Forums / Property Investing / Help Needed! / Overpriced development dilemma

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  • Profile photo of ducduc63ducduc63
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    @ducduc63
    Join Date: 2015
    Post Count: 0

    Hi all,
    I have a problem with a new house build that we’re trying to get through, the first time for us. It’s outside a major city, on a sloping block approx 20%, not an area of big capital growth but gets good rental %. We’ll likely sell in about 5 years. Problem is we have approved plans for an expected budget approx $350k, had a TON of back and forward with draftsman and council and took near 2 yrs to get to here. Now chasing quotes but they’re coming in around $460k citing concerns about the possible rocky groundwork below the dirt. Nbrs include a ‘builders markup’ which I assume is project mgmnt costs (not asked yet). But at 20% it’s blowing the budget and putting the project about $50K above what i (and a local agent) think it’s market value would be on completion. Taking ages to get quotes and only have 2 so far. Wondering if others who have been on a build project have found 1) big variations in builder costs to warrant chasing new quotes, 2) whether it would help to get engineering re-done to avoid so many footings on a rocky block by using larger ibeams etc.?

    Have considered marketing the block with approved plans, still an option if the numbers can’t come down. Would be interested if others have had success with that approach.

    Lastly, if needed, I may have to start again with plans that will be under budget. Is a waste, but not as much while everything is still on paper. If I did that I’d look at using a builder for the drawings. Maybe not doing so was my first mistake? So, also interested from anyone who has done that and how they kept the builder from over-pricing is he’s the only player on the paddock.

    Cheers
    Frank

    Profile photo of DougtucsonDougtucson
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    @dougtucson
    Join Date: 2019
    Post Count: 0

    You are not alone. I have experienced a similar problem in building apartments on some land that I own. In an “up” market, the contractors are all super busy, making it hard to get quotes, and lengthening the development process. In talking with banks for the Construction Loans, I have been using cost per square foot estimates from published sources, then that are uplifted to manage risks. After doing this, I re-evaluated the rent surveys and made assumptions on leasing up the units after the buildings were built. I found that the numbers did not support the project so its on hold until rents catch up with costs to build. Due to the cyclical nature of the RE Market, balance will eventually return, so hang on to your plans.

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