All Topics / General Property / buiding & selling for profit

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  • Profile photo of nathan210nathan210
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    @nathan210
    Join Date: 2003
    Post Count: 81

    hi guys/girls

    just enquiring about how people feel about buying a decrepit house, knocking it down & then building 2 houses (1 bigger than the other) on the newly vacant land? i ask this question as my father in laws next door neighbour, whom is a builder, does this quite regularly in order to make a profit and then move on to the next project. if this can be done, how is it that you get started?
    my partner & i currently have 1 IP but not much equity as it is a relatively new purchase. is there a savvy way of gaining finance to fund this kind of project?
    thanks for your thoughts [aacool]

    Profile photo of yackyack
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    @yack
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    I reckon that is a great idea. I wish I could do it, but am not really in a position to do so. Hopefully one day I will.

    One of the benefits is the great building allowance and deprn benfits you can offset against your rent and other income.

    You could also sell one property if you are over geared. But preferably it would be best to keep both. I like the strategy, but you will need a bit of money behind you.

    Profile photo of Most excellentMost excellent
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    @most-excellent
    Join Date: 2003
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    True definetly need $$$, you may have the tax man breathe on your neck. The ATO seem to target these sort of ventures with a thickish magnifying glass. Unneccessary pressure can slow things down.
    Having said that it is solid scenario

    [strum]
    people buy what they love

    Profile photo of woodsmanwoodsman
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    @woodsman
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    Nathan210,
    Building new residences is not a straightforward project. Make sure you get plenty of information from builders, town planners, legal advice and a good mortgage broker.

    I think the idea, if succesfully implemented, is great.Funding and the extent of what you might be able to get from a financial institution, will also be dictated by the level of expertise or experience in project managing this type of activity.

    James

    Profile photo of AdministratorAdministrator
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    @piadmin
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    Yeh, it may be a good idea but keep in mind that, firstly you aren’t a builder so you need to get someone else do that part of the job (and there goes part of the profits your next door neighbour would make.

    Secondly there are certain skills required and if one doesn’t have that knowledge one can come undone.

    Yes, I know that you can consult an architect but
    if he has to look at every possible project you will soon go broke paying his fees.

    Thirdly, finding the right property at the right kind of price is a fulltime job.
    That is the reason that many builders go through estate agents.

    If a builder is tied down on a building site he just hasn’t got the time to run around looking at many sites.

    Fourthly, not everything is love and roses. You can bet your bottomdollar that your neighbour had had his share of losses as well.

    Fifthly it is capital intensive. I note that you say that you don’t have much equity at the moment.

    If one obtains finance one still needs a deposit and one also needs to pay the interest each month (unless one provides more security than just 20% of the project’s cost).

    The answer to your first question (“if this can be done, how is it that you get started?”)is that one needs a certain amount of assets.

    Another answer is that to learn it is best to learn from someone who knows so you profit by learning from someone else’ experience rather than by having to learn by paying for your mistakes.

    Who better to ask your father in law’s neighbour ?

    Tell him you would live to learn to do what he is doing does he mind if you hang around a bit and make a bit of a nuisance of yourself by asking questions.

    I would reply to your other question (“Is there a savvy way of gaining finance to fund this kind of project?”) by saying no.

    Nevertheless, is it possible that you could raise some money by selling your present investment property ?

    If you are interested in building it is possible to do a building course at TAFE of course.

    Pisces

    Profile photo of wrappackwrappack
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    @wrappack
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    Boy oh boy oh boy is this your lucky day. After months of research, thinking, looking, I have come up with a strategy for exactly this scenario, because I am about to do exactly that.

    Building wise- Architects charge a fortune 2-3K a square metre, your mastertons etc are under a grand. I think a designed house would need to be done, at a much smaller cost than an architect.

    Lastly, why build one house “much bigger than the other”? Personally, I would build them of similar size, two story, and the biggest allowable on the land. (In wyong shire, only the front can be two story, the back must be one)

    You really must be taking your father in laws neighbour out for lunch (personally, I would shout the both of you)

    Btw, what area are you looking at?
    My brother in law had often made the comment that the best way of making big $$$ in the prop game was by being a brain dead moron, buying a house in Sydney, knocking it down, and building a duplex (two houses), which can be either attached (together) or apart. Obviously, add some common sense, and ignore the moronic comment.

    Firstly, check out the your councils web site and surrounding councils web sites of DCP’s to find out block sizes, frontages, attached/detached DCPs’ AND ASK THEM IF YOU CAN STRATA TITLE THEM- ie sell the two houses to two different people. Example, I live in the Gosford area, where a duplex( be it attached or detached) can only be sold to the one person, whereas 20 min north in Wyong, they can be sold to two different people. So that is where I am looking.

    Secondly, the land has to be relatively expensive. It would be no use to try this in the country on dirt cheap land or a cheap farm, but as soon as the land is of a certain value, it will support more than one occupant. (my theory- the more expensive the land, the more people need to live on it- eg sydney harbour skyscrapers vs outback towns- which is more densly populated?) Not sure what $ figure a duplex is needed- but probably anywhere in Syd at the moment. Thus, if you could buy a cheap house for 500k, or a better positioned piece for 650k, go for the more expensive, and delay your construction plans for a year or two. (the bank will revalue it higher in 6 or 12 months, giving you the equity you need)

    Get a designer to check the block and designs before you sign on the bottom line, even if you lose a grand or three in the process. You must fit into block sizes, frontage, drainage, street character, and then physically fit your 2 (sellable or rentable) houses on the block (easier said than done, just try it!), This is like a jigsaw puzzle with no correct answer.

    Personally, I am looking at doing detached houses for a number of reasons.
    i) some people want to live in flats, and there is about to be massive bad publicity over the ensuing years courtesy of HK. Do you want to sell a flat in that market?
    ii) People can live in sterile villages.
    iii) People can live in their own home.
    If they cant afford their own home, a duplex is the affordable option.
    Thus, for all intensive purposes, it is their own home, just one is a “battleax” block. (incidentally, in the council regions mentioned, doing duplexes is infinately easier and cheaper than actually doing subdivisions for battleax blocks)
    I will try to shoot some holes in some arguments presented above-
    i) tax man breathing down your neck- yes, he will grab his share, BUT ONLY IF YOU SELL. Why not do what the reno kings suggest, and try to never sell? THat is, build two houses, then REVALUE to unlock equity, rather than to sell (and pay tax in the process). Do one a year or two, and in twenty years you will have a motza.
    ii) sell your IP to raise finance- no, no, no. This will occur cgt tax (full if owned <12months) or half if owned>12months. Rather, revalue (with a valuer assigning to the particular bank you will loan from), and pay no agents fees.
    iii) “Thirdly, finding the right property at the right kind of price is a fulltime job.” Rubbish. it is simply a matter of knowing if the property is suitable (eg I personally need a 700m of block with a 15+m frontage on a flat <20% site, in a nice area) That cuts my wasted time with REA to an absolute minimum). When I say that I am not interested, they are sad for a second, and very grateful when I give them my home number and fax, and the specific details I need. They know I am not wasting their time. As for price, then compare it to local recent sales figures. Turn up to auctions, and put in low bids. It is not a full time job, one just needs to know when not to act (most of the time), and when to think about doing more research (maybe an in office exchange to buy a week or two of research?)
    iv) finance it like this. find the site, and buy it (preferably long term settlement or an option- you may be able to get the bank to revalue it in six months, rather than use the contract value). You can revalue your ppor and your ip, and will probably have enough equity (even though you will probably need to xcollateralise). Wait a year or three, to allow the prices to increase, da’s to go through, etc. Then, revalue the three props (your ip, ppor, and the development site) and only proceed when a worst case scenario means you can survive all of the pitfalls-cost overruns, delays, etc.)

    Or, just checked out a web development site. It basically said that banks will happily lend 70% of the total costs of a project. THus, you need to come up with 30+%.

    What about VF for a few years?
    Or a JV with a builder?
    Or an equity partner? Apparently, the going rate is if a silent partner puts up the 30% (allowing you to go hell for leather NOW), they get 50% of the profit, which should work out good for both of you.

    Personally, I am going to be setting up a company, throw in some cash, then find a property, and get a number of investors into the project. This will allow things to proceed quicker than if I had to have the whole thing done by myself.

    Profile photo of MTRMTR
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    @marisa
    Join Date: 2004
    Post Count: 663

    Great idea, if you have the money and the figures add up in your favour.

    I have heard some horror stories where people have lost money due to lack of expertise in this area.
    You could always contact your neighbour’s in laws or shop around there are plenty of builders that specialise in this area which could give you an idea on the specific costs involved.

    Profile photo of nathan210nathan210
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    @nathan210
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    Post Count: 81

    wow, thanks guys/girls. alot of very very useful info for me to read (especially wrappack-wow you’re right into it. good to see. i think my next step will be to go see father in-laws next door neighbour. thanks again. will let you know how i go. [biggrin]

    Profile photo of elveselves
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    @elves
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    Can I suggest you might look to buying in two ways;
    1) two blocks as you suggested and then get a DA approval and sell this, there is money to be made doing this without the expense of actually building.

    2) buying a da approved site, and then building.

    The reasons I say this are that if you are short of equity or the financial nouse, then this might be a step in the direction you need, the 1st suggestion might give you more funds and less outlays.

    I dont think architects are necessary, but depending on the councils, certain restrictions will apply, both to zoning and to types of buildings permitted, noty to mention neighbour complaints…..

    You will need a builder if taking this track and if the devolpment is larger a project manager (can be yourself).

    Finance for this kind of project is available, and often there are the downpayments to be made at specified times, banks who finance this often release funds as per time schedule if satisfied I guess.

    My friend bought to blocks, zoning was right for her project, building 6 units, with views, they will make approx 1 million from the deal. but I think their project got a bit heavy duty. Building fell behind, costs escalated, there was colateral involved and a huge mortage. But this isnt a small duplex so I dont mean to put you off.

    In theory it is easy, the reality cna be a nightmare.

    Elves

    Profile photo of nathan210nathan210
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    @nathan210
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    Post Count: 81

    thanks elves for your insight. looking at it from that perspective, and given our current financial position, then less financial outlay is honestly the best & safest way to go. the idea of slowly building our way up to bigger & bigger projects sounds like a sound investment, helping to educate ourselves at a pace more comfortable for us. honestly, the sound of making $1million on a single project is luring, but we need to work our way up to that. buying two blocks next to each other is still exciting, yet seems much safer than going all out. i thoroughly enjoy having the ability to voice my thoughts and to gain valuable insights as to what options we have available. thanks kindly. [biggrin]

    Profile photo of js2js2
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    @js2
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    I used to knock around with this guy once. That had a second hand salvage yard, now and again i would go along with him to places and help knock down a biulding.

    One was a large shed, one was an office, once a carport and a heap of bricks.

    The deal in these places was that he demolished everything and left the earth flat and clean everything up, and all he got was everything that was once there.

    The piont i’m trying to make is, you can get people who will come in and demolish the biulding for you for nothing.

    You’ve just got to make a decission whether whats getting demolished is worth you paying someone to do it and keeping what’s there. To use again sometime. Or whether its better to just give it away to save money and you having to do it.

    That office i said about above we went and got a folk lift and completely lifted it up and put it on a flat trailor and was taken and worked on a week, converted to a small self supporting room (sinks, taps etc) and taken while stil on the trailor to somebodies house and put beside there house for a room for one of there teenage children. Just lifted it off with the folk lift there.

    ***********************
    Positive Cashflow Calculator

    Profile photo of wrappackwrappack
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    @wrappack
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    Post Count: 182

    Elves, I would like to disagree with your two ways to purchase.

    i) Buying 2 blocks? Why bother? the whole idea is to squeeze 2 houses on the one block. But, if the 2 blocks could be joined and subdivided into three then I would be inquiring further!

    ii) DA approved sites seem to be incredibly overpriced. Owners seem to look at the (inflated) price of a house down the road, take a minimum spec home off, and then say look youll make a fortune!. I think I will search for a site that is suitable (that the owner may not know/care about) and crunch my own numbers

    Many thanks for your kind comments nathan, let us know how you are going. What areas are you looking at?

    Profile photo of nathan210nathan210
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    @nathan210
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    Post Count: 81

    wrappack

    currently looking at wollongong area as i live there & have the ability to keep an eye on things if something does eventually come to fruition.

    i understand that $ are needed to pull a project of this capacity off successfully.

    although looking at building/selling, am always looking to add more properties to our small (1) portfolio.

    looking forward to retiring early. (at 40 hopefully!! – 27 now)

    [hair2]

    Profile photo of elveselves
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    @elves
    Join Date: 2003
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    I only mentioned two blocks because this had been mentioned and because it gives ideas. Who says you cant fit 6 on on block as it depends on the size.

    the reason people sell da approved IS to make MONEY
    the reason people buy them is they might have the funds, dont want the hassels, it is VERY common.

    Elves

    The only thing constant is change

    The only difference between a weed and a flower is a judgement

    Profile photo of AdministratorAdministrator
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    @piadmin
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    >>Building wise- Architects charge a fortune 2-3K a square metre, your mastertons etc are under a grand. I think a designed house would need to be done, at a much smaller cost than an architect.<<

    Actually, Wrappack, the task of an architect who carries out the job of supervising the building is to obtain quotes from builders, discuss these with you, select a builder (or trades people) and thence supervise the construction.

    Selecting a builder isn’t merely looking for the one with the lowest price however.

    That doesn’t mean that, when using an architect, the architect is constantly on the site.

    He would however keep a close eye on the job being done and pull up any trades person who does a bodgy job.

    The architect may charge you anything upwards of 7% on cost. So the $ 2K to $ 3K per square metre is obviously not correct.

    I would go as far as to say that anyone who employs a project builder without having another builder (or architect) keeping an eye on what is being done is penny wise and pound foolish as the saying goes.

    If one doesn’t have an architect actively involved in the supervision of the construction but merely have him carry out several inspections the cost will be a lot less.

    >>iii) “Thirdly, finding the right property at the right kind of price is a fulltime job.” Rubbish. it is simply a matter of knowing if the property is suitable (eg I personally need a 700m of block with a 15+m frontage on a flat <20% site, in a nice area)<<

    Wrappack, we appear to differ about the time required to find the right site at the right price.

    If it was as easy as you portray it, builders wouldn’t be buying any sites via a real estate agent.

    I am very much looking for the same thing as you are looking for except that my criteria are so much more selective.

    From the little you mentioned you are bound to run into enormous problems if your only criteria are a 700 sq, metres flat block with a 15 metres frontage (in a nice area).

    Would I be far wrong in thinking that you haven’t actually done any such a project as yet ?

    >>Thus, if you could buy a cheap house for 500k, or a better positioned piece for 650k, go for the more expensive, and delay your construction plans for a year or two. (the bank will revalue it higher in 6 or 12 months, giving you the equity you need)<<

    Also, delaying construction for a couple of years would add some $ 75 K to the cost of the land so I doubt that that is a very good suggestion (apart from the fact that servicing such a loan would put many people here under a lot of pressure).

    Pisces

    Profile photo of wrappackwrappack
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    @wrappack
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    Oops- didnt mean to offend anyone, and it seems that I may need to explain-

    Pisces- Your point is taken on board Re architects. I have misquoted a good source. In the SMH a week or two ago, the 2-3k sq m was quoted in the domain section. On rereading it, it was regarding renos/extensions in the city by very well known architects. I got my wires crossed up and apologies for that. If an architect would effectively be on a cost plus basis of 7-10%, this to me sound very fair and reasonable, particularly as they have the indepth knowledge of local tradies, council whims, and realistic project times. Plus, on any dual occ, one could assume that you would not be able to plonk a couple of mastertons on and they fit perfectly. Councils really want to see an integrated project (ie shadowing, privacy issues). YOur other comment regarding having an overseer on a project home sound like very sage advice.

    You are spot on regarding my practical experience (basically zero, I am still in my information gathering stage, and quickly filling in the (still large) gaps in my knowledge).
    With regards to site requirements, can we meet each other in the middle somewhere? I was not saying that site selection was easy, but that site elimination (unsuitable for many reasons) is easy and quick. My comments were not meant to be set in stone as for what I would run out and buy, but really to act as a sieve for what I DONT want to buy. Thus, if I wish to do a dual occ, detached, I would need the above mentioned site as a minimum. Obviously, further investigation is still warranted after finding a potentially suitable site. Eg a corner block will always be better because of dual street acess, and a rectangular E-W block will be better than a N-S block, as it will allow larger living areas and courtyards to be north facing.

    Pisces and Elves, I understand and accept the fact that sites can be easily bought after das have been passed. But, when an owner has gone to the time and trouble to pass a da, they will want more cash for their place. I would personally prefer to buy the house next door or across the street (with very similar site specs) from a motivated vendor who may be unaware or unprepared to go through council. As another example, I recently was doing my dd on a three block set, which I was told had had the survey, plans drawn up all ready for council on a sepp5 dev. Talked to a consultant Re developments, who told me that the plans “all ready to give to council” had been knocked back for a variety of reasons (primarily bad road access for the elderly which was insurmountable!). THus, the vendor was trying to charge me a premium on a failed da!

    My comment regarding the cost of the land, is that I think that the knockdown and dual occ idea is better suited to expensive land (closer to private schools, shops, services) than on the same dimensions on cheaper land (out in the sticks). If the land is more expensive (ie sydney harbour) then it would be better to build a stack of units.

    Elves, I think the two blocks is a great idea, as long as you could put more than 4 townhouses on it.

    My personal feeling is that in the years to come, units will get a very bad name (due to sydneys future oversupply, and hk), townhouses with concrete backyards will be a dime a dozen, but people will still want a bit of a backyard to throw a footy to the kids. Thus, dual occ dev. would seem to be a better idea than some other developments.

    Question for pisces- What other subtleties should we be aware of when looking for sites? Any hints/pitfalls to avoid that you could share with us.

    Profile photo of elveselves
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    @elves
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    Re Architects, they are good, they are expensive and they can be bad.
    They dont always do what P said, I cant spell it sorry! lol
    I chose two architects, one plans were brilliant and the other plans my 4 year old grand daughter could have drawn, scribble and what he came up with from council was what I already knew, eg land dimensions etc.

    I already had the place surveyed afresh.

    These are the prices of the two Architects and both are listed with the Australian Architects website.

    Meeting: site design and requirements. 4 bdrm house, 220k (land already owned)

    proposed sketch environmental considerations and materials (councils are fussy),

    costing not includinf landscaping, council fees and charges, cost 25k incl gst.

    Total FEE: residence: under 150k cost quote as required
    150-200k 9%
    200-250k 8%
    reduces to 6% for each bracket creep to 5.5 then 5% over 500k quote sep

    fee percent
    engage consultants and trades 1-2%
    sketch design 12%
    detailed sketch 13%
    documentation 40%
    contract admin-30%
    tendering 2.5%
    post contract 2.5%
    hourly rates including gst principal 132
    drawing 110
    reimbursables, travel transfer of docs to computer, time and tracel over 30km
    provision of buildings
    adverts etc

    I wont go on, but it is endless, and not always fixed.

    builders and architects dont always agree
    you can have an engineer do all your plans, the builder do the work adn contracts too

    anyway enough

    The only thing constant is change

    The only difference between a weed and a flower is a judgement

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