All Topics / Help Needed! / Question for small-scale developers: what would you do differently?

Viewing 11 posts - 1 through 11 (of 11 total)
  • Profile photo of AnaAna
    Participant
    @anaspoke
    Join Date: 2016
    Post Count: 2

    Hi everyone,

    I’m new here and currently in the process of trying to learn all I can before I try my hand at a subdivision. My partner and I have 2 CF+ apartments with maybe $100K of available equity and another $60K cash available. Next we would like to buy a block in Oakleigh in Cheltenham (Melbourne), subdivide and build 2-3 townhouses. Considering it’s our first such project in an overheated market, I am weary. Any advice would be appreciated, especially if you have a stupid mistake to share.

    On a separate note, I am really good with paperwork but afraid of the actual construction – is flipping a property with approved plans a viable strategy? Btw, our plan B is to just live in the house and wait if the market dips.

    Profile photo of MTRMTR
    Participant
    @marisa
    Join Date: 2004
    Post Count: 663

    Hi Ana

    Nice to see another female developer on this forum.

    I have been developing in Perth and Melbourne markets over the last 3-4 years, and just sold 4 townhouse development OTP in Melbourne and just got plans and permits approved for another development in Croydon, Melb. I totally agree with you Melb is a very hot market has been for some time and momentum has continued, my guess is the historical low interest rates and FHB market is helping to drive this market

    I don’t know your particular patch but I have heard these areas are very good. I also don’t have a crystal ball, but I do focus on risk and protecting what I have made my profits.

    At this stage of the Melb market very important to work out what is happening in your particular area/suburb, what are developers building, is there too much supply coming on the market. Is everything selling, how long is it taking to sell. One way to reduce risk is to build but sell OTP, however there needs to be a market for this. Re agents should be able to give you feedback on this. Once you gage this then you can work out which way to go.

    What do your numbers look like? Is there plenty of fat in the deal? If you built and you had to drop your end values/sales would you still make a profit?

    Its important to look at all the scenarios.

    I have sold 2 development sites with DA approval with over 30%+ profit, this is excellent strategy but this only works if the builder has enough fat in it. No one is interested in buying a development site if they will not make money at the end.
    First step is to work out a feasibility on everything, a $ value. At the moment in Melb depending on the quality/specification of the build you could be looking at anywhere from $1200-1500 per sqm to build.

    Many investors do not realise that 80% of developers actually lose money. Everyone wants to be a developer, but if it were that easy everyone would do it and they would be making money, not so.

    I think you are wise to consider market conditions, I have seen plenty of developers who do not do this and at the end they make no profit or worse lose money.

    Marisa
    MTR:)

    • This reply was modified 3 years, 5 months ago by Profile photo of MTR MTR.
    Profile photo of AnaAna
    Participant
    @anaspoke
    Join Date: 2016
    Post Count: 2

    Thank you, Marisa – I was hoping you’d answer, I’ve seen some of your replies to other questions and it looks like you got the small development game figured out.

    being the female developer-wannabe more than anything, I am in the information gathering stage, which is driving my partner nuts (he will just have to thank me when we retire in the Carribean!). I have decided to concentrate on just two areas and maybe even one, so that I can understand those markets well. It is incredibly confusing, still. For example, I have developed a spreadsheet of blocks in Oakleigh of about the same size and quality and compared their per m2 prices – and those in the last 3 months fluctuated wildly, from 1400-1600+ per m2. My rough strategy is to wait until winter, when I feel there will be more opportunities to snatch a deal, and get a block at the lower end of this per m2 range (of course, in consultation with a council planner, to make sure I can subdivide). Then I plan to team up with an architect friend, an older woman who’s been at this game for many years, to get the DA done.

    I am terrified at losing money, because I don’t have too much of it saved up (although an amazing cashflow, thanks to my new job). At the same time, I don’t want the fear to paralyse me to the point of sitting on my hands (and pile of cash) till it’s too late. That happened to my sister, who’s been “looking to buy” since 2008 and now can’t afford a house.

    I have one specific question – how long would you wait to buy in Melbourne? If I buy this winter, I will only have about a 10% deposit and cash for the stamp duty, etc. Is it wise to pay LMI, or should I wait? Should I sell one of our 2 apartments, or just refinance it and get closer to paying 20% down, while negatively gearing the apartment?

    Thanks again, your advice is very much appreciated.

    Profile photo of MTRMTR
    Participant
    @marisa
    Join Date: 2004
    Post Count: 663

    Hi Ana
    Interesting, re agents in Melb told me that they had reduced stock this winter and this drove prices up.

    If you are considering buying a block in Melbourne the most important thing to remember is that land has already gone up in Melb rising since 2013, so you may be paying too much at this point in the cycle, which means the figures may not stack up unfortunately.

    As a developer I notice I make my money on the land that is if you get the timing right, this in turn reduces your risk because you wont need to build, you can just flip it or put a DA together and add value, so you end up with choices.

    I have been asked many times what is the best way to learn and how to start developing?

    Start small and work up to larger projects and learn along the way. It could be an older house and build at the rear and sell the front and keep the new product, or sell the lot and make a profit. If you decide to sell then its important to get the correct accountant advice on structuring to reduce/minimise tax.

    It could be land and house packages, source the land and use a project builder, good way to learn and lower entry level.

    I think you are wise to have concerns about buying in Melb market at this stage of the cycle. Its great that you have an architect as a friend.
    Developing to make a profit has a lot to do with timing the market, market conditions and building the right product at the right price.

    I think its great that you source a site, but if it makes no sense, the figures don’t stack up, don’t do it.

    Also in your contingency I would be very conservative with the end values because the market may change. I would also look at the scenarios if you can not sell these, will the rent cover the interest? I play in the lower end markets once again this is to reduce risk so if I can not sell the rent will pay interest.

    One step at a time, keep researching and learning, more than happy to help with any questions, I really am still on “P” plates, but amazing what I have learnt from others and the thing is you never stop learning, always tweaking….LOL

    Marisa
    MTR:)

    Profile photo of Ethan TimorEthan Timor
    Participant
    @ethantimor
    Join Date: 2016
    Post Count: 282

    Excellent discussion, ladies. Thanks for that. Definitely food for thought there. We’re looking to do our first dev soon so will keep an eye on this thread.

    One query, Marisa. When you say: “Many investors do not realise that 80% of developers actually lose money”, did you see this figure in a survey or some fact sheet or it’s more of a feeling/estimation? 80% sounds a lot to me 😱🙈

    Wishing us all a GREAT weekend!
    Ethan

    Ethan Timor | Aligned Finance Pty Ltd
    http://www.alignedfinance.com.au/
    Email Me | Phone Me

    Active Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)

    Profile photo of JBSJBS
    Participant
    @schwaino
    Join Date: 2016
    Post Count: 4

    Hi Ana,

    Have you considered a money partner or JV partner to help you with the deposit and stamp duty? Food for thought.

    Profile photo of JLtarraJLtarra
    Participant
    @jltarra
    Join Date: 2004
    Post Count: 90

    Great posts ladies! One question @marisa where do you find a builder that builds for 1200 to 1500 per m2? Are we talking single or double story and what sort of finish. This is the biggest hurdle i have at the moment and what is the deal breaker to most sites i look at.
    Thanks in advance

    John

    Profile photo of MTRMTR
    Participant
    @marisa
    Join Date: 2004
    Post Count: 663

    Hi John
    The building prices can vary significantly especially when we see boom times because builders have choices with regards on what projects they will take on and also their contractors start to jack up the prices.
    I have been costing at around $1300 per sqm, I contacted many real estate agents in the area and obtained a list of builders and then I tendered it out and also narrowed builders down by looking at the quality of their work.

    My townhouses are a mixture of double storey and single.

    Hope this helps

    MTR
    Marisa:)

    Profile photo of MegMeg
    Participant
    @megandolby
    Join Date: 2016
    Post Count: 2

    Hi All!
    I just wanted to add myself to the thread as we are hoping to submit a DA in the next few months to develop our property in Sydney into three villas. Our first development, though thankfully we already own the property so have escaped the exorbitant Sydney prices (but have the added issues and cost of transferring the property to our new company).

    Meg

    Profile photo of Brett MBrett M
    Participant
    @brettmesser1
    Join Date: 2016
    Post Count: 14

    Hi All, still learning the terminology here – what’s a DA?

    Profile photo of JLtarraJLtarra
    Participant
    @jltarra
    Join Date: 2004
    Post Count: 90

    Development approval

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