Giddo's Villa Build

[GIDDO]

Giddo's Villa Build

Just beginning my long planned (long delayed) little villa development, and hope this may be of interest to fellow forumites.
I will try to post a progress thread as the build goes on. Should be finished Nov 08.

It is a free standing 3 bedroom unit with ensuite and single garage on a corner block. There is an existing house on the same block, and so it is a dual occupancy.

We will have the existing home on 600 sq m facing one street and the new building on 400 sq m facing the other street.

It had been planned as a build and sell about 2 years ago; but events have moved faster than my plans did. I will now sell if I can get the right price but prepared to keep and rent for a while if necessary.

The house has been rented out ever since I bought the project in late 2005.


Budgeted Costs
House on 1000 sq m in 2005 $205000
Surveys, plans, etc $10000
New Sewer line Council $11000
Cost of new 3 bedroom house $138000 includes rainwater tank and pump
Fencing and Retaining $16000
Tree removal $ 1000
Driveways (2) landscape 12000
Air con and dishwasher $3200
Drain stormwater exist house $3000
Contingencies $10000
Nett Interest/costs since 05 $11000
$420000

Values after build

Original house $210000

New Villa $280000

Total $490000 after selling costs


Around $69000 gross profit if I sold both. Before CGT.

This is not as much as I budgeted when I bought the block in 2005. When I took it on I expected at least $100,000 G Profit.

Oh well it is all good experience!

 

[Rockstar]

Great stuff Giddo.

Was going to pm you about my thread but I guess you've seen it by now. Go for it mate. Experience will be invaluable for you. Looks like you have done your homework thoroughly. The only difficulties we will face is a sudden crash in prices but I don't see that happening. It seems as though we are on the cusp of the interest rate cycle which is a relief and the spring / summer period will soon reveal the outlook as it is traditionally the season where buyer activity escalates.

Will keep watching your development with interest.

Ian

 

[GIDDO]

Thanks Ian Replica Rockstar,

Yep I was more nervous about proceeding with the project at the start of the year than I am now.

I was debating about deferring it in March this year.

I am looking forward to getting it to market in the Christmas optimism season!

Although the profit margin is a bit on the tight side now, it IS great experience and also pretty safe I reckon.

How else can I make $70k without taking a second or third job?
The stock market?

I have been reading your Ocean Shores devo with great interest. We should finish about the same time I think. Best of luck with your obviously well researched and thorough project! A decent sort of cut and fill there I reckon. I thought my cut and fill was a bit too sloping for my liking! I have got 1 metre retainer in the back corner getting better toward the front.
The retaining wall man and the fence man have got their hands out bigtime!

Can't wait to get mine sold and bank the moolah! Then i will do it again!

 

[Action]

Hi Giddo. Firstly, congratulations. Sounds like it was quite a challenge getting to your start point, hope the plans and build progress smoothly for you.

Excuse my ignorance, but we're currently looking to buy a house on a large block to complete a similar sort of excercise I think and I'm having trouble with the concept of dual occupancy.

It is a free standing 3 bedroom unit with ensuite and single garage on a corner block. There is an existing house on the same block, and so it is a dual occupancy.

Does this mean both properties will remain on the same title? Or can you strata them? Some of the potentials we are looking at aren't able to be strata-ed (?) and I've been wondering what the resale for the entire lot )maybe the original plus two villas) would be like if we couldn't continue to hold them over the long term (i.e. more limited market obviously, but with good returns it would still be a viable investment.) Obviously I've got a lot to learn before I can get to the stage you're at now and I'd appreciate your thoughts. Cheers, Jo.

 

[GIDDO]

Hi Jo,
Yes you are right. It is a dual occ because it is able to be strata titled. It could be built as a duplex or 2 sep buildings as in our case. It is really the same thing. Different to "secondary dwellings" "granny flats" though.

Thank you for your kind remarks

 

[Rockstar]

Excuse my ignorance, but we're currently looking to buy a house on a large block to complete a similar sort of excercise I think and I'm having trouble with the concept of dual occupancy.

Hi Jo,

You need to get rid of that "ignorance". Take control of your situation by researching and thus gaining "knowledge". Knowledge is extra security for you so if you are looking to invest/develop in this way then you must study carefully the local Development Control Plan and LEP for the local Shire Coucil. It will have all of the criteria listed for the establishment /development of Dual Occupancy. Otherwise you can engage a Town Planner to help you although you will have to pay for this sevice. Most councils freely give information out over the counter regarding development information - this is usually done via a Duty Planner.

Good luck, Ian

 

[Action]

Thanks Giddo, Rockstar for continuing the Somersoft education. The learning curve at this end of an investment 'career' is very, very steep! Sometimes it seems a bit overwhelming and time-consuming, then I think exactly how much time I'd be investing in a 'real' job and I get researching again.

Most councils freely give information out over the counter regarding development information - this is usually done via a Duty Planner.

Yep, I've found them and well on the way to wearing out my welcome (anonymously though, so hopefully not earning a bad name for myself at council!). It's a question of knowing the right questions to ask at the moment. My pattern thus far is read a bit, look at some properties, have some questions, ask.... read a bit more, etc, etc.

So thanks again.

 

[MichaelW]

Giddo,

Well done mate, great decision! I was a bit worried about you there for a while when you were talking about being "taken in" by this forum. Mood is a dangerous beast and has brought many a wealth creation journey undone. Hence the old adage: buy in gloom, sell in boom. But you'll find its far harder to do in practice than to understand in theory. There's a reason gloom prevails and that causes many a would-be investor to baulk at the challenge.

I'd be looking at your yield on completion too so you can take the market sentiment out of the equation. i.e. If I rent them, what does my cash flow on costs look like? That way you can hold them if need be until the mood turns positive again. The market moves in cycles and we're currently in a down cycle. I know it will turn up again eventually but am not silly enough to try and pick that timing. So, my primary focus is on accumulation and cash flow then let the markets do what they will.

Can't wait to share this journey with you.

Cheers,
Michael

 

[sparky23]

Hi Giddo

Congratulations on getting out there and doing something!

Things might look a bit skinny at the moment so I will keep my fingers crossed that you don't come across anything unexpected that might eat away a bit more at your profits. All being well the market will start to get back to normal soon and perhaps prices in Toowomba will move in the right direction, certainly Cameron Bird agree that the average price for a townhouse is $277,700 at the moment and in a recent flier they say:

'Remember Toowoomba is in South-East Queensland, the powerhouse of Australia’s property market, with plenty of demand for real estate fuelled by a rapidly growing population and a robust economy.'

Also as it is such a large block would there be scope for maybe selling off the new townhouse and then knocking down the old house and doing a bit more with the block? With 1000 sqm you should be able to take more advantage of the land and make more money out of it.

 

[asdf]

Well done Giddo. Do you own outright or JV with someone else? If a JV, have you looked into the separation of titles and CGT relief, re 118-42..etc..?

 

[Gools]

Giddo,

Can you break down the holding/interest costs for me?
Just going through a similar project at the moment and there is no way our interest costs are any where near that low. We worked ours out for interest on the progress payments over the build period. If you could indicate expected progress payments and timing that would be great.

Exciting time I bet.

Andrew

 

[Belu]

he possibly has a larger deposit.

Another cost you may want to add in is the deposit + holding cost at cash rates to work out the "risk free return" you could have obtained if you just stuck it in the bank.

Eg: if you have a $200k deposit then you could have earned $13k p.a for 3 years in interest, which is $39k - if you factor that into your equation then it reduces the additional return quite a bit. But if you used equity as a deposit then it doesnt.

Just another cost to add in to get the "real" return on the development. Hope it helps.

 

[sparky23]

Here is some info on the diff between strata and torrens titles which people may find useful if they are building a development, subdividing etc. I only use torrens but make sure you know what it is that you are doing.

Torrens is the name for the system that allows you to buy a house and the ground it's on.

Strata is a way that you can own the part of the building in which your apartment is. So you own everything from the paint inside your walls but not the walls themselves or external doors, for that matter.

You share ownership of and responsibility for all the bits of the building (called common property) that no one owns exclusively. So even if you don't own your walls, you do have a share in them but you can't knock holes in them without the approval of the majority of other owners in the building. Strata law covers apartments, with special rules for large blocks, as well as most townhouses, duplexes and villas (because they can share walls, roofs, paths, parking and gardens)

 

[Rockstar]

So you own everything from the paint inside your walls but not the walls themselves or external doors, for that matter.

You share ownership of and responsibility for all the bits of the building (called common property) that no one owns exclusively. So even if you don't own your walls, you do have a share in them but you can't knock holes in them without the approval of the majority of other owners in the building. Strata law covers apartments, with special rules for large blocks, as well as most townhouses, duplexes and villas (because they can share walls, roofs, paths, parking and gardens)

This is not entirely correct.

You can strata a property with only minimal common property. In the case of the duplexes I am doing they are detached. I strata the block so that the owners of each lot have full control over what they can do to their own building and gardens. The only common property are the service pipes that pass under the ground of each lot.

Regards, Ian

 

[GIDDO]

Thanks Gools

Giddo,

Can you break down the holding/interest costs for me?
Just going through a similar project at the moment and there is no way our interest costs are any where near that low. We worked ours out for interest on the progress payments over the build period. If you could indicate expected progress payments and timing that would be great.

Exciting time I bet.

Andrew

Thanks Gools for your interest. I will try to outline the costs here. My methods probably don't follow proper accounting principles, but then I am no accountant that is for sure!

There were several costs incurred between 05 and 08 that were not included in holding/interest costs of course. See my list: Sewer line Council 11k, Surveys,plans 10k, Trees 1k, stormwater drainage for existing house 3k.

So the $ 11,000 I indicated is only for the costs of holding the whole property since 05, and for interest on the progress payments.

I haven't counted any opportunity costs for the $$$ we put in back in 05, and I haven't (but should have) counted interest on the cash outlayed to pay for the above list: sewer line, surveys etc.

As far as interest on the progress payments I just took the total $175,000 (house amount plus driveways fences etc) and worked out interest over 3 months (building contract is 14 weeks) at 9% which is 175 x 9% divided by 4 to get the 3 month period = $3937. With the progress payments the hurtful ones come after the halfway mark into the 14 weeks so the interest is not too bad.

The $11,000 total since 05 is the $3937 interest on the progress payments and about $3500 per annum after tax holding costs for the original property.

The house on 1000 sq m has been continuously rented out since 05 and is still being rented out while the building work goes on next door to it. According to my somersoft software it is costing me about $3500 per annum to hold.

Because the land is part of the original house cost it is costing nothing to hold at all.

Hope that makes sense. i welcome any comments or questions. Thanks Gools


FROM MY ORIGINAL POST:
Budgeted Costs
House on 1000 sq m in 2005 $205000
Surveys, plans, etc $10000
New Sewer line Council $11000
Cost of new 3 bedroom house $138000 includes rainwater tank and pump
Fencing and Retaining $16000
Tree removal $ 1000
Driveways (2) landscape 12000
Air con and dishwasher $3200
Drain stormwater exist house $3000
Contingencies $10000
Nett Interest/costs since 05 $11000
$420000

Values after build

Original house $210000

New Villa $280000

Total $490000 after selling costs


Around $69000 gross profit if I sold both. Before CGT.

THANKS AGAIN

 

[Gools]

Thanks for the run down Giddo, looks like a well worked throug estimate to me.
Looking forward to seeing the progress through the project.

Gools

 

[Player]

Another great thread. Along with Rockstar's project, I'm learning (as I'm sure others are) plenty to enable me to poise myself to slowy develop all the IP's in my portfolio and create equity that way, and add more income streams. My slant is to keep everything I develop and have depreciation of the new boxes work for me. I have owned the blocks for some time so cap growth has already put me well in front.

I also desire to do a hybrid mixed use development in future (maybe as a JV or syndicate) such as three or four level ( near a Melbourne Zone 1 train station in a strip of shops adjacent to the station with retail on ground floor, offices above and one or two on top of that as rersidential.

There is a difference to reading a book(s) and doing a course on this stuff and hearing from you guys and others in the SS community, the nitty gritty and sharing your milestones.

Good luck GIDDO...........keep the posts coming.

 

[GIDDO]

First unexpected variation - about $2000 for extra piers and thickening in concrete slab.

Lesson Get rid of nearby trees well in advance of getting the engineering assessment done.

(The trees are gone but they still insist on the extra engineering now)

 

[Rockstar]

First unexpected variation - about $2000 for extra piers and thickening in concrete slab.

Lesson Get rid of nearby trees well in advance of getting the engineering assessment done.

(The trees are gone but they still insist on the extra engineering now)

Hi Giddo,

I would have thought that all the initial site surveys and engeneering reports would have been done and disclosed before they cut the site? Have you got a slab down yet?

Regards, Ian

 

[GIDDO]

Hi Ian,

Yes you are right, all the engineering ws done a while before, and I knew about the need to do piers and thickening.

What happened was that all the engineering was done, and a quote for the extra piers done, then the builder's site manager told me that if I was to get rid of the trees in the neighbours yard (about 4 metres away from the new house), then I wouldn't need the piers etc.

I had one last talk to the neighbour about the trees and we came to an agreement where we shared the cost. I got rid of them the next day, ground down the trunks and tordoned the stumps.
When I talked to the engineers and builders they refused to change the requirements for the piers. Maybe it was all a bit hard at that stage. They were ready to pour the slab at that time.

I wonder if I had got rid of the trees 6 months earlier would it have made any difference?

But really I am quite happy in general. The trees were to shade the place from the north anyway. Not good for the sun aspect. Also they were the dreaded eucalypts so may have smashed my roof with dropped branches eventually.

Otherwise the build is going well. Cypress walls up and roof is on now. Street appeal is significant, which is one aspect we wanted to get right.

how do i post athumbnail here from "my pictures". I keep getting amessage that there are too many KBs. From now on I have adjusted my dig camera to a lower quality pic. I may get there yet.

Thank you Rockstar. i have been watching your project with great interest.