Developing versus buying at market value

My strategy is to purchase another five or so properties as appropriate deals become available. Paying market value each time means that I have to wait to gain capital growth to make up the stamp duty and any extra funds (for renovations) taken out in the new loan as I tend to borrow around 110%. I need to think of a way to do this in a more cost effective way which would maximise my profits.
Alot of development was going on around my area as the blocks are large, ranging from 800 to 1100sqm close to the beach in Rockingham WA. If I developed a block myself and then rented out the properties rather than selling them, then the rent received could potentially be enough to pay their own way from the ‘get go’. This is of course dependant on the end price and the achievable rent return based on today’s values. This in turn would provide me with three of the new properties in line with my strategy and could be paid off with funds from the first five properties when I sold them when ready to retire. This would give me my retirement income in the one complex (this in itself holds it’s own risks, but for this purpose I’m merely brainstorming).
I have previously subdivided a battleaxe block (see previous blog) and built on the front of the block so am aware of some of the hidden costs. As I haven't completed a larger development I decided to look into purchasing the land first then engaging a reputable builder to do all of the work on my behalf to lock up stage (turnkey).
Firstly, I would need to ensure that my new bank was on board with my plans. It should be noted that since my last blog on refinancing I haven’t yet signed up with the new lender as we have been waiting on my investment properties valuations. My broker is waiting on this final approval/answer before we sign up. It’s very important to me to move to a bank that will assist me when I have equity and serviceability and do not stifle progress with unworkable ‘policy’ such as a capped figure for all customers. In my humble opinion, they need to take individual circumstances into consideration. So far we have had three valuations from different banks with a large difference in price by the different valuation companies. The process is quite interesting. In order to ensure probity the banks book their valuations into an online system which allocates the work to the valuation companies, ensuring that no coercion or unfair advantages are gained. Excellent business practise (except if you get the more conservative valuer which could stifle your plans).
I did drive-by's of developments to see if I liked the styles and with a few going up in the area, needed to find builders who 'stood out from the rest'. I saw one set of townhouses that I had liked for a long time (built in 2007) with an urban, limestone and iron look and asked my local council if they would look on the build documents of the address and tell me who the builder was. I figure if you don't ask you don't get and was really impressed when they provided the architect's details. I then viewed the architect's website and contacted them for rough figures to see if my due diligence of the area and build costs made a good investment. I was quoted around $270,000 for each townhouse of three on a 800sqm block or $150,000 each if I bought two blocks next to each other and built 8-10 units. I’m sure these figures can be improved upon with other builders but for now it provides me with a starting point in checking finances. 

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Top Suburbs : ferntree gully , gladesville , sth toowoomba , st peters , ropes crossing

  • GEF says on 03/04/2014 05:35:38 PM

    Good read, and some good ideas.

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