What are the rough costs to develop a small set of units?

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.

Hello,

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

Andy

Hi

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:
INCOME
Sales Income                                      Unit1 $590,000
                                                                Unit2 $580,000
                                                                Unit3 $615,000
                                                                Unit4 $625,000
Net Rent                                                           $9,634
                                    Total                             $2,419,634
COSTS
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
Cheers
Jason