents of about 280-300/week. One of them actually said to me he wouldn't do this particular deal given the figures. Another one told me that Newtown used to have quite big blocks but most of them have by now been subdivided. That' s probably where the money was.
Have you got any idea why a number of people couldn't make the figures work? Is there a pattern/trend?
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