Christian, your earlier post was spot on, it aligns exactly with my post here https://www.propertyinvesting.com/forums/property-investing/value-adding/4343689 but explains it better.
BTW I am currently doing 3 bed, 3 bath, single garage townhouses which are 125 sqm, in a location where the builld costs $1,800-$2,000 per sqm turnkey. 200 sqm may not be the optimal size, even if you can fit them on the block. For me it makes the difference of a 40% profit on costs at 125 sqm, whereas probably no profit at 200 sqm.
Note also that profit isn’t the only factor. For me with a limited capital base, I reviewed and discounted some larger build configurations that may have had a higher profit margin, but had a prohibitive cost base.
For argument’s sake let’s say your 200 sqm townhouse costs $300,000 and at 125 sqm it would cost $187,500. You may get an extra $120k in sales value for the larger build, so in theory you get an extra $7,500 profit per townhouse, but you have a much higher build cost and it will be much harder to fund.
I am trying to work on the theory that for every extra $0.65 I spend, I need to be getting back $1 more in sales value. This is in line with the lending requirements of the banks which will fund a maximum of 65% of the final realiseable value (net of gst). By following this simple formula, I ensure that I can still fund the build with a limited capital base. If alternatively you are funding based on 20% of the costs, it becomes even more important to minimise them where ever possible.
Cheers,
Matt
