Property Development Melbourne Update – March 2010

We are getting closer to the build phase for the project.  Finally!!!

Below is the current strategy we are undertaking to get the best return on the development.

Property Development Melbourne

When this one finally gets off the ground it will be a great project, but there have been a few roadbumps along the way.  There are five of us backing this development.  It is in Footscray Melbourne which is regularly featured in property hotspots. 

Profit Margin on this for me should be in the 25% but there is a fair amount of risk.  The good news is that the DA approval has been achieved, so in theory, even if we bailed now the value of the project is still more than current outlay.  The builders are all lined up, so now we are waiting on, guess what, yes the banks….

Meanwhile, a short video below, that runs through some of the choices around the site choice and why Footscray is well regarded as a future hotspot.

My Next Property

I am gearing up to go again with another investment property.  What I find is that as get further into your property portfolio, more balls need to align to get the deal across the line.

So, the bank side looks fine and I should be able to get up to a $600,000 loan.

I am tied a little as to release some funds for the transaction costs,  I need to refinance the Mackay property.  This is tied into a St George Mortgage and I can only refinance if I use the funds into another investment property.  As you know nearly through the strata titling, which should enable me to release $50k or so which will go towards the transaction costs, so in a holding pattern until the strata titline goes through and then the refinace of Mackay and the set up of a new finance pre approval for a new property.

Then the next question is where to go.  I am keen on a NSW property to balance out my portolio; 3 bed townhouse would be ideal, but could be some restrictions on city proximity with my price range, so may have to go for a 2 bed unit.

I have put the feelers out and North West Sydney has come back as an option, Ryde area.

An interesting one came up in one of the top 100 hot spots in Melbourne at $50 under market value but it went before I could even think about it; not really ready to move that quick. Just shows that you want to get all the ducks in a row so you can grab the opportunites as they arise.

I was also approached on a land grab, west of Mackay.  Bit of a riskier option, but the big miners are doing the same and if it goes well, would be a good short term option.

So plenty of options flying around. Just need to get everything so I am ready to go!

Property development is tricky at the moment as the banks clamped down significantly, and many developers also had to deleverage to continue with their plans.

The house was planning in Tasmania, is in a development which has the last remaining land within a valley on never to be built out sea views.  I have bought the land as a way to reduce stamp duty, but in hindsight would have been better off waiting as any savings on this front are likely to be offset by the delay in building.  The overall cost of the land and build is in the $285k with retails price in the $330k to $350k mark

As it stands, the development was a joint venture and one of the developers pulled out when the s.. hit the fan leaving the project somewhat high and dry.  A new joint venture partner has been secured and we are now waiting on the bank’s approval to conitnue and get the show on the road!!

I also found out that the developer somehow used my land that was secured by a binding contract as security for the bank, so there is a risk that in fact I am somehow tied up in the overall development success and that despite the land having been paid for outright, it could be taken by the bank in the event of the collapse of the developer. Yikes!!  Lucky the developer is a good guy, but I should have made sure that the land title was in my hands.  Will let you know what the legal situation is on this so you can avoid a similar situation.

On the plus side the land values have held well; let’s just hope the hassle in the deal is worth all the delays!  Will keep you updated  with news

These two properties ( a duplex) were bought in 2007. As mentioned in a previous post it was one of my first investments and I went for something relatively well geared.

So far, I have added value by renovating two bathrooms and am now strata titling the two units.  Rent seems to fluctuate with the state of the mining sector. At one stage I was getting $660 per week.  $330 per side up from the original $510 (combined) at purchase.  I am waiting on a revaluation when I complete the strata titling exercise, but expect around the $520k mark off the original $450 purchase price.  Less than I would have hoped, but Mackay has been impacted by the global financial market.

One thing I have found is that there has been a fair amount of maintenance (1981 build) and a lot of rental turnover.  Net result is that it this particular investment takes up more time than I would like and although it is well geared, expenses seem to offest some of these benefits.  I will do a comparison post when I have done my tax returns and give you a live example of a common question of old v new.  My new investment properties by comparison have been minimal effort and I have found a 3 bed townhouse gives some good stability with tenants.

I still remain positive over the medium to long term prospects for this investment, but so far these two properties have caused me a few headaches…