Never developed before - any hints or things to watch out for?

We are heading down the track of reconfiguring two blocks into three, and looking for approval to put four townhouses in the middle block.

My question is to those who have done this before. How stressful is this process?

The town planner we saw when we bought the second block (giving us the opportunity to do this development) told us he sees plenty of "mum and dad" developers end up bloke and/or divorced.

I've never understood why four townhouses is more stressful than say, building one or two houses, but maybe we are about to find out :D.

Our plan is to have the professionals do everything they need to, and if we get BCC approval, we will sign a building contract. I know there will likely be cost overruns (which would I guess be within the scope of whatever building contract we sign), but I'm keen to learn what to watch for, what to avoid, and any strategies for newbies to this development caper.

I'm hoping we come out of this with four new townhouses and an intact marriage.
 
Hi Wylie
I am relatively new to this and have 3 projects on the go at the moment.

The most stressful part I find is sourcing the right development site and sourcing finance.

I have spent lots of time researching builders and am very happy with my selection, however time will tell, my major concern is that he keeps the project ticking along, time is money, if it blows out I wont be happy.

I find the amount of paper work involved in the process daunting at times but apart from this its all fun but I am still learning of course.

As far as not divorcing during the process this is a big one, too many cooks in the kitchen is not a good thing.

Property is my baby and I am a control freak so basically I do it myself, this works really well for us.

All the best, looking forward to hearing more about your project.
How did you source your builder??

Cheers
MTR:)
 
Thanks MTR. Hubby pretty much lets me do the driving, and he just signs where I tell him to. If we can do this, with him having as much or as little input as he desires, I believe we can get through this with minimum fuss (touch wood).

We watched a house being built locally and liked the speed at which it went up and the finish (though it is not a design we particularly like). I called him and we are using his team of town planner, designer, certifier, as they all have worked together before, and I guess that is a plus.

I really liked this builder over the phone, and now I've met him I hope his quote is the one we will run with. But we met a couple of other builders recently in the organising of a deck (which we didn't do as the house we were looking to add the deck to will now be lifted and shifted). We will get probably three quotes, but I'm hoping to use the first builder I called. There is just a nice "feeling" and he impressed us when we finally met him.

I just walked the blocks with the chap who will be preparing for our pre-lodgement meeting. He seems to think it is a "goer" but that will be up to the BCC.

Thanks for the support. I'm excited but a little nervous about what I've got myself into :).
 
Good advice bashworth. I will be very happy to pay a little more for the builder I've been dealing with. I really like him and he was extremely helpful and took time to talk with me without any pushiness. I also like that we watched him build a local house and he was in the process of sorting out the list of "fixes". He said he gets that done asap.

He also comes highly recommended by his team. They seem like a well oiled machine. He offered his designer and I asked if we paid for the design, would we own it and therefore could have another builder do the build, which he said is the case.

On the other hand, another local builder who looked at our deck plans, but who does bigger jobs too was a bit pushy, and I just don't have the same "feeling". I'll definitely get him to quote too, but won't be taking the cheapest just because it is cheap. In everything we do, we look for price, quality, ability to get on with the builder.

Our own PPOR reno turned into a nightmare years ago when the builder who quoted went off the tools, and sent in a crew. The "second" builder refused to deal with us and was a PITA to work with. It turned the job into one we just didn't enjoy and we couldn't wait for them to get out of our house, but still had to deal with this wally every day. It was painful.

I've never built from scratch, but have signed several building contracts for larger reno jobs.

For a townhouse development, is it normal that we would have a certain allowance in the contract for "x" number of power points, $xx towards light fittings, tiles etc. If we want to use and source our own tiles over and above what is allowed, and buy higher spec light fittings than the spec or allowance, do we remove any allowance for light fittings and tiles altogether, and source them ourself?

When we priced up a builder to do our bathroom, he specified a figure for tiles, toilet, bath etc. We wanted higher spec and could have bought our own and paid the extra. (We ended up doing the job ourselves.) I guess a "whole house" build works the same?
 
For a townhouse development, is it normal that we would have a certain allowance in the contract for "x" number of power points, $xx towards light fittings, tiles etc. If we want to use and source our own tiles over and above what is allowed, and buy higher spec light fittings than the spec or allowance, do we remove any allowance for light fittings and tiles altogether, and source them ourself?

When we priced up a builder to do our bathroom, he specified a figure for tiles, toilet, bath etc. We wanted higher spec and could have bought our own and paid the extra. (We ended up doing the job ourselves.) I guess a "whole house" build works the same?

These are all things you need to decide and specify before you ask for quotes.

If you just go out for 3 quotes to build 'townhouses' you will finish up with 3 differently specified quotes with varying quality which will be even harder to compare.
 
Hi Wylie,

We had our own large house custom built from our drawings so I have gone through the PC allowance situation.

We found it best to have a look around at prices first, eg: check for a range of tiles that you like and use that price a a guide when instructing builders before quoting.

If you can give price guidance on a various inclusions you will get more accurate quotes as you are comparing apples with apples when comparing builders prices.

Most builders will quote the cheapest, yet others will quote medium quality if it suits the development and after the quote you will still have to go through and add/subtract the different allowances.

I felt like you do now, excited but nervous, I really enjoyed most of it except for one monumental blow up over a slack onsite supervisor (which my wife still talks about 14 years later :) )
 
Had some wealthy clients years ago who did a lift and move on an old house and put 2 townhouses in the back yard. Got their own plans drawn up, specified everything (just about) and the got builders to quote on the same quotes. Best way for apples vs apples.

All turned to tears as the builder (perhaps rightly) kicked up about anything not specified and then started cutting corners.

Word of advice: high liquidated damages amount for if it runs overtime and make the last instalment payment a big one- ours was 5%- so it was not even profitable for the builder to finish the job. Try for 15%.
 
Great tips, thank you everyone.

So it sounds like I need to ensure any quotes specify (for example) a tile size (to work out cost to lay them) plus an allowance. I'm assuming if they allow $30 per square metre for rectified tiles 600mm x 300mm, that as long as I choose another 600mm x 300mm tile the laying time and cost won't change, but if I choose a tile that costs $50 per square metre, I'm up for the difference, i.e. $20 per square metre on top of the quote multiplied by the number of square metres in the quote.

I want to use the same (or similar) tiles we used in our bathroom for any bathrooms due to the easy cleaning factor (whether I'm cleaning them between tenants, or tenants are cleaning them through the term of the lease).

I would want to choose the lights too. These would need to be high spec to get good rent, so I don't want cheap lights. I'd guess we would use LED down lights mostly, but maybe a feature light above the kitchen bench and dining room.

Perhaps I specify this, and have the builders price up for all LED down lights and allow for wiring for any feature lights, but I buy them at my own cost.
 
Hi Wylie,
We are in the last month of our first small subdivision, build and reno project. It has been stressful because we didn't have much experience to fall back on and we had to rely on 'professionals' to point us in the right direction (this didn't always happen). Below are some things that I will do differently next time.
1. Draw up plans and get them valued by REA and/or valuer. It is easy to be on the generous side when doing your own numbers and then specing up too much which erodes your profit.
2. Know your tax situation before you start. Factor this in to your numbers at the start incase you have to sell sooner then later.
3. Spend more time 'planning'. The more detail that can be given to the builders to quote on the better. Write a document outlining your expectations of the build and do up a spredsheet for all your choise ie. PC items, tiles, benchtops etc.
4. Do up a plan for the landscaping, driveway, paths etc so the quote will accurately cover all that you want.
5. Put a finish date on the contact which you and your builder think is fair. This way you can sit back and let them worry aout making it all work on time. This would have to be my number one 'desrtess' tip.
Good luck with your build. It has been stressful, frustrating, exciting, and educational for us as it will be for you. Rather then pull my partner and I apart I think we are closer for it which is hard to put a price on.
 
Hmm I'm going to throw some randomness thoughts down ;)

1. Talk to local REAs about the level of finish expected. You don't want to put in more expensive finishes than required. If you are selling this might be higher than if you are renting out.

2. I'm sure you are well versed in this but be pragmatic about finishes and don't put the PPOR goggles on. Don't be tempted to make it how you'd like it. It's a slippery slope once you start adding in little extras.

3. Be inquisitive and ask lots of questions to the designer. You will learn a lot about what is possible because of the design codes for your state and get a better design for it. It's ok to challenge their design if you do it nicely.

4. Take advantage of being the owner of 2 of the bordering properties - where you would normally need permission granted from a neighbour to 'push the envelope' do it on your borders.

5. Constantly ask "what is NOT includes" rather than "what is included".
 
Scope out what your headworks cost will be. Ie Power, Sewer, Water, Gas.
For me the sewer turned into a biggy. Even tho it required no piping changes, beyond an internal T-junction inside property, I was charged 6k for each additional connection to the sewer line.

It's taken 4 months for a power dome connection to be approved at the corner of my current block. Local rules say all new connections have to be underground. Overhead power line so the dome is just going at bottom of pole, simple job you would think. Note that's 4 months to be approved, still not actually installed yet so glad started the process myself immediately.

I highly recommend getting a soil test done first. That way all groundworks can be accurately quoted rather than PC sums. Just check who the builder you are thinking of uses so it will be accepted.

Stress builds from delays and issues that arise during build. I caught several things during the build that could have been major if left unresolved by visiting site afterhours. A good supervisor helps keep things moving.
You have to be decisive. Go through the tile shops etc now and get an overall idea of what you want. I have watched one partner, usually wife, sit there try a 1000 combinations unable to make their mind up until the other blows their gasket and walks out. One of the worse prestarts I every saw/heard while waiting had the mother inlaw there sticking her oar in:eek: The poor guy didn't care what was chosen long as it wasn't black/white combo.

Remember that every time you make another change a few more $ will creep in so try to get things done in one hit. By that I mean select one plan, sit down and make all the structural changes you want. Think about it for a day or two before sending back. Its fine to have a few options, ie 28c to 32c ceiling cost?.
After certain points a minor change such as window size can cost big money or cause massive delays eg restarting energy star rating process.
On that subject be aware that too many downlights and you might have to double roof insulation to make up for the penetrations. Personally I went with nice oyster lights, cheap and easy for tenants to replace bulbs.

Remember the builder is there to make a profit. Sure they can provide a turn key solution but their markup goes on top of everything.
You can save a lot by organising painting, floor coverings, landscaping etc yourself. Some specific things they can offer deals on but be wary of cost cutting such as carpets with no underlay.

Edit: Possibly the biggest thing. Don't cut budget too close. Make sure you can afford a few months delays as builders always have wiggle room in contracts, ie x numbers delay wet weather.
No idea of your financial situation but perhaps design all 4 then build 2 first, followed by 2nd 2 after.
 
For details on how not to do a development, read my thread "life - it's not all beer and skittles".

I don't have time now, but will give you my thoughts later.

Blacky
 
More great advice. Some points I've already thought about. It seems that local townhouses need to be high spec to sell for a good price, and also to rent for a good price. I've done a lot of research on the internet and there seems to be quite a big range of rental and sales prices.

A neighbour who is a developer did say last night that if we planned to sell rather than plan to hold, that a high spec is really important to get good sale prices, and my research does back this up. However, he said that holding and renting for a period of time will see us lose 10% to 15% off the sale price due to the finishes being "dated" and due to wear and tear. That makes sense to me, but our plan is long term hold if we can, so higher quality will wear better.

I don't want to fall into the trap of choosing a spec I would want, but we do want high rent, and that will mean a mid to high spec, without being silly about it.

We do plan on splitting the development into three stages. If we do this, it means we can lift and shift the old house, rent it out again, build two townhouses, rent them out, refinance and build the other two.

I started a thread a few weeks ago, and these are the very, very rough figures I'm working on and a few comments. How do these figures look?

The figures I've worked on are like this -

$100K for headworks for the four new townhouses ($27K per house approx)

$50k to raise and move the front house. I'm not sure how much we need to allow to build under, but initially, we could either batten out or weatherboard the bottom and leave it. As long as we can connect up the services and rent the house the building under can wait.

$15K allowance to get below the 1 to 2 metres of fill in the back yard. Soil tests will confirm if we need this allowance or not.

$250K per townhouse (we want reasonably high spec)

$30K driveway to back yards (approx 80 metres)

I'm really guessing with build costs. Builder quoted me ballpark $250K one level house, and high $200 (let's say $300K) for double storey, so I'm hoping $250k per two storey townhouse is enough.

That all comes to nearly $1.2M. We have access to private loan to do the first two townhouses, and then we would rent them, mortgage them and use the funds to do the next two.

The aim is to turn the two IPs that currently are negative into positive territory by adding two townhouses per back yard on "free" land. The rent from two houses is not enough to cover the loans we have. We would be doubling our borrowing but tripling the rent coming in, so the whole parcel should pay for itself.

As rents increase, this should start to put money into our pockets. Once finished, if we have hit financial trouble, we sell off what we need to.
 
We have a tenant in another house who is a painter. Perhaps I get the quote for the painting, and if he can do it for a better price, in a timely manner, I could save there.

I have a good concreter, and I believe the build price will not include driveways, paths etc (unless I specify that I want them included). I could also make sure those are specified separately, and I could save money there using my own contact.

I also have a cracker of a postman who I trust more than anyone else, and I know he is often half the cost of the "big" companies.

I'm not sold on LED down lights if they create issues between floors, but want to avoid the cheap oyster lights, without going overboard with really dear ones.

I will start looking at all these things now so I know what I want.

Please keep the advice coming. I'm going to need all the help I can get.
 
For details on how not to do a development, read my thread "life - it's not all beer and skittles".

I don't have time now, but will give you my thoughts later.

Blacky

I've read this thread (a while back), but found it again just recently, and sent the link to myself with "read this thread" in the title, so I can read it from start to finish.
 
he sees plenty of "mum and dad" developers end up bloke and/or divorced.

I'm hoping we come out of this with four new townhouses and an intact marriage.

and that you don't end up turning into a man? F to M surgery is very expensive it could really blow your budget.
 
Thanks MTR. Hubby pretty much lets me do the driving, and he just signs where I tell him to. If we can do this, with him having as much or as little input as he desires,

From what I have seen over the years that does not always pay to have the "Hubby" in the back seat with the seat belt on ,,because when it goes from champagne to #### when you start to hit the bumps in the road the blame game starts and they split up and the whole project ends up a no-win legal fire sale.
 
Wylie

You are saying your costs to construct are $1.25mil. Which sounds resonable depending on your opinion of "high" quality finieshes. Have you factered holding costs (interest, land tax, rates etc). Also add in some contigency. What about finance cost and convayencing?

What are the end values of these properties?
What is the current land value.

Without this info its hard to asses if the devolpment in feasable.

Your aim is to end up with +ve geared property - what sort of rental returns are you targeting.

While you are saying you are aiming for 'high' rents - there may be other alternatives which will give you better returns (ie lower your construction costs, and rental returns - but a more viable return).
I think sometimes aiming for the top end of the market is a risk. It was a mistake I made. I should have aimed for "average" which would have reduced costs, increased market size (demand) and reduced risks. Though my strategy was set 5 or 6 years ago and it was at a time when the top end of the market was moving - so it was a viable strategy back then.

What is the zoning of the property - what are the constraints of the build? maybe you can fit more than 4 townhouses - which will change the viability considerably.

Just some initial thoughts.

Blacky
 
Thanks for this post Blacky. I'll try to answer as best I can in red.

You are saying your costs to construct are $1.25mil. Which sounds resonable depending on your opinion of "high" quality finieshes. Have you factered holding costs (interest, land tax, rates etc). Also add in some contigency. What about finance cost and convayencing?

By "high spec" I mean open plan kitchen/living with a man made stone bench (corian, reconstituted stone?), not laminex. Timber or tile floors (not sure which), carpets to bedrooms (maybe not?), mid-range bathrooms.

I've noticed in the on-line research I've done (will visit some townhouses in person starting from now), the ones that rent and sell for good prices are higher spec.

I would not be going overboard, but trying to find a middle ground. The townhouses that seem to be lower rent and sell for cheaper are all a bit boring, laminex benches, no "wow" factor. I'm going to try to put some "wow" in without overspending.

This looks "wow" to me - http://www.realestate.com.au/property-townhouse-qld-coorparoo-115617195
This looks "boring" to me - http://www.realestate.com.au/property-townhouse-qld-coorparoo-114918895


For me, the difference is the modern build, higher spec kitchen and bathrooms, nice outdoor area, open plan for the first one, and the "same old, same old" styling of the second one. I want to aim for the look and feel of the first one. I know it will cost more to build.

My concern is that if we hold these long term, everything will "date" but also I would hope that better quality kitchens and bathrooms might rent and/or sell better, even in five or ten years, but this is a risk.

What are the end values of these properties?

My research (limited to internet so far) shows that townhouses in Coorparoo range from mid $400K to $65
0K depending on size, finish and inclusions. Rent seems to range from about $400 to $650 as well, again depending on quality and position.


What is the current land value.

Land value is $500K and $530K. I'm guessing that if we reconfigure two blocks into three, keep a house on each street facing block then the block in the middle could hold two lots of two townhouses and the initial plan is to not strata them. This block of land would be 900 square metres and I believe it would be valued at $530K, but that is anyone's guess really.

Without this info its hard to asses if the devolpment in feasable.

Your aim is to end up with +ve geared property - what sort of rental returns are you targeting.

Because there is a big spread of rental prices for townhouses in Coorparoo, I've done all my figures on receiving $550 rent for a three bedroom, two bathroom townhouse with good spec. More is better, but I tend to be conservative with my figures.

While you are saying you are aiming for 'high' rents - there may be other alternatives which will give you better returns (ie lower your construction costs, and rental returns - but a more viable return).
I think sometimes aiming for the top end of the market is a risk. It was a mistake I made. I should have aimed for "average" which would have reduced costs, increased market size (demand) and reduced risks. Though my strategy was set 5 or 6 years ago and it was at a time when the top end of the market was moving - so it was a viable strategy back then.

What is the zoning of the property - what are the constraints of the build? maybe you can fit more than 4 townhouses - which will change the viability considerably.

Just some initial thoughts.

Blacky

The zoning is Character Residential, which RPI says ... Zoned CR2 Character Residential Infill in the new plan which is townhouses and units. This allows for front lot sizes down to 300m2 and 450m2 rear lots.?

If we could remove one of the existing houses we could fit more, but that is unlikely, being a DCP area. There is a precedent over the road, but losing one house also means we lose one lot of rent which will help us through the build.

It is something we have discussed, and we were planning on going for a pre-lodgement meeting and asking council if this would be considered. However, a developer neighbour advised us that pre-lodgement meetings are a waste of time, and in his experience, can flag problems that council will want addressed, whereas going straight into the DA means those issues might never arise.

So, we are now waiting to get an answer from the town planner whether we skip the pre-lodgement and go straight to the DA. If we are knocked back, I guess we move to Plan B (one house in each back yard) and much of the work undertaken to get to lodgement stage can be re-used, but we would have wasted our money on townhouse plans that are scrapped, and also the council fees.

In very simple terms, if we contain the build at $1.2M, then our debt will double, but our rents will triple. We go from negative to neutral and possibly positive. If we hit trouble, we sell one house to reduce debt.

The developer neighbour asked if we would sell these once finished, what percentage of profit would we make. He suggested we do all our figures on that basis, and I'm guessing that we would likely sell for $600K if we do them well. He said we would want to aim for minimum 20% profit. He actually said to aim for 25% because that will always be eroded by something. He also said if we end up with 15% profit that is okay, but would we be happy with a 10% profit.

His advice is great, however, he does this for a living, and needs to put profit into the next project, whereas we are more concerned with creating six lots of rent from the same blocks of land that now bring in four. So we are less concerned with a "profit" and more concerned in the rents covering the larger debt, but I do take on board his advice, and it is sound.

I guess my biggest fear is a big blow out in costs. If we run into big issues, and big cost overruns, we may have to sell one of the old houses, that would reduce our debt, so I'm comfortable with that aspect. We may decide to do that anyway once the dust settles, if we don't end up with cash flow neutral or positive.
 
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