I'm treading water and spinning wheels

[jasperjue]

Arrggghhhh.

I seem to have come to a plateau in my property investing activities and need some advice on how to get out of the rut.

I have 3 IP's which are neutral to only just positive cashflow (no great burden anyway) and have approval for another 300K for investing from the bank.

Heres the rub, i'm not sure what to do now. I'd like to buy a block of land, and build a couple of houses on it and then sell at least one, however i'm not sure where to start on doing a feasability study or who to talk to first.
I figure i need to be able to quickly look at a piece of land, make some phone calls to someone ?? to see if i can wack some houses, units flats on it and then run some average figures around it to see if it will be a good idea.

So some advice par favour if you please. How and who should i be talking to so i can get a grip on this property developement phase of my investing activities.

Hope this makes some sense

 

[alexlee]

Personal opinion only, Jasper, 3 IPs isn't that many when you think about it. Development is a whole new game. Wouldn't it be easier just to keep doing buy and holds?

 

[sue78]

Unfortunately, it's not as easy as it sounds. Firstly, even if a block is the correct zoning doesn't mean that you will get the approval for subdivision. I think the most difficult part is dealing with the council. The part I hate the most is the time it takes to do the project.

I think you should do your investigation and check the figures and if you have any specific questions, post it on the forum.

 

[sailor]

Hi Jasperjue, firstly it might help to know the council's ruling on how many dwellings they would approve on what size land. This info is available on the net from most councils. In Qld it's on the Local Government Authority site, under planning, and applies to all LGA's in Qld. Not sure about the rules in other states.

At least then when you look at a block of land, you would know the maximum number of dwellings you could do.

The whole redevelopment process is long and arduous (haven't done it myself, but I've read threads on this forum of many challenging tales). Still most find the process rewarding and a great learning experience.

If this is what you want to do...go for it. Ask heaps of questions here, as there is a wealth of experience for the asking.

 

[grossreal]

hi jasperjue
I will be the sounding board for the other side of the fence.
developing is not as easy as it may seem.
and is a full time job unless you get some one to build it, leave and hope ( this is not the best way to develop)
contrary to alot of people thoughts not all developments are profitable thats why you see so many going into liquidation.
just like building a structure to invest you need to work out what type of development you are going to do and then work how you are going to do it.
I will give a off the back of an envelop way of looking at costings but you need to do about 4 times the amount of work on analysing your cost for developing then you do to by an ip.
2 duplex
in say an area where a new single side sells for say 600k
total sale 1,200
less gst allowing for the margin scheme 1140
less real estate commission 1.8%( and it can go to 6%)1119.5 less 25% profit margin.
839.6.less build costs
depending the state you build it can change but say 230 each
equals 379.6 land divided by two about 189.9 per side da site un da and you have the cost and forget it at this stage.
in sydney you would be lucky to find a site at 189.9 per site that is selling end product at 600
my last duplex in nsw was 150 a site but not now.
you can reduce the profit margin to get the numbers to work but I would not.
with a movement of 10% in costs and a movement in interest rates and you are not going to make money ( this is the person that wanted to develop so he's called developer, the banks love them because they tie up there equity for 12 months and make nothing)
if you go under 20% my extra 5% is a buffer
whether its an ip or developing its a numbers game and you have to be good with your numbers in your game.
for me I would work on the numbers but I would also do what you are good at first and at 3 ip I would build that to 7 or 8
and while doing this
then trial your numbers with a developer.
this is for information only and because developing is a very difficult area to move into should not be seen as any type of advice as you are dealing with very large numbers even in small developments.

 

[Sitting Bull]

Hi grossreal,

I realise that we're talking in approximate figures but do they scale back evenly? That is, if you were looking at a final sale price of one unit at 300k, you would not pay more than 95k for the land?

Bernard

 

[grossreal]

hi sitting bull
no doesn't work that way its does if say you are working back and constructing 5 or ten unit and this is one block ( not individual)
and just for your info the 95k not sure how you got to it. here mine
300k less 1/11 27k max margin would be 5% roughly 285 (5%) less1.8% 279.87 sellers less 25% 209.90 less build and a 2br unit is about 160 to 210 so whats the land try 0.
hence if you find a sale of a unit for 300k new they are making no money
my current has a land purchase of 75k with a resale of 520k
my total costs land and build is 385k.
remember that this is sydney numbers and they may change for your market.
you can only cost backwards when you are doing the site not the individual units as the allocation is different for the size of the unit.
give me your figure to 95k and I will give you a hint of where you missed this is very rough calcs and there is alot in more then this to be done.
I use the same as above when buying as it gives me a very valuable assett to negotiate on the sale price.

 

[Sitting Bull]

equals 379.6 land divided by two about 189.9 per side da site un da and you have the cost and forget it at this stage.
in sydney you would be lucky to find a site at 189.9 per site that is selling end product at 600

QUOTE]

Sorry, maybe i misread, i just halved all the figures.

600k sell = 379.6k land (189.9k per unit)

300k sell = 189.9k land (94.95k per unit)

 

[grossreal]

hi sitting bull
no the example was for a duplex that why I divide the land component in 2
so you have the value per duplex if a 5 unit site divide by 5,
you get the drift.
as long as you get the idea thats the main thing.

 

[Sitting Bull]

Hi grossreal,

Thanks for your prompt and informative replies, i realise answering these novice questions would be like a pro golfer playing with a hack so appreciate your patience.

Shouldve re read the posts more carefully,

obviously 300k sale - 95k land - 230k build = out of business

I think we're on the same page now. Your current project sounds impressive, im guessing you purchased a large piece of land to get it down to 75k per unit.

Where i am you will get 600k for a townhouse but the right size blocks are upwards of 450k, a far cry from your recommendations.

Just wondering, do you supervise/manage the construction portion of your developments or do you sub contract a builder? Im curious whether the 25% profit is on top of or inclusive of the builders margin.

Thanks again, Bernard.