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
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