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Does anyone have any experience with this developer?
How do you protect yourself from developer insolvency risk?
Not really any risk of that, There is actually greater risk with the builder (unless you are calling the developer the builder in this post). If you are buying a house and land package then you are settling and purchasing the block of land (usually owned by the developer), having a typical 80% finance of the value of the land with a bank and entering into a building contract.
Is there risk of the builder dies, goes broke or disappears, Yes. Are you covered under Home Warranty Policy, Yes you are. Do you want that to happen, No. If it does happen though you will lose time but your home will still get built.
What sources do you use to check a developers ability to build?
– Ask for list of previously completed projects addresses, then go knock on those purchasers doors to see if they were happy with the completed product.
– A good referral or two
As you have already stated, It would be a open agency for the land sale, whichever builder can get a contract to build a house on it first. Will have the new owner buy the land.
Hi Mitch, You don’t need to spend the 40K.
Its not any better in the UK then it is mastering Australian Property
They use various NLP techniques to persuade you to invest, I hope you did stay away.
You could of invested that 40k into paying consultants and specialists here in Australia for months and months and learnt off of them.
Well I should say, fund it with your Line of credit so you can claim the interest and sit your savings in a offset against your PPOR until required (use last)
Set a line of credit or similar up with your current lender and then go to another lender that is interested in Construction loans. If you are just dividing the land and selling though as land only, Most banks will consent to the division unless value of the new security (new blocks of land) is less then the current property with improvements (if it is a existing house). Just fund the rest of the costs with your savings or remaining portion of Line of credit.
Also check with your accountant, more likely not tax $ on CGT and would be income tax.
Most likely, your family member contributed the land as equity or their “contribution” to the deal and the developer put forward the cash for the upfront costs.
What part of the construction finance are you not able to come up with, the equity (you might have it in your land you already own) or the servicing ?
Develop the building yourself ?
Invest in a fund, Joint venture, Crowd fund, Go it alone.
Did you rent it Immediately after owning it ?
Most likely yes there will be some but apportioned for the time rented vs PPOR. I am sure another one of the experts will give you further detail
Just had to amend that IRR. The feaso (feastudy) program did not like a value (less then 3 months, must be a glitch). Calculate using the feasibility program.
Estate Master will do it for you as well, and will also let you included a cost of capital as well, (as you say money invested is money not offset, which is a cost).
Plenty of free excel formulas available online or calculators though.
Where I would trim the fat in your fictitious flip is this.
– Holding costs, 6 Months to complete renovation, way to long (are you just working weekends?), Speed is the key. (If the renovation could take longer, get early access on a unconditional contract, finish the renovation before you even settlement, some risks here, You would need have to locked in the valuation with a desktop valuation, can’t have a valuer showing up) 80% loan can solve this majority of times.
– Swap to conveyancer over solicitor (cheaper)
– PS (No CGT on a flip). Using Income tax.
– No Home warranty if you keep individual contracts with trades under 12k. (I.e. split it up don’t get one person/company to do it all)
– as long as no interior walls moved or structural changes, no council fees.
– Staging costs ($2-2.5k)
– Try LVR at 80% (there are some loans that offer 85-90% but with no LMI) depending on purpose and / or your occupation.
Keys to finding these properties (using RP Data, find suburbs with the biggest variance in prices)
Rough work out that you need the original house component to cost you (70% of the sale value) IE your hypothetical sale price at $275,000 you need to be purchasing at $192,500.
Here is the numbers for a property flip completed within the last 6-8 months. This is something would recommend for beginners.
Renovation time – 4 Weeks 2 days, Sold First Open for listed price. Approx 60 Hours my time put into it, into organizing materials, trades etc. Type of property – 1 Bed, 1 bath Unit. (No exterior work required)
$154,000 – Purchase Price
$7,495 – Stamp Duty and closing costs (conveyancer included)
$15,286 – Renovation costs
$1,100 – Holding costs (two months and a bit on loan at 80% purchase price at less then 4.5% interest rate)
$6075 – Sales (agent fee plus conveyancer)
$ 183,956 – Total
Sale price (1st open), 1 month settlement = $212,500
Profit = $ 28,544
Return on Investment – 15.52 %
Return on investment (annual) – 140.48%
IRR – 187.9
a) Hire yourself as property manager for 2 years.
b) only take out commercial loans, or deal with the commercial lenders so they can assess your loans as actual, not at 7.2% etc.
Just request the agent ask the tenant to send you a photo, really a 1 minute activity
If the agent cannot do that. Get a new agent, bet you will have the photo within the hour.
Your paying the agent to manage your property not have them manage you.
A disappointing story to be sure when you just want to be heard and are treated indifferently.
One of the issues you are having here is you constantly approaching different builders.
Approach a building designer only, agree with that designer that you will own the copyright of the plans so that if you choose to tender with multiple builders you can do so and choose the lowest quote or at least have multiple options.
By constantly doing your plans with different builders, they each own the copyright to the plans.
Can you give a bit more detail, what area, what suburb, how much did you purchase for.
Also just to be upfront, if you have difficulty dealing in this and it is causing you stress and anxiety it might not be something to consider for the future.
What is the reasoning for feeling trapped? Have you paid to much for the land and now you cannot seem to get out of it even by selling the land at a lower price or are you trying to sell for a higher price then you paid to break even after duties and sales fees? Health before wealth Darren, getting out of this deal even at a loss is better then going into the ground.
Id like to help you more if you can give more detail.
Take care. Cheers Wilko
Good job on the buy and hold position. Now see if we can put some detail into your questions.
– I have read many posts containing horror stories about the time for DA approval, why is there so much uncertainty with the time for approval? How can it vary from 3 months to 2 years and What is it that is actually taking up this time? Is it purely bureaucratic admin? What can be done to better ensure a speedy approval? It seems very unusual how vague this whole process is especially given the potential loss on the table if approval times blow-out.
There’s uncertainty because there is different types of buildings that require different types of notifications and consultations and also who you are getting your advice from. There’s certainty available when you know what your doing.
I.e funding the costs to rezone a area that might be zoned rural but adjacent a existing residential zone might take a year or longer.
Developments i.e. a 1 into 3 lot subdivision in a existing residential area might be deemed a complying RESCODE and not require council approval but can be approved by a private planning certifier. In those cases you can have no bureaucratic admin BS. You have your plans they comply with the planning code you submit and get your consent in days. If your getting approval for a multi-rise building, allow for it in your feasibility, rent the property out for a year, rent it for 18 months.
– I’ve considered office, retail and industrial land development, however, I am leaning towards industrial mainly due to my background in construction. What are other peoples experiences with the 3 commercial property types? Is one favoured over the other or is it a matter of personal preference?
– My plan is to purchase land in fringe industrial zones in victoria that are positioned for re-zoning, build low-cost warehouses to establish an income stream and hope for the potential upside due to re-zone. I would like to know peoples opinion on this strategy in general, is it too speculative to target areas with the view for a re-zone? Has anyone had success in the past with anticipating zoning changes? any insight on this would be great.
All three viable but all require the same skill sets, who are you building for, who is your end user, do they even need a warehouse in this location, can you mitigate some risk and get them to sign a heads of agreement for a lease for your warehouse before you have even bought the land and built it.
Don’t use the word hope, never hope. You can still capitalise on a rezoning of the area, just do it when the council release the statement of intent that they are going to rezone, not hope it gets rezoned. Those “hoping” properties should be part of your buy and hold strategy. Are they future plans where the council want to go, where do they want to development further or rezone.
Residential is easy to understand, easier for the buyer to understand, easier to finance for a beginner.
Commercial is easy to understand if you understand valuation, commercial leases but can be harder to finance
Warehouses, for storage etc or industrial use are only as good as the income that is attached to it and the strength and length of the lease.
I still need to do a fair bit of legwork re. contacting town planners and doing a full feasibility study but before I get too far in it would be great to have any thoughts/opinions on the above, also any other tips or resources would be much appreciated.
Start doing feasiblities before. Find some examples of the above that you want to replicate, this is easier for a residential example.
Use googlemaps or these links for SA and VIC (there’s maps for all the states just search for them)
Find a 3 or 4 site subdivision for some houses in a area you can afford to invest into.
use RPDATA (Yes pay for a subscription your investing $100,000’s to millions you can afford it) , look up the purchase price, the sale date, the sold date, the sale prices of that block with 3-4 homes on it,
Download the floor plans, take the floor plans to a builder ask him in rough terms how much would it cost to build including landscaping, stormwater etc.
Then using a feasibility program, something affordable is something like http://www.devfeas.com.au/
Something expensive for greater then 30 lot subdivision with mulitple land division or build stages use http://www.zavanti.com/
Go see a bank ask them the rate of interest they would lend you for a 3 dwelling development.
Research the cost of the council fees and contributions, also available online, if not ask a surveyor
Go see a town planner, get his costings
Go see a building designer, get his costings to design planning and working drawings, get him to include the energy, timber/ truss, footings, soil test.
Go to a agent in the area ask how much they would sell 3 homes for at the same time (negotiate that lower rate, lets say you get 1.5% inc gst)
Plug all that data into the program and look at the result, if that is showing up a 200k return. or 150k or 400k. There’s a strong likelihood that ohh look the neighboring property which is looking a bit derelict and run down, could also do something similar.
Go check with the town planner and ask “can i do the same as the property next door?”
And now the final piece of the puzzle, TAKE ACTION!
“Doing the right thing, is always the right thing” Gary Vaynerchuck.
and not sure who quoted this one but I think its a partial Tony Robbins quote.
” I believe life is constantly testing us. For our level of commitment. Life’s greatest rewards are reserved for those who demonstrate a never-ending commitment to act until they achieve”
Yes, If you have not done it before.
Youll make your money back in your first 2 renovations by just using the bunnings trade card that is linked to her account.
20-30% off kitchens etc.
SA Demolition and Salvage,
Usually standard house just under $10k, asbestos extra budget $2-4 depending on how much etc. Speak to Joanne in the office she will organise a quote for you. Have used them many times before always good and accommodating
Xero with add ons – (either pocket rent) or released
Property tree is a online cloud based software (usually used by RE agents, slowly replacing the server based
Pick your accounting software first there is heaps of add ons, for xero, quickbooks etc.
And we all know how the “invest in mining towns for positive cash flow story ended”.
Any more detail that you can give ?
Purchase price, Current Value of the property, current value you think now you have a DA (was it a complying 4 siter or did you squeeze the 4 on), Current LVR
All the options Benny suggested,
– Plus knowing the above you might have some more equity in the deal then you think
– Depending on how the block is located, is it on a corner, are the blocks community titled, You can demolish the existing house and install the driveway and services, pay the council fees and then have 4 new blocks of land. This would be a as is land valuation but now x 4 allotments which can be higher then then single house with approval valuation.