Developing Blocks of Units

There are many many other traps that are out there for a first time property developer.

Read a few property investment and development books that are out there if you haven’t done so already.

It is also very important to start small if you don’t have any experience in property development. 2 – 3 townhouses would be a good start.

All the best

Andrew

AJC wrote:

Hi everyone,

I am reasonably new to the property investment game. I’m very interested in developing a block of units and have a few questions that you may be able to help me with please. Any help would be much appreciated.

1. Whats the difference between a normal home loan and a commercial loan?
2. At how many units before a commercial loan come into play with the banks?
3. And finally any other traps that could be out there for a first time property developer?

Cheers

Hi there, the first two points are covered by the others.

Re number 3, don’t bite more than you can handle.

Capital is key ($$$$). You will need capital to build as ensure you use a registered builder unless you are one.

Liquidity will be impacted by your sale potential – important to do a realistic budget to ensure CF is adequate.

There are a heap of traps, but i’ll start with town planning. Don’t buy your site before you understand the area and more importantly the council. Some are stricter than others, so understand the restrictions well to ensure you can build what you plan to build…..consult a independent town planner.

Design – super important – get a reputable architect who will do the drawing and design.

Builder – shop around and ensure they have a track record of success – shonky builders are a killer.

Over the last 15 years, we have done a heap of developments in the Melbourne SE – and never lost. Reason is experience and of course low builder margin as we are the builders so everything is wholesale (materials) and quality is there with tradies that have been working with us for over 15 years. These are the ingredients for long term success in the small development game.

All the best.

Cheers, Ivan

Be sure that you have a solid income stream that will be able to “service” the construction loan. There is little point in acquiring a property with a view to developing it if you have no way of getting a loan to make your plans come to fruition.

There area lot of books and courses you can do. I would read at least 3 different books. Then Google and forums will be your best friend to answer your questions and learn more. You don’t have to spend 100s of $$.

Here is a good book:
http://www.booktopia.com.au/profit-from-property-philip-thomas/prod9781742469461.html

Andrew

My partner Dave Ward & I have done a few unit blocks over the last 20 years. The largest development was a block of 74, 70 apartments and 4 shops. The apartments set a suburb square metre price record at the time (3 years ago). My best advice is to keep your LVR low, by low I mean: total debt below 50% at all times, 30% is better, IMHO.

Others may see it differently of course, but this LVR is based on how I see the risks of developing unit blocks. There is a lot to say on this subject, but the above in my best starting advice.

Just arranged finance for a forum member on a 8 pack at 80% lvr at resi rates and he had never purchased at investment property before.

Cheers

Yours in Finance

• This reply was modified 10 years, 4 months ago by  Richard Taylor.