Developing in Adelaide

As I touched on in my last thread about buying under value https://propertychat.com.au/community/threads/real-life-example-of-buying-under-market-value.2908/ , I mentioned that there was a vacant block next door to that little old house. This thread is about that block, or chapter 2 if you like.

So, during settlement period of that little old house, I inquired with the sales agent if he knew anything about the block next door. He said he had heard the state govt owned it, had tried to make inquiries and gotten no where.

I made my own inquiries by email with local council who redirected me to state govt. I expected to hear nothing back as per previous people had said.

A couple weeks later a lady from renewalSA (govt dept) called me to discuss it, I said I wanted to buy it. She warned me about all the red tape involved and I said I'd proceed. This suburb, Smithfield Plains, is undergoing gentrification whereby all the state housing has either demolished or renovated all their assets. This was one of those. This block previously had a state housing house on it.

Red tape was for them to send a licensed valuer out at their expense. Its their policy that they have to sell for precisely what the valued comes back with. They also needed permission / sign off from the state housing minister.

More weeks went by and they came back to say they were allowed to sell it, at a price of $100k and asked if u want to proceed to which I said sure. (Under my breath : hells yea I do!)

They presented me with a purchase contract, longest I've seen - like 100 pages. It had a few things of note:
- 3 months settlement (yay)
- must construct 2 dwellings
- must adhere to their lengthy design code (formed most of the contract)

As soon as the contract was done up, I sought quotes from surveyors to subdivide it. Surveyors quote was $20.9k, this included their professional fees, open space contributions, council fees, water costs, etc. They paid for and organised all that stuff on my behalf. All I had to do was sign a few papers. I used Max Sayer from Sawley Lock in Prospect, they were excellent. If you use them please tell them I recommended them highly.

Also during settlement (trying to minimise holding costs) I also went shopping for a builder, found one (Statesman Homes), choose a design, negotiated modifications and paid their deposit. I agreed on a pair of 3 bedroom, 2 bathroom, 2 living area, 1 garage houses. I paid extra to have high ceilings (helps valuation) and for good security doors (because of the suburb its in ). The builder is not including floor coverings (except to wet areas), landscaping, air conditioning or driveways. I've arranged quotes to do them via tradies and have submitted them as part of the finance as explained shortly.

Settlement was delayed as on the 89th day they asked me to sign an encumbrance to say is here to the design code and would only accept original copy back. It end up settling on 11th of Feb 2015.

So initial numbers are:
Block size: ~620sqm with ~18m front, cut directly in half to produce 2 symmetrical 310's
Purchase $100,000 , plus a few bob stamp duty
Loan CBA (via @Corey Batt ) ~$89k odd
Subdivide in half ~22K (this includes the $20.9 mentioned above - water came in slightly more expensive than quoted, plus cost of a Conveyancer to do up the new torrens titles)

Then next step was for the construction finance, originally intended to be CBA but APRA had other ideas.

So go the two 310sqm blocks valued (at $95k each!) and used them as part of the construction finance.
This finance was with Choicelend (via @Corey Batt ) for combined $427K or 84% LVR - this covers the refi of the CBA land loan as well as 100% of the construction costs, including all my after market crap like aircond, flooring, landscaping, etc.

So the Profit numbers are:
$100K block
$22k subdivide
$150K Dwelling A
$150K Dwelling B
$8k (misc - stamp duty on block, holding costs etc).
Total costs = $430,000
Expected end value:
$265,000 x 2
= $530,000
Margin 23%

Intention is the keep them both as rentals. They should fetch around $280 per week each. This is about 6.7% yield based on costs, plus have about $8500 a year worth of depreciation.

This thread will serve as a dumping ground for my photos and diary entries as things progress. To start with, here's a before shot:

 

13/8/15 the siteworks were happening:


And this is the site plan:

 

19/8/15 I had slabs:

 

And today, 28/8/15 there's framework

 

Going up pretty fast!

 

Looking good..

 

nice pics! May I know what the orange sheets are for? Termite barrier?? water barrier? or wat?

 

Damp proofing

 

@DaveM
thanks for replying. I have looked at a few building sites in NSW in various stage of construction, I don't recall seeing these sheets under the slab. Perhaps they are well hidden under the slab. Maybe I missed it altogether.

Anyway nice slab, looks solid and well made.

 

@D.T.
Fantastic story, thanks for sharing. Well done Dave.

 

Awesome. I love how they require you to build 2 and not 1. Great to have the empty block where you don't have the demolition costs. Plus the extra 95k equity on the second half!

If you were to sell, what is the profit? Alot of developers prefer to sell, but I always wanted t to hold if I ever develop.

Was there an option to knock down the house next door and build 5 across the 2 blocks? Or not enough space? Or too much cost?

 

Ps don't you feel bad for taking advantage of the poor little old government department?

 

Looking good!

Will keep a close eye on this as I've just started a similar process.

 

Not really. It's 38m combined, which into 5 creates smaller blocks, not sure if it would even be allowed as Torrens. Probably would be as Community.

The other property would then have demolition costs as well as additional infrastructure costs. Its cash flow positive at the moment, happy to sit on it for a few years and do an identical project there, then.

 

good stuff

was it cheaper to build 2 at once do you know? ie bulk discount?

also, can you tell us where the profit was made? ie 30 undervalued land, 40k subdivision, 30k build?

 

Hi,
Great thread.
I am looking at doing something very similar in MV... Onkaparinga council is pro-development.
May I ask, how long did it take for the Surveyor to do all of the work including council approvals?
David

 

No discount, they do lots of volume as is. Best bet is to find a sales rep who needs the kpi. Most of the profit was made in the disparity of land values in the area. E.g. 600 and 300 sqm blocks get valued almost the same and I was able to capitalize on that.

 

Playford and onka being outer north/south extremities are both pro dev

I had 3 month settlement (settled 11 Feb), I engaged surveyor I think 2 weeks after contract and they were finished about 2 weeks after settlement, for their part and had council approval. Getting water on and then titles published took til about mothers day from memory.

 

Thanks for sharing this thread, have spoken about this deal so good to see its all happening.

Can you elaborate more around how APRA changes effected you? I haven't started construction yet, but I'm still alright long as I start before end of September.

 

I'm not sure the exact numbers, but there was serviceability surplus with cba for the construction, but then when we got up to that step was when the changes were just going through and it was borderline. No changes to income or liabilities. We withdrew the app rather than getting declined and went through Choicelend instead.

How's your dev going? Been meaning to head up that was for a nosey on the progress.