Hey there.
I am ne w to this si te and would love some advice, although my situation is a little com plex, and I do n ot know where to start! So apologies in advan ce if this becomes a novel lol. Als o my computer keyboa rd is doing ra ther st range things, or is possessed, so forgive the abnormal spaces that randomly appear.
Now for some back history, that makes this decision a little more complex. Back in the 60’s my dad migrated to Australia from Germany and bought a double story Victorian era home built in 1896. Aside from being haunted this home was huge, with a spiral staircase, 4 fireplaces, ornate victorian era cornices, double brick etc. So big in fact that my parents bedroom was the size of a classroom! It had an attic, and enough space for all of us that we pretty much only inhabited the top floor and rented out the bottom floor. But typical of these Victorian Terraces in Carlton – it had no front or backyard for us kids to play. So the decision was made almost 30 years ago to move out to greener pastures, and build a Wog McMansion. At the time we sold the Victorian home for less than 200k. This was in the 80’s, well before inner city living was in vogue, resulting in the values we see today. It has always saddened my father, who worked so hard all his life, to know that that house in Carlton is now worth close to 1.5million ( if not more? ) compared to our current suburban home.
My parents own a large 37 s q u a r e home in suburban Melbourne built in 1995, on a block that is slightly larger than q-u-a-r-t-er acre.
My parents have both just turned 70 and they want to downsize. They have been advise d by several real estate agents that they could sell the home for between 550-600k’s, and they would then be looking to buy a decent quality small home/townhouse/unit for around 350-400 in a new house and land estate. With the left over money they want to divide it up between myself and my 3 sisters.
But here is the dilemma! Dad has always said he would love it if we took advantage of the land, and built 3 or 4 Double Story townhouses on this land. He has said several times that he is happy to bulldoze the family home, and rent a unit while 3 or 4 townhouses are built on the land. Once done my mum and dad will move into 1, while the other 2 or 3 are rented. He would finance this himself, but as both my parents are retired – no bank would loan them the money to do this. Thats where we come in.
I have suggested to my 3 sisters we get a 4 way loan, build 3 or 4 townhouses, and negative gear them. We would have the advantage of not having to pay for the land and the burden would be shared in 4.
But 2 of my sisters want my parents to just divide the $200k they most likely will have left over when buying a new house, giving them $50k each.
I have argued the matter with one of my sisters that this could be an awesome investment, but she keeps putting the fear of god into everyone. She works in a bank and claims you cannot get a loan for something like this. Something about it being a commercial loan etc.
But I know of plenty of people who have bought investment properties with family members! My wages alone gives me a borrowing power of $400k’s, and my other siblings earn much more than I do.
My dad is willing to surrender complete ownership of his only asset, his family home, so we can invest in a brighter future. I think we should take advantage of that and make him proud. Using loan repayment calculators, once the income from negative gearing these properties is taken into account, each of us would barely have to put much into loan repayments. The burden is ridiculously low.
I worked on an estimate of us borrowing 800k to build 4 townhouses. 3 to rent out, 1 for my parents to live in. The repayment alone would be around $5000k per month, but the rent from the 3 properties would cover about $4000 per month if we received a measly $300 per week for each rental. That leaves 1grand per month between 4 of us. Pittance really.
So my questions are:
1)How many decent sized, quality 3 bedroom double story townhouses would you build on a block 10% bigger than qua rter ac re?
2) What are the general costs to built a decent townhouse? I was thinking $180-$200k per townhouse?
3) Is there any truth in what my sister is saying about getting a loan? I think it’s bulls@#$tHi Euroboy,
Welcome aboard – good to see you have joined us. And what a great opportunity that souns like. I hope you are able to chase it down to a beneficial conclusion. Families though can become a bit fractured, depending on each individual. Still, even if not all “want in”, it may still be worth having a shot at.Unfortunately, I can’t help you with the financing except to say that I read of many who make VERY GOOD $$ from developing. Thus the opportunity you have should be chased down until it either proves to be unworkable, or it delivers as promised.
A few points I picked up prompt me to add a few thoughts though –
First, I’m with you re this being an “awesome investment”. Your sister might work in a Bank, but is her role one where she is dealing with Loans daily? (I suspect not). I have heard that Commercial Loans are a bit more onerous, and that you can’t borrow 80% like with residential. I think it would be well worthwhile to sit down with a broker or similar who deals in these things DAILY. There are a number right here on the forum – maybe follow a few threads in “Finance” and see who answers in there. At times like this, you need KNOWLEDGE and not supposition.
This thread talks about Financing a development – maybe some clues there?? :-
https://www.propertyinvesting.com/topic/4994626-finance-for-construction-of-6-townhouses/Second, do treat my comments as supposition too – anything I say would need to be checked out, but the thoughts imparted might (I hope) prove to be a spur to you.
Third – I read regularly that a developer would want a MINIMUM of 20% profit before entertaining doing a development. Given that, won’t it mean that he/you would be building these for AT LEAST 20% less than a H&L developer would SELL them for. i.e. you would be buying them at a discount, and generating sizeable Equity in them from Day 1.
This is particularly so as the Land is already “covered”. The $200k that 2 of your siblings want to split might well become three times that amount. e.g. let’s say the Land Value makes up $400k of the expected $550 – 600k your parents could sell for. Now, that means each Townhouse would be built on land that only “costs” you $100k, but would probably be worth $200k+ once divided up and a Townhouse built on it. So, right off, the Land component has doubled in value, if not more.
Then, you are building at a “wholesale rate”. The possibilities on the UP side look pretty good. But then, the DOWN side needs more accuracy – the loans and numbers related to them (Interest Rate, LVR, etc), any Council fees, GST, etc – and all that I will happily leave for someone else as I have no bl**dy idea… :p In the end, the “numbers” will tell you if it is a goer or not.
Please do update us as you discover things, Euroboy. I would be interested to learn how it all unfolds. Good hunting,
Benny
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