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My Developing Journey

Discussion in 'Real Estate' started by KevinH, 22nd Jul, 2006.

  1. KevinH

    KevinH Well-Known Member

    Joined:
    6th Nov, 2005
    Posts:
    101
    Well, it has certainly turned into a journey and has now evolved from a 'hobby' towards a full time ...well…lifestyle hobby I guess.

    The journey has taken me from Perth, to Karratha, to regional Qld and into Mt Isa.
    And the journey continues ...

    Like a territorial dog marking his spot, I have left a building or a development in each place.

    This was the start of this new journey in 2003

    This first property was purchased in 2001 for $170,000 and given a cosmetic reno for $5,000 to make it livable, and then tenantable.
    (see the pdf file attached..)

    It was then demolished and redeveloped in 2002 with completion in 2003
    One was sold immediately and the other rented for some months.
    Sale price for the two new dwellings was $299,000 and $304,000

    http://www.invested.com.au/gallery/showimage.php?i=40&c=2
    http://www.invested.com.au/gallery/showimage.php?i=41&c=2
    http://www.invested.com.au/gallery/showimage.php?i=42&c=2
    http://www.invested.com.au/gallery/showimage.php?i=43&c=2


    (I am sure there is a better way of doing the pics !! )

    Proceeds from the sale of the first one went straight into this next property ….in the following post.
     

    Attached Files:

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  2. KevinH

    KevinH Well-Known Member

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    This one was purchased in 2003 as soon as the one in the previous post, was under contract for sale.
    I drove past it for three weeks on the way to the property in the previous post.
    Finally decided to stop one day at a home open, and put in an offer to buy it.
    I’m a sucker for these neglected and abused ugly ducklings.
    As a coincidence, it was the same agent who sold me the previous one.

    http://www.invested.com.au/gallery/showimage.php?i=44&c=2
    http://www.invested.com.au/gallery/showimage.php?i=45&c=2
    http://www.invested.com.au/gallery/showimage.php?i=46&c=2
    http://www.invested.com.au/gallery/showimage.php?i=47&c=2
    http://www.invested.com.au/gallery/showimage.php?i=48&c=2
    http://www.invested.com.au/gallery/showimage.php?i=49&c=2
    http://www.invested.com.au/gallery/showimage.php?i=50&c=2
    http://www.invested.com.au/gallery/showimage.php?i=51&c=2
    http://www.invested.com.au/gallery/showimage.php?i=52&c=2
    http://www.invested.com.au/gallery/showimage.php?i=53&c=2
    http://www.invested.com.au/gallery/showimage.php?i=54&c=2
    http://www.invested.com.au/gallery/showimage.php?i=55&c=2
    http://www.invested.com.au/gallery/showimage.php?i=56&c=2
    http://www.invested.com.au/gallery/showimage.php?i=57&c=2
    http://www.invested.com.au/gallery/showimage.php?i=58&c=2

    Purchase Price was $305,000
    Completion 2005
    Sale Price $405,000 and $410,000

    This one took longer than the previous one and by this stage the building labour shortage is starting to hit home, and building quality levels are suffering.

    Time to change tack at this stage, and give Perth a breather for a spell.
    Karratha is next..and then its off to Queensland.

    I think I will wait for some constructive criticism ( on a better way to handle these pics !!!), and see if I get booted ( from the site ) or roo… ( never mind…lets not go there..)

    KEvin
     
  3. Barracuda

    Barracuda Active Member

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    Kevin,

    Can you give an idea of the construction costs of the projects or the ROE? Even at a high level, it would be interesting to know what the profit in the completed projects was.

    Cheers,
     
  4. stevefnq

    stevefnq Member

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    hi guys
    im new to the forum so forgive me i do something wrong
    ive also done somethin similar in perth 3 years ago but i forgot to sell them,probably a good move in hindsight with current values:)

    currently doing two 3X2's in perth,now im really torn with what to do,sell or hold
    decisions,decicions.

    see ya

    steve
     
  5. Tizzy

    Tizzy Well-Known Member

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    Location:
    Perth WA
    Hi Kevin. Thanks for sharing your experiences. I'd love to know about the process of deciding what to do with the first Perth block. Can you tell us a bit about how you came to decide what size homes to put on that duplex block? Did you design the homes or choose someone to do that for you? I'm in the process of doing this at the moment and keen to hear how you went through the steps.
     
  6. KevinH

    KevinH Well-Known Member

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    Hi Barra,
    Ignoring holding costs and selling costs, the broad numbers are:
    First development:
    Subdivision costs $ 18,000
    Construction $200,000

    Not sure if you mean Return On Equity or Return on Investment by the ROE bit..

    Second Development:
    Subdivision costs $ 23,000
    Construction $240,000

    In conclusion, the second one was a better property in a better location, but the 'dollar' profit was no better than the first.

    At the end of of this journey, to end up where we currently are, I will refer back to this first property and compare how the initial $40,000 invested to get this off the ground has grown into a portfolio with a market value just over $5 mil. with the plan to have approx $15 mil. under management by the end of this year.
    Now, I would be the last person to get excited about this, as we all know 'market' values are elastic and can go up and down, but at lease it serves to provide a figure to plan towards and aim for.

    Rgds
    Kevin
     
  7. Smartypants

    Smartypants Well-Known Member

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    Location:
    NSW
    In the second development, I like the idea of the colourbond fence separating the places from each other.

    Would also like to know building costs holding costs (whilst new construction going on) etc to give an overview of total profits made .
     
  8. KevinH

    KevinH Well-Known Member

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    Hi Steve,

    In my experience there is no right or wrong when it comes to selling or holding.
    I have heard arguments by experienced investors who belong to both camps.
    Depends on your strategy, mindset, and plans for the future.

    There are smarter people than me who can crunch the figures to justify holding, but I think in simple numbers.

    I even had SteveN chastise me for selling instead of keeping the properties.
    But the mindset of a developer is to trade and turnover property.

    There is nothing wrong with taking a profit, even at the cost of paying tax ( and reducing debt in the process).
    The important thing is to redeploy those funds into more property, projects & investments.

    Kudos to you for doing that first duplex development, and for doing this current one.
    The key is to 'do'.
    Many people having trouble making that initial decision, and it comes at a huge cost in the end ( the other end )

    KEvin
     
    Last edited by a moderator: 22nd Jul, 2006
  9. KevinH

    KevinH Well-Known Member

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    Hi Tizz,
    To be specific....the property stood out like a 'red flag' in the advert.
    Headline was along the lines of 'handyman special' or 'renovate and profit' and it included 'potential to subdivide'.
    It spelt out a neglected run down property with duplex potential.
    I said before, its a dead set magnet for me.
    Good chance to negotiate on the asking price which was $189,000
    At that time there were no properties in that area for under $200,000.
    I offered $170,000 but was prepared to pay up to the full asking price for the reason above.
    At that time I thought it was worth closer to $200,000

    But this was not the first one I had developed.
    That happened in 1991 by accident, and I was hooked on the process thereafter.

    So after purchase, the first thing I do is get the surveyor in to do a contour survey.
    Before that, we had to have the garden cleared out as it was so overgrown. You could not see the house from the street initially. Unfortunately, I did not get that pic.

    Of course prior to purchase you have determined with the local council that the zoning allows for subdivision, etc, but I will take that as a given with regard to targetting development properties.

    So along with the contour survey, I get the surveyor to to make all the necessary applications for a green title subdivision.
    They are brilliant at the process, and provided quotes up front on the cost, and the process, and they were spot on with their costings.
    They also got quotes from three suppliers for the demolition, the plumbing, the fencing, etc. As i said, they were brilliant.
    All you have to do is approve quotes they present you, and pay the bills.

    Next, take the contour survey to a builder.
    In Perth, its just as easy ( and cheaper) to go to a spec. builder and ask them what they can put on the block.
    In our case, we were restricted by the shape and size of the block as to what would fit on it. I guess one of the main choices you have to make is whether you go double storey or single level.

    If I can recommend anything to you its to surround yourself with good people that you can work with and develop a good relationship with them.

    Its not an original idea, but from my experience its absolutely true.

    Makes for as stress free ( as is practically possible with developing) and efficient process.
    All you have to do, is make sure you are available when they need to contact you, make timely decisions, and pay the bills on time.

    Good Luck with yours !!

    KEvin
     
  10. KevinH

    KevinH Well-Known Member

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    As per Barra's Q,

    Things like holding costs point towards 'time'.
    The second one took much longer and hence holding cost did erode the end profit margin. Hence the reassessment on continuing in Perth, as opposed to looking elsewhere.

    End profit was projected at much higher than was eventually realised, but that is part of the risk associated with this type of venture.

    For me its better to learn from the process, enjoy the experience, and move onto the next challenge, hopefully with a view to doing it 'better' next time.

    Kevin
     
    Last edited by a moderator: 23rd Jul, 2006
  11. Tizzy

    Tizzy Well-Known Member

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    Location:
    Perth WA

    You've provided a recipe there Kevin. Getting a competent surveyor to do the green titling makes sense. Was that part of the service or did you pay additional fees? The cost of Green titles is now very high. I've heard it is $15K per unit now in the Perth market. Would you bother in the current market? Or do you think strata title is adequate?
    Thanks for taking the time to share.
     
  12. KevinH

    KevinH Well-Known Member

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    If I could find the right property I would definitely bother.

    The surveyor did the lot.
    I sat down with them, and went through the whole process, including the different options between me doing some of the application vs them doing it.
    MUCH better to let them handle the whole process.

    So all cost I detailed above under 'subdivision' included all the surveyors fees, appliaction fees, demolition, provision of power, new sewer connections as well as Water Corp levy.
    Basically, to get you to the next stage of having a cleared block, ready for construction.

    The actual cost for the applicaiton and approval process was relatively fixed and not much different between the two properties.
    Any increases were based on increased govt. fees and surveyors fees.
    And of course, the demolition cost will vary depending on whats on the block that needs to be removed. On the second property, this included a pool.

    I worked it out this way, becuase at that stage you have the choice of either selling as a vacant green title block, or going ahead with construction.
    You can now do the comparison between the profitability of the two, because you have to total cost of what each block has cost you.

    I started off doing strata title, but the last two were green title.
    May have been a bit more costly, but was still a painless process, and the better option for those specific properties.
    In the current market, I don't think its much quicker going strata title vs green title.
    I was quoted approx three months for green title, and it came in within that for both examples.

    If strata titling is adequate, then probably go with this option.

    Kevin
     
  13. Tizzy

    Tizzy Well-Known Member

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    In my case a bit late I think. I'm already past the three months with the green application, so theres hold ups somewhere :-( Also the council is now refusing to even allow lodging of building application until the title is actually issued. Its a strategy they have adopted to cope with their higher workload due to high numbers of building applications. In the current climate in Perth if doing it again, I'd start with strata, get the building permit and start the build and then apply for the green title and it can take as long as it needs then because the build and gt applic would run concurrently.

    We do have another single unit build to do in a block and will go with strata for that.
     
  14. KevinH

    KevinH Well-Known Member

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    I guess my examples are a bit out of date, as I haven't done one since 2004.
    So maybe the delays you are experiences are now par for course.

    I was speaking to another investor/developer and he suggested it was easier to just buy a block in a new subdivision, wait for the title to come out ( maybe 6 months delay) and then build, and more than likely the end result will be as profitable as doing a duplex subdivision without the headaches.

    This required a mindshift on my part, but has proven to be true.
    I couldn't understand why someone would buy a house for $450,000 that cost me $330,000 ( house and land cost), when they could also buy a block of land and build themselves.

    The next buy was two blocks in Singleton with two constructions underway. The profitability is probably better than the duplexes, with the advantage of not having any council/neighbour/fencing/landscaping hassles.
    (Cost of H&L $330k vs current market $495k.)

    Cost for two blocks was the same ( possibly cheaper) than the cost of two subdivided green title blocks and there are usually incentives thrown in by the developer including fencing and landscaping at their cost.

    Probably the locations are not as comparable ( Ardross or Booragoon vs Singleton ) but the end result profitability is .
    And I guess, the rent return would also not be as good.
    But as a means to an end, it serves to keep the money rolling over and reinvested.

    So currently, no more duplex or triplex developments in Perth till the market changes.

    Thats a novel approach regarding going for the strata first, then the green title, buit I am not sure its workable ?
    Maybe as long as you make provision for the seperated sewer connection and underground power run initially, it could be done. Also the need for seperate driveway, etc.

    The single unit build ( additional dwelling to an existing property) by strata sound like the way to go.
     
  15. Tizzy

    Tizzy Well-Known Member

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    Yes the single unit build is one of a group of 8 so I didn't have much choice there anyway, but you are right, strata does seem more appropriate there.

    In relation to strata first then put in applic for green, I did mean to say proceed with build as though green title will occur. Therefore yes making allowances for the changes required.
    What you say about the single build H&L packages bears out with experiences of friends of mine. They too are doing just as well re net profits with sale. So it does make you wonder in the current market conditions about the whole subdivision process. Its so darn slow!
    I'm also starting to think green titling is only really necessary in a market where there is a lot more sales competition. Currently it really doesn't seem to matter what kind of title places have, theres a lot of buyers prepared to commit.

    In terms of your experience of investing in regional areas, did you find it took much of a mindshift to move out? Karatha and Mt Isa are fairdistances. Do you end up travelling a great deal to oversee projects or do you share that responsibility with syndicate members?
     
  16. KevinH

    KevinH Well-Known Member

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    Tizz,

    Yes, my experience of the whole process resulted in the conclusion that holding costs plus delays equated to big erosion to the final profit vs. getting approval within weeks of settlement, and commence building in the new subdivision, with no holding costs before title issue.

    You raised a great point about tackling regional areas and you half answered it as well.
    In fact I moved from Perth to Karratha and continued doing the Perth developments long distance, as I felt I already knew that market.

    Karratha was next, but only becuase I was on the ground and saw what was going on locally.

    Mt Isa and the other Qld ventures was based on teaming up with a local Qld'er who was on the ground where the first project is located, and who also already had property in Mt Isa.
    The syndicate members are passive investors who take a stake in the the property syndicates we are currently putting together.

    I have to say we both have taken a quantum leap since teaming up, with the projects and the network expanding at a rapid rate.

    So despite what everyones says about jv's and partnerships, in our case all I have is good news.
     
  17. Jacque

    Jacque Team InvestEd

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    How many partners alogether in the syndicate, Kev?
    Thanks for your generosity in sharing your journey so far and including the photos as well. It's always fascinating to follow fellow investors along the way and learn so much as well!
    How long do you see the boom holding out in Karratha?
     
  18. KevinH

    KevinH Well-Known Member

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    Hi Jacque,
    Syndicates effectively have six unitholders plus us equals seven in total.
    We take a share in every unit trust.

    Karratha ??? In all seriousness... I believe there is at least five years and probably ten years....(subject to !!)
    I don't like to describe it as a boom, but I think in that time frame there is still lots of money to be made from the local RE market.

    'The subject to' bit is based on all the current projects currently underway or due to commence, going ahead, which will go for 10 yrs ( construction time) and have a value of $64 billion.

    The irony for me is that this hub within Australia generates the most export revenues, as well as the most state and federal royalties in the whole country, yet the place from an infrastructure point of view is falling apart.
    No money for roads, and other essential services etc. But thats another story I guess.
    I mean, if this was Dubai, we would have massive freeways complete with overpasses,, tall skyscrapers and bitumin roads going nowhere into the desert.... but what we have is completely different.

    Latest land releases went to ballot with over 200 applicants in each ballot for a total of 60 odd lots in each .
    Many of these are homeowners.

    There has been a chronic shortage of land for residential building going back two or more years.
    Its getting worse not better. Relief is in sight with the recent release of land, and more to come but the projected requirement is for 1000 houses.

    Once again, more demand than can be supplied equates to huge prices and huge rents.

    There are two down the road from me which had a for sale sign go up last week. I had a sticky beak over them last Thurs. and I noticed that on Sat. the sign has been updated to 'SOLD' Asking price was $640,000. Mostly everything goes for full asking price.

    http://www.realestate.com.au/cgi-bi...&t=res&ty=&snf=rbs&ag=&cu=fn-rea&fmt=&header=

    Not saying prices can keep going up, but I believe they are sustainable at the current levels for some time yet.

    Kevin
     
  19. Jacque

    Jacque Team InvestEd

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    Sydney
    Hey Kev
    Which Singleton are you talking about?
     
  20. KevinH

    KevinH Well-Known Member

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    Posts:
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    Thats a good question...
    A couple of ppl have asked if it was Singleton in NSW, but its actually Singleton WA, just north of Mandurah.
    A sleepy beachside area that is getting a bit more attention now that Mandurah and Rockingham are so popular.

    I don't think it has performed any better than most other suburbs in Perth over the last 2 yrs ( ie...throw a dart at a map of Perth, and buy accordingly ), but I do think that these beach side suburbs will come into their own in the future, when the rest of the market slows down.

    Currently, there is very little infrestructure in Singleton ( shops, cafes, etc), but I reckon that when we start to have longer hotter summers, the population will pay more for the convenience of being closer to the water.

    My experience with houses in Perth is that they are generally not designed too well from a point of view of 'cooling' and as a result the population tends to head for and stay on the beach well into the evening on the hottest days.

    Better to be able to do this if your home is within 500m to 700m from the beach.

    The other factor which should help Singleton WA, is that the freeway and rail extensions will go past before the end of next year, making it a comfortable commute if you work closer to the city.

    Finally, it came from a low price base with blocks around $135,000 when similar blocks in surrounding and better promoted suburbs were closer to $200,000.
    Always a receipe for success imo..

    Kevin..