All Topics / Value Adding / What are the rough costs to develop a small set of units?

Viewing 9 posts - 1 through 9 (of 9 total)
  • Profile photo of mixedupmixedup
    Join Date: 2008
    Post Count: 79

    Hi all,

    Can anyone give me some pointers towards how I can obtain an understanding of the cost of building a small set of units (or townhouse / duplex), i.e. the build versus buy option?  Are there any rule of thumb guidelines property investors have developed regarding this?  

    My goal is to develop the knowledge/understanding to be able to determine for myself (i.e. "do your own reasearch") whether building is a financially viable/recommended at the moment or not.

    The only option I can think of currently is either call up some builders or potential seek information from a property investment firm.

    Profile photo of Scott No MatesScott No Mates
    Join Date: 2005
    Post Count: 3,856

    Do yourself a favour and purchase a copy of Rawlinsons Cost Guide 2008 and scour the second hand book stores for Fundamentals of Real Estate by Carl Gunther.

    Profile photo of pjrenopjreno
    Join Date: 2007
    Post Count: 7

    How long is a piece of string? Basic units anywhere from 10K per building square plus development costs. Have built a development of three units for 500K plus land etc. Hope that helps you.

    Profile photo of mixedupmixedup
    Join Date: 2008
    Post Count: 79

    thanks pjreno,

    I just posted a question re how to identify land to build at . It'd be great if you could reply with an tips / your approach if you have a few moments.

    From your perspective have you found Building can give you additional equity by the time your finished with high probability?  That is at this point in time (I'm in Brisbane myself) the way the market is, is building definitely viable as a way of adding value, as opposed to just purchasing and waiting for capital growth? 

    Profile photo of Shady1Shady1
    Join Date: 2008
    Post Count: 16

    I dare say if you buy right, then anything can be viable.
    A good mate of mine has done a few small developments (knockdown andbuild 3 townhouses) and both times it's been the holding costs that make or break the profitability of the project.
    When its costing you $4000-$6000 or more per month in interest, your profits can be eaten away very quickly.
    I know his last development was sitting stagnant for 3 months because the builder had 'internal' issues. I wont be building with Huxley homes, 12 months on a 26 week building contract.

    Profile photo of chpropdevchpropdev
    Join Date: 2005
    Post Count: 39


    You need to do your own homework but, as I have just finished building two units in Tassie (so inflate everything for the over-priced mainland!), here are my thoughts.   Only you know what you can sell your development for so what you need to subtract from that figure (and I wouldn't be banking on any capital growth right now)  is:

    Land cost: What ever it is plus your closing costs.

    Architect: $4 to 6k for a 100SQM dwelling.  Bit of advice: use a building designer (or a builder's off the shelf design) and not an architect for anything straight forward as they are half the price for 95% the same end product.

    Engineer and soil tests: $2-3k

    Your holding costs: I reckon if you are in (from when the designer starts) and out  (to when the sale closes) in a year, you are doing remarkably well.  Factor in at least 18 months to be safe in a slow market.  And don't forget that toward the end you are holding rather more than just land (eg: finishedand paid for but unlet or sold property)

    Development costs: Speak to your local council to find out what fees relate to subdivisions, stratas and the costs associated with obtaining a DA and the relevant building and plumbing permits.

    Block clearing: Depends but normally $3kish for an easy block with a bit of demolition work and digging.

    Surveyor: Again depends on what is happening but $4k is what I paid for two strata titled units.

    Builder: I paid $110k for two 90SQM units.

    White goods: $3k for a cooker, extractor etc…

    Heating – cooling: $2kish
    External plumbing: $5k per unit

    Telecoms: $3k per unit – included laying conduit and all connections etc….

    External electrics: $2-3k per unit – includes laying underground cable in trench (same trench for storm water, telecoms and elec to save cost) and connecting to mains supply.  Handy hint: Get your power supplier geared up as soon as you are even close to lock up as they are lazy bastards.

    Concreting: $15k per unit!  And that was in Tassie. Tip: Make sure you get your designer to design your development with as little concrete as possible.  It is incredibly expensive.

    Clearing up the builder's crap: $2k

    Landscaping: $10k per unit for a tidy but not flash end product. Included a bit of new fencing, top soil, gravels etc…  I did a fair amount of the labouring myself.  So, say $15k for you.

    Carpets and blinds: $3k for a very basic finish – builder's carpet and venetians.

    Sales costs: Whatever an estate agent charges and your solicitor's, bank's costs etc…

    And add at least a 10% contigency.

    If it all adds up for you, best of luck.

    I found it took too long and the next time I do it, I'm going to "borrow" a builder's licence and sub contract all the work myself.  Having a fixed price contract was great but it took a long time to get finished.  Then again, I didn't have to doan awful lot and made a few bucks at the end of the day so definitely no regrets.

    All the best


    Profile photo of Chris WhiteChris White
    Join Date: 2006
    Post Count: 65

    Where are you looking to develope – there might be some nice people out there that will share specific costs with you for a given area.

    Sydney Buyers Agents

    Chris White | Pillar Property
    Email Me | Phone Me

    The Property Investment Specialists

    Profile photo of Jase and FlicJase and Flic
    Join Date: 2004
    Post Count: 190


    One thing I will add is that after you have got a confident estimate of all costs (don't forget GST), and a very confident estimate of the end sale price (remeber to take off selling fees), take a moment to work out what is your profit on total costs as a %.

    To do this, subtract total costs from net income to get a gross profit. Divide gross profit by total costs and multiply by 100 to get a %.
    This is called the Profit on Cost, or Margin on Development Cost (MDC).
    Here is an example of a 4 unit development:
    Sales Income                                      Unit1 $590,000
                                                                    Unit2 $580,000
                                                                    Unit3 $615,000
                                                                    Unit4 $625,000
    Net Rent                                                           $9,634
                                        Total                             $2,419,634

    Purchase Price                                    $775,000
    Stamp Duty /Establishment fees     $51,352
    Conveyancing Fees (purchase)       $1,950
    Consultants Fees (inc architect)      $35,400
    Construction                          Unit1    $173,290
                                                     Unit2    $202,280
                                                     Unit3    $197,990
                                                     Unit4    $208,130
    Contingency (6% of construct)        $48,101
    Demolition                                           $20,000
    Rates and taxes                                 $8,838
    Landscaping                                       $20,000
    Drainage and council fees               $25,000
    Selling agent fees                              $72,300
    Conveyancing Fees (Sale)               $8,000
    Borrowing Interest                             $94,720
    GST payable                                       $56,596
                                Total Costs             $1,998,947

    Gross profit = Income-Costs = $2,419,634 – $1,998,947
    So Gross profit =                              $420,687

    Margin on Development Cost = Gross profit / Total Cost*100 = $420,687 / $1,998,947 *100
    So MDC =  21.05%

    I would think very hard before doing a deal where the MDC was less than 20%, and 25% is much safer. Sometimes it may be ok to be closer to 15% MDC if the risk in the project can be reduced somehow, like getting a 6 month+ settlement, or buying subject to council approval.
    My experience is that it is very rare to find a deal with a 20% MDC if it is less than 3-4 unit development. So if you are only building 2 you may have to take a bigger risk to get started. Be aware though, I am told it is much more dificult to get bank finance for a project if the MDC is less than 15%.

    Hope this is helpful

    Profile photo of RushieRushie
    Join Date: 2007
    Post Count: 4

    A big thank you to Jason and Andy for your comments above.  You guys are legends sharing your costs with us.


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