Forums / Property Investing / General Property / Wanting to run some things by you :)

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  • Profile photo of MosicLandscapesMosicLandscapes
    Member
    @mosiclandscapes
    Join Date: 2010
    Post Count: 73

    Hi all, I have just found a property in my local area – it is an old factory on just over 1000sqm. It had a planning permit (a DA) that has now expired for 5 townhouses. I have spoken to the council and they think that it would get the go ahead again (the permit expired 3 years ago).

    The original developer didn't go ahead with it because of personal problems and now has a different project on the go and wants a quick sale. Property has been on the market for 5 months and if it doesn't sell the vendor is going to go ahead and do the development himself.

    Property is on the market for $320K I think I could get it down below $300K.

    I have just got some feasibilty software (feastudy) and was wondering what the IRR (Internal Rate of Return) should be? Figures look go to me (but that doesn't mean much) – profit margin $188,977.00.

    Is this the sort of profit you look for in a development of this size? We are looking at forming a syndicate (or joint venture whats the difference??) to get this thing off the ground.

    Oh and there is a similar development happening a few blocks away and all the units sold off the plan at the beginning of construction (is that even relevant?)

    Profile photo of LinarLinar
    Member
    @linar
    Join Date: 2004
    Post Count: 567

    In this market I would want to see a minimum 25% return on total investment before I would consider buying a development site.  If, for example, TOTAL costs for a development were $1mil (including land, stamp duty, conveyancing, building, interest payments, REA fees etc etc) then my total profit after all expenses would need to be $250,000.

    One thing that immediately sprang to mind when you said it was an old factory site was that there might be environmental issues, eg soil contamination.  See if you can get hold of the old DA and speak to council to get the goss on the site.

    And when a REA tells me that a developer is selling because he has a "different project on the go", normally that tells me that there are problems with the development.  Milk the REA to find out what the go is.  Why did the developer let the DA lapse?

    Good luck

    K

    Profile photo of DWolfeDWolfe
    Participant
    @dwolfe
    Join Date: 2009
    Post Count: 1,253

    Hi ML and Linar,

    I agree Linar, 25% is a good figure. I know Troy Harris (Rookie Developer) does it for high teens but I like a bigger buffer. You'll also find that as the projects get bigger that % gets bigger too. (or someone is doing it wrong)

    As Linar said, milk that agent. Get copies of everything including all the approvals and read through the conditions. Were the towhnhouses approved but they had to be built as 2 bedders for car parking requirements making the end profit too low. Could the developer not get COMMERCIAL lending as for 5 units you will need to play in this banking field.

    Have you built a relationship with an architect or draftsman? Can you take all those planning docs to them to have a look at so they can point out any tripping points. Are the end figures completely accurate? Maybe the market has changed… Maybe the guy just wants to cash out, but you need to be sure you are not buying anyone's trash, that doesn't turn into treasure ;)

    Feel free to PM me if you want.

    Cheers

    D

    DWolfe | www.homestagers.com.au
    http://www.homestagers.com.au
    Email Me

    Profile photo of Tim RileyTim Riley
    Participant
    @tim-riley
    Join Date: 2011
    Post Count: 12

    Hi,

    I agree with Linar. If it is a factory your should definitely check out whether there are any contamination issues with the site.

    With respect to your questions about whether there is any difference between a joint venture or a syndicate. Personally I don’t think there is. The terms are interchangeable.

    The only difference I can think of is that syndicates are typically used to invest in commercial property investments i.e. larger managed investment schemes with many investors putting in capital to purchase units in the scheme.

    Joint ventures are a form of syndicate but I think the term is usually used to refer to smaller syndicates. Does that make sense?

    Profile photo of scottsscotts
    Member
    @scotts
    Join Date: 2009
    Post Count: 63

    MosicLandscapes, can you post the breakdown of your figures… ? you'll get better responses then i think

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