Forums / Property Investing / Value Adding / Just running an idea past you!

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  • Profile photo of noxfordnoxford
    Member
    @noxford
    Join Date: 2003
    Post Count: 6

    OK i would just like to run the following past a few of you to get some feed back.

    I have found a property for $140000 paying atm $160 pw rent, now what is so attarctive about this property it is on a double block and is ripe to have the house sub divided off and the vacant block developed with 2 off 2 bedroom units which could be potentially rented for $180 pw each. To build two more units including sub-division costs would be about $160 000 (budget only).

    So my total investment would be $300 000 for a potential rental return of $520 pw, now i know this does not fit the 11 second rule, however just off the top of any bodies head with the associated tax benefits would it be worthwhile doing.

    I know i am asking a lot but was just wondering if i was on the right track.

    Also the town i am looking at is in rural NSW, has a rental shortage and has strong industry and employment growth.

    thanks noxford

    To be financially independent is no longer a dream, it is now a real life plan

    Profile photo of SooshieSooshie
    Member
    @sooshie
    Join Date: 2002
    Post Count: 974

    Hi,

    Whilst I’m NO expert on this by any stretch of the imagination, I have a few questions for you.
    1) Do you have plans already for this development or have you included this in your budget?
    2) Are Council fees and the like included in your budget?
    3) Near where I live, Actually, in Clayton which isn’t too far from me, the soil has issues when it comes to building, so there needs extra testing done to see if it is feesable. I mention this, because do you or can you plan extra in your budget for speed humps should they occur?
    4) Could the property continue to be rented whilst building was going on, so that you don’t loose the income during the construction period?

    These are some questions, however someone who has done developing might help you out.

    Cheers
    Sooshie :)

    When a problem is created the solution is created simultaneously

    Profile photo of ANUBISANUBIS
    Participant
    @anubis
    Join Date: 2003
    Post Count: 559

    Are you sure about the 80k per 2 bed unit? It seems very low – have you had a quote for this? Your average freestanding 2 bed unit is usually around the $140k-$160k each to build if you have no economies of scale – and that isn’t for a top of the range unit either and doesnt include development costs.

    Just seems you may be underestimating your cost side

    Profile photo of byronent_2byronent_2
    Participant
    @byronent_2
    Join Date: 2004
    Post Count: 337

    Anubus: I can get a 2/3 bed house built for as low as 60k. That doesn’t include floor coverings, landscaping, air con. Just to lock up stage which is dam cheap. Steel frame home also.

    Anyway back to your question Noxford, I would seriously consider doing as you suggested however the only difference for me would be to sell house number one and maybe even unit number 1 keeping only unit number 2.

    That would only be to pull my cash out of the deal, reducing my committment to that property. You won’t have a capital gains bill if you do it right and you would be returning about $180 a week as you suggested.

    So in short, House and units would be worth $300k. You should be able to get close to what you paid for the house and less land, and I am guessing you would get around $80-$100k for the sale of unit 1. so you would be recouping around $250 in sales leaving unit 2 owing $50k ($300k – $250K) and returning $180per week. That does pass the 11 second rule and a healthy return.

    Don’t quote me on all figures, just a rough working based on your numbers.

    Byronent
    Adelaide SA

    Profile photo of noxfordnoxford
    Member
    @noxford
    Join Date: 2003
    Post Count: 6

    To answer smooshie.

    A1)Plans have not been drawn up for this particular block, however my voaction is in a realated industry and i have drawn plans for various developers in the local area, so this would only be a personal time cost to myself.

    A2) Yes council fees have been allowed

    A3) No there is no soil conatamination, it is a green field site

    A4) Yes the proprty would definetely be rented out while construction was in progress.

    To answer Anubis, yes the price is a very reasonable figure to build 2 – 2 bedroom units in the location. i have spoken to a builder about this nad he seems it can be done.

    To answer byronent, yes that would be my worst case scenrio i feel, end up owning one unit with a small debt, if i can i would like to keep all three, however i like your thinking and will instigate that plan if need be.

    Thanks all for your replies

    noxford

    To be financially independent is no longer a dream, it is now a real life plan

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