You still need to give short-medium term margins fair consideration because they will reduce the liklihood of your investment being a dud in the long term. If the figures don't stack up short-medium term then you are putting all your eggs in the 'long-term capital growth' basket which is risky.
I think when you tighten your figures up you need to consider if your money and effort could be better spent elsewhere. You sound like you are already playing the property development game so I assume this venture won't be your last? If this is correct, then have you considered how this venture will fit into your portfolio down the track?
If you are positioning yourself to have to cover shortfalls out of your own pocket then this will impact your options in the future. Try and look at it objectively and don't get carried away with the emotion of being 'gifted' a block of land.
You can't be loose with figures when you're doing projects. They require detailed planning and a best case worst case analysis. You always plan everything around worst case and hope your project turns out closer to best case.
In other words plan for the worst hope for the best.
These will be either done as a home or an investment. If its a home then costing are not as important. If its an investment costings are everything. You also need to understand that how you approach this will impact on any future dreams of property investing. You can screw yourself if you get sloppy and take the I want a home approach but have aspirations to invest later by leveraging off this project.
Quote:I'm not overly concerned about marginsThen build a home and forget about being a property developer because you can't survive let alone succeed with that approach.
Hi Paul B
Thanks for the great advice. You're right, I should be looking at short-medium term margins as well. Short term if I were to value at 700k each, i'd say we'd be looking at 15% gain. Medium-long is harder to predict. I know we won't see the exponential growth my parents had in 90's, but I can see consistent growth with this area. It certainly won't drop IMO. With Mount Waverley SC, universities, Public Transport, Freeways, Chadstone, etc all nearby it would be hard to argue that area won't increase in value.
I doubt i'd take on any more projects if we go ahead with this one. I have my PPOR and an IP, this project would be second IP (shared). My main goal after development would be to chip away at Loans whilst young, no family etc. Who knows though, it's a fairly addictive game so I could be eating my own words.
Sounds good ksun. Goodluck!
Hi,
Considering that it's your dad you are talking about and that you both earn good salaries, I wouldn’t worry about negatively geared cash flow in the beginning. Investing is a process and it will completely pay off in the long run.
Cheers,
Emil
Sunbuild Invest
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