All Topics / Value Adding / Attn Developers – What PROFIT margin is a goer?l

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  • Profile photo of giddogiddo
    Member
    @giddo
    Join Date: 2005
    Post Count: 152

    HELP PLEASE>>>>
    To all the experienced residential property developers out there……

    Small Residential Development – i.e. duplex on 680 sq m -got to remove a dwelling first.

    I am doing the figures and would like to make as much profit as possible of course.
    Based on experience what is a good percentage to aim for? I am talking about valuation at completion. I will hold after it is complete.

    I am thinking at least 20 % after all costs of building, legals etc.
    Is this enough? The more the better of course.
    Help please….

    Giddo
    http://www.standrewsplace.com.au

    KNOWLEDGE IS POWER

    Profile photo of waynel2waynel2
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    @waynel2
    Join Date: 2004
    Post Count: 311

    hi giddo,

    i’ve heard 20-25%, though in the current market some fulltime developers are taking 15%…

    hey, just on another note I looked at http://www.standrewsplace.com.au and thought u may like to advertise for free on my website –
    http://www.ozholidayhomes.com.au/

    we’ve started up in WA and have had quite a few listings… we are now branching into the other states…

    cheers

    wayne

    Wayne Leech

    *Below are links to my websites – any feedback, comments would be appreciated:)
    http://www.holidayhomeswa.com.au – Holiday Homes in Western Australia
    http://www.wheretostaywa.com.au – Accommodation in Western Australia
    http://www.homesearcher.com.au – List your property for FREE

    Profile photo of AdministratorAdministrator
    Keymaster
    @piadmin
    Join Date: 2013
    Post Count: 3,225

    From what I have heard, you should be looking for 30% and up when developing otherwise banks don’t tend too keen.

    I haven’t developed anything myself yet but looking for the highest possible outcome would be my goal, so aiming for a 100% and more profit would be ideal. LOL.

    But different horses for different courses and if you feel that the 20% being made will be a substantial gain for the effort input, then go for ya life.

    Cheers,
    Jacob.

    ‘Stay Happy and you’ll be Perfectly Fine’ – Jack

    Profile photo of PickworthPickworth
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    @pickworth
    Join Date: 2004
    Post Count: 48

    Giddo

    With the current market conditions I would be looking at a profit margin of 15 to 20% with a buy and hold strategy. That adds up to a lot of dollars.

    Better than bank interest and yes I do factor in the risk.

    ‘Your will never go broke taking a profit’

    Profile photo of grossrealisationgrossrealisation
    Member
    @grossrealisation
    Join Date: 2005
    Post Count: 1,031

    hi all
    couple of things.

    returns from developing are between 15% and 35% and are basically by risk factors.
    giddo I run to different programmes for my business and they give me to totally different returns but they also run different interest rates and different ways of looking at developments.
    how well do you know your bank manager.
    he runs one of the programmes I run he/she(sorry to be sexist) can tell you your return.
    post on here your costing (as dazzling and few don’t like me telling people to email me)and I will give you a couple of options
    as a gross realisation loan 65%
    as a 80% lvr loan construct ad land
    and complete 67%construct loan.
    these figures must not be construde as a loan or an indication as a loan by will be very close to the figures thou.
    I won’t go lower then 15% and only at this level for tax purposess.
    i need land value
    build cost fixed price if possible
    resale value
    interest rate (not needed but if you got it hand)
    term to build.
    look forward to reading

    here to help

    Profile photo of giddogiddo
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    @giddo
    Join Date: 2005
    Post Count: 152

    Thanks Gross,
    Appreciate your input.

    Cost of land 190k
    Build Cost 180k
    Value on completion 450k
    Int rate 7 %
    To Build 15 months

    Thanks so much

    Giddo
    http://www.standrewsplace.com.au

    KNOWLEDGE IS POWER

    Profile photo of grossrealisationgrossrealisation
    Member
    @grossrealisation
    Join Date: 2005
    Post Count: 1,031

    hi giddo
    have chat with the bank manager
    here it is
    sell price 450,000
    selling costs 11,250
    gst 23,636
    total revenue 415,113
    construction
    180,000
    contingemcy 9,000
    professional fees 13,500
    interest 38,000
    devel costs 240,562
    if you are buting this site at that value it is a minus return any thing over 90,000 for the land and it doesn’t work.
    normal lend

    gross realisation gives me
    263,914 minus build gives me 23,352 for the land
    gross doesn’t work
    costruct loan at 95% gives a 145,159 to break even

    simple calculator

    450
    minus
    180 and 190 gives 80 less interest 40 and you haven’t taken out gst, solicitors, stamp duty,legals or contingencies
    sorry to be the proveyor of bad news put I think you need to trim this some were

    here to help

    Profile photo of grossrealisationgrossrealisation
    Member
    @grossrealisation
    Join Date: 2005
    Post Count: 1,031

    hi giddo

    I sound like a tv cook but heres one I did earlier it settles next week depending on paperwork.
    two duplex (4 units)
    land 700,000
    construct 800,000
    sale 2,503,727
    lend 1,727,930
    67% builder buying land and building
    return 25.64%
    12% interest rate private lend.
    I think you need to look at the resale price.

    here to help

    Profile photo of giddogiddo
    Member
    @giddo
    Join Date: 2005
    Post Count: 152

    Appreciate your assistance GROSS,
    You are good to help me.
    Yes the deal is skinny. Sooo so skinny. I wouldn’t consider it except the land is next to land I own and something beneficial is to happen nearby.
    I am looking at what to put on the land – i can put 2×2 b room units or a 3 and a 1 or a two and 2 single bedroom units.
    I would keep it all after I do it. I have a company structure and can claim back the GST as I am using it all for production of income, and charge GST on the accomm I provide.
    I have done this before but the land only cost 89k last time – before everything rose.
    I am getting 14% nett on what I paid for land and buildings last time, but now I am looking at only 7% because of the increase in the value of the land and increased building costs.
    A familiar tale of woe I am sure. I am sure time would heal the hurtful results of price rises.But why would I want to do something for a gain so far in the future.
    Your calculations are all about financing and viability for the bank I suppose and do not take into account the above factors.
    I am still thinking about the whole thing.I have been for some time actually.
    I used to be indecisive but now I am not so sure.

    Giddo
    http://www.standrewsplace.com.au

    KNOWLEDGE IS POWER

    Profile photo of gafamagafama
    Member
    @gafama
    Join Date: 2004
    Post Count: 118

    20% is considered minimum by most developers. If you can get 30% you’re doing better than most.

    Hope this helps.

    Megan

    http://www.propertyhub.net
    Your Investing and Developing Information Hub.

    investToSurf
    Participant
    @investtosurf
    Join Date: 2005
    Post Count: 21

    Hi all, I’m a virgin poster and just read this thread and sounds like i could be half way through an investment that might not stack up. I’ve listed the details below and can provide more if needed. In a nutshell, I’ve just bough a big block 900sqm with a 3 br house on the front, community title hammerhead devision (small costs), 3br, double carport 141sqm house on the back.

    Cost of land 280k + 15K in buying costs
    Build Cost 130k + 15K landscaping of both
    renovate on existing = 10K
    Value on completion 270K front
    350K on back = 620K
    Int rate 6.8%
    To Build 12 months
    current retun of $8800 from existing house’s tennents.

    Inially I wanted to buy and hold but after reading steves book and some posts I’m not so sure.

    My loan broker and i have done the sums and, with tax benefits, it’ll cost 5K to hold each year :(

    Grossrealiastion, it sounds like your the man, can you work these figures?

    Profile photo of grossrealisationgrossrealisation
    Member
    @grossrealisation
    Join Date: 2005
    Post Count: 1,031

    Hi investToSurf
    What did your broker say.
    I’ve number cruched it and no it wouldn’t get thru if I was doing it, but having said that you have bought it and it is a 19.22% profit so for a small development I would give it a green light for a starting off project.
    Just next time send it past some one like me before you purchase, your broker should have been able to give you this info.
    I hope those figures are correct as theres not much fat in this project, if all goes well your looking at $94,989 profit after selling cost, gst etc.
    It must be noted that this is not an indication of lending nor is it at all to be seen as financial advice.

    here to help

    Profile photo of grossrealisationgrossrealisation
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    @grossrealisation
    Join Date: 2005
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    hi giddo
    Ive seen your website and reading your post I can understand what you are trying to achieve and I agree that you must spend money to make money and not rely on bank figures.
    If you can use the properties for your business the value changes which I can’t calculate.
    cost don’t go down so I’d bite the bullet and build and expand your business,
    But thats my view not as a funder but as a business capitalist as a different section I take run down business and reform them so I understand your position.
    The figures I gave your are from a profit to build and sell point of view.
    non of above is to be taken as finacial advice or to be debted against.

    here to help

    Profile photo of Negoc8Negoc8
    Member
    @negoc8
    Join Date: 2005
    Post Count: 5

    Can anyone give me a common sense definition of ‘Internal Rate of Return’?

    investToSurf
    Participant
    @investtosurf
    Join Date: 2005
    Post Count: 21

    g’Day Gross,
    my broker said that to only cost 5K per year to hold 600K approx worth of property was damn good. I guess that he has seen too many negative gearing deals:) although that was to buy and hold, Im leaning more to selling them now.

    I feel like i have broken many rules that steve has said in his book, so i’ll be happy to come away from things with my head above water and of course the lessons learnt.

    I’m curious as to how you came to the 19%. I stated the costs as 440K and selling price at 620k what else should i factor in???

    Profile photo of grossrealisationgrossrealisation
    Member
    @grossrealisation
    Join Date: 2005
    Post Count: 1,031

    hi investToSurf
    (I like the name)yes there are a couple of things that cost.
    professional fees (legal,selling buying fees)
    stamp duty
    interest
    contingency 5%
    sell agents fees
    gst
    my programmes takes these out for gross profit

    here to help

    investToSurf
    Participant
    @investtosurf
    Join Date: 2005
    Post Count: 21

    thanks Gross,
    Are these programmes ones that you have purchased or self devised?

    what about taxes?

    Profile photo of grossrealisationgrossrealisation
    Member
    @grossrealisation
    Join Date: 2005
    Post Count: 1,031

    hi investToSurf
    they are a mix and some are propriotory programmes
    most are inc taxes.
    3 are the current back programmes that are assigned to me.

    here to help

    Profile photo of Property PassionProperty Passion
    Member
    @property-passion
    Join Date: 2005
    Post Count: 172

    When looking at a development site, how do you project the…
    1. stampduty cost ?
    2. Capital gains tax ?

    whats the simple maths of it?

    kind regards

    Profile photo of Negoc8Negoc8
    Member
    @negoc8
    Join Date: 2005
    Post Count: 5

    GR, what programmes do you use?

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