Life - its not all beer and skittles

Not really sure where to post this thread as the forum is called "adding value" but as you will soon see - it doesn't always unfold as planned.

So about 5 years ago (just after the GFC actually) I was in a comfortable equity position, and thought the best thing to do would be to start a development.
I hunted around for nearly 7months and identified a nice block in Yokine where the numbers stacked up and I jumped in.
I sourced finance for the block initially, which was based on the development, and settled on the block shortly after.

I did everything correctly (almost) and got designs done, building approvals, licences, insurance etc etc etc. The three new houses were going to initially be built on the one title with the title split (green title) to occur during the development phase (not uncommon).

However, then the bank came back with concerns over my employment. See Im an expat working in Kazakhstan (albeit to a FTSE 200 company). But Kazakhstan is not on the 'list' - what list? THE list. Finance was not proceeding for the construction.
But I have already settled on the block. So now Im stuck with a block, and I cant source finance. I continued to try, but every bank had a reason not to proceed - my situation was just too far out of their box.

In what was a poor decision (in hindsight) I decided to knock over the old house which was on the block in order to split the titles and get finance on individual lots - so now I have zero rental income, not that I had much before, but now I cant even claim the tax deductions.

Fortunately I earn excessive amounts of money so can cover the costs - it hasn't sunk me. In some ways this is as much luck as it is good management.

So now wind forward and I have finally sourced a bank who will finance the project. However, Im now doing battle with the builder who seems to think that I owe him money. Im trying to finalise a contract with him, but his lawyer is being a pain in the ****. Im sure Ill get there, and its just one more hurdle to leap over.

A run down on what the project should be.
I purchased a bit over 900sqm and cut it into 3 lots. I will build (eventually) 3 x2 story houses each one has about 250sqm living, an outdoor alfresco area and will be finished to a high standard.
Initially the numbers stacked up ok, and I would return a bit over 20%. However, after paying for 5 years of holding costs Ill be lucky to break even at the end of it - and highly doubt I will. However, as the plan is to build and hold for the long term Im sure that one day I will have some +ve equity.
Rental value will in the vicinity of $650-$700/house and values will hopefully be around the $850k/house range.

So - what are my lessons learnt (so far)
1) developments require more cash upfront than you can imagine. Be well liquid before starting.

2) cater for worst case. Have a viable exit strategy for every stage of the development. I didnt have one, so I was in a position of high -ve capital at several stages, meaning that if I bailed out I would have lost the cash. It meant that in order to recover the money invested I had to carry on.

3) Dont rely on your capital for servicing the project. One day this will run out.

4) I would probably say that in reality I jumped into developments too early in my investing career. I should have built a stronger capital and income base before taking the first step - but the numbers just looked too good to resist.

5) Employ the best - the best project manager, the best lawyer and the best accountant. Without these professionals working with me I would never have made it this far. They dont come cheap - but are worth every penny.

6) I still have more learning to do.

I am very glad that I employed a project manager from the beginning. They have been absolutely fantastic and have really come through for me. They were not cheap in the beginning, but have worked tirelessly through the whole project. I am happy to recommend them but not sure if its against forum rules. If you want to know who they are PM me.

Ill try to figure out how to upload some pics and will keep the forum updated now that things are moving forward (almost).

Cheers

Blacky
:D
 
What it will be eventually...
 

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Interesting read, Blacky, am sure it will all pan out and you will have learned a fair bit in the process.

Good luck and keep us updated.
 
Thanks for the share. This is interesting for me since I am also planning on leaving the Pilbara for overseas work in mining in the near future. Guess I better get a copy of this 'list.'
 
Thanks for sharing.

You appear to be in a legal battle with your builder BEFORE construction has commenced, is this correct? If so surely it would be best to go ahead with another builder where there is no bad blood?
 
In what was a poor decision (in hindsight) I decided to knock over the old house which was on the block in order to split the titles and get finance on individual lots - so now I have zero rental income, not that I had much before, but now I cant even claim the tax deductions.

Not true - look up Steele vs ATO.

Edit - righto, righto slackos....here's the link....http://law.ato.gov.au/atolaw/view.h...ived=false&recnum=3&tot=210&pn=ALL:::ALL#HIT2

I reckon two cartons of Crownies might cover it. ;)
 
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Thanks for sharing.

You appear to be in a legal battle with your builder BEFORE construction has commenced, is this correct? If so surely it would be best to go ahead with another builder where there is no bad blood?

Im not in a legal battle - we are just trying to nut out the building contract. I had a contract in place with the builder originally which was subject to finance. Obviously finance did not proceed, so the contract became null and void. However, his lawyer seems to want to restore the previous contract as there were certain rights under the previous contract which he wants to retain. My lawyer disagrees. Its not a dispute - its just lawyers doing their job.
I am happy to say that at this point there is no bad blood.

Cheers
Blacky
 
Its not a dispute - its just lawyers doing their job.
I am happy to say that at this point there is no bad blood.

I'm sorry but I find this statement a bit naïve. Lawyers survive on disputes/conflicts. If we all lived harmoniously there would be no need for lawyers.
 
Thanks for the share. This is interesting for me since I am also planning on leaving the Pilbara for overseas work in mining in the near future. Guess I better get a copy of this 'list.'

I enjoy it, its not without its struggles, but I guess half the enjoyment comes from the challenges.

Depending on where you work, banks dont really like it much. I earn tax free USD - which really throws the resi-lenders out. You need to find a bank manager who can get their head around your situation. :rolleyes:
 
Hi Blacky

"I still have more learning to do".
ditto


Thanks for this post, I find it interesting. I also have a house on 910 sqm2 block in Yokine.

I am curious, at the time do you think you paid too much for the house/block?? I think this type of development site depending on location would be worth around $850-900K now.

Also, I think there are quite a few investors who got burnt at around this time as banks policies changed overnight pretty much.

Keep posting, those properties look very nice.

Cheers, MTR
 
Hi Blacky

"I still have more learning to do".
ditto


Thanks for this post, I find it interesting. I also have a house on 910 sqm2 block in Yokine.

I am curious, at the time do you think you paid too much for the house/block?? I think this type of development site depending on location would be worth around $850-900K now.

Also, I think there are quite a few investors who got burnt at around this time as banks policies changed overnight pretty much.

Keep posting, those properties look very nice.

Cheers, MTR

Nope - I think I got a pretty good deal on the block. I would be surprised if a 910sqm block would be worth $900k now. The three individual lots are valued at $300k each - so I would think somewhere between 700-800k would be a fair price nowadays for a single title - though I could be wrong as I haven't been looking at this market recently.
 
Sounds like another key learning is not to knock the existing house down before you have finance approved. Did the existing lender ever find out about this?

I have heard of other people knocking down or removing houses many months before they should have. We currently have a contract on a house that we have sold from our development site, but are making sure we are all ready to go on the build before moving it.
 
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