3 Townhouse Development - Melbourne

As a first time developer what are the factors we need to be mindful off when buying a property to build 3 townhouses. Is it idea to buy something with approved plans and permits or without? I have been researching but the builders haven't been too helpful as i have not purchased the property yet and the town planners have been providing very contradictory opinions.

Comments

  • Banks will only offer a construction loan to individuals for 2 dwellings. To get a loan for 3 dwellings you will need to get a commercial loan which is much more difficult especially when you don't have a history of successful developments.

    If have a builder lined up and you're a inexperienced developer it makes sense to be buying a property with approved plans and permits however you'll pay a premium for this. If you don't have the permits budget on at least 6 months to get them drawn up and approved prior to construction.

    Make sure you have the ability to pay for a 20% overrun in costs and the ability to access emergency money. So many developments in my neighbourhood stalled for months (with half finished leaking roof, incomplete walls, or no doors) because the developers didn't have the money to finish the build.

    Finally, don't ask questions like this on Ozbargain. If you cannot research these basic questions yourself you'll make costly mistakes and lose plenty of money attempting a development.

    • Good points

      I'd suggest overruns provision of at least 20-30% and ensuring you do not skimp out on getting inspections at important milestone. You'd also want to be in the loop so having this and actual reports will reduce further wastage down the line.

      Australian sub contractors and the "laziness" are very valid areas of concern so having someone who will be on site will be very beneficial.

    • Everyone wants to be a property mogul. Until they end up holding the bag.

      If someone already has approved plans and permits then the seller is asking for a premium so they don't have to take the risk. Maybe the risk is so high they'd rather offload it.

      I've been looking into this stuff and all I could work out is if you're a builder and developer you end up making good salary money. If you are property owner then the builder is going to milk you.

  • +6 votes

    first time developer

    Comes to a bargain forum

    • 🤦‍♂️ and im sure the banks will give him/her a loan of 2 million when I can't get one for a qtr of that with good savings and a decent job lol.

  • Cheaper than asking a real egg-spurt.

  • Too much risk to do it now and I don't think you can make money out of it.

    Be careful with all the council fees such as open space levy, tax etc…..

  • Go see an accountant. Be mindful of GST and income on revenue account, not capital account (i.e. no 50% discount).

  • Might be worth asking around in real estate/house building forums. You'll get a wider range of information tidbits.

    If you already know roughly the townhouse and land size you'll need then I don't see why you can't get rough ballpark figures from builders.

  • As a first timer why do you specifically want to do 3 town house development?

    • Probably because they have a block in mind and there’s other 3 unit blocks nearby.

      • In my re-zoned street of say 30 houses there are like only 1 or 2 blocks that you can successfully develop for medium density. Looking at what the neighbour did is not a very good bench mark to commit and risk hundreds of thousands of dollars to one of the worst compliance nightmares one can experience.

  • Check out propertychat forums, great resource that will give you a good foundation to work from.

    Good luck and all the best

  • Property development is not a get rich quick scheme. It's a lot of research, work, cash and risk.

    • That is why Donald Trump's companies went bankrupt 6 times. Even if you think you're twice as good as he is you're still risking bankruptcy 3x over.

      • nah, he went bankrupt to protect his ass, it's completely different story for those with large cash reserve and can use corporate structure to protect their personal asset. For normal lay person going bankrupt has very serious consequences.

        • You could setup a Pty Ltd company and contract builders and everything else through that then put it into administration. Exactly what Grocon is doing right now. Plenty of people in building industry doing that to avoid their tax obligations.

  • I understand Donald Trump made his companies bankrupt intentionally so that he had no need to pay his builders/ contractors ; some of them committed suicides because of their debts.Please don’t follow what Donald Trump was doing. Karma will bestow upon them.

  • Hey i'm an architect based in Melb, your welcome to send me a private message. But the potential of a site isn't clear. Planning decisions, aren't black and white like law. It's based broadly on residential building code, planning zones/overlays, then council's own strategic vision, the actual team leaders interpretation, and your individual application ie. the design and how it responds to all of the above.

    If you read what I wrote backwards you can start to understand how everybody gets a different result. As every site is slightly different, every design is presenting a slightly different solution, and each planner has a different interpretation on how to apply the council's strategic vision, planning zoning controls and compliance.

    There are lots of things to look at before you purchase a property. For starters as a beginner.

    • 1a Potential of the site
      Planning Zones, does what you want to build actually achievable in the planning constraints
    • 1b. Precedents near by
      Are there any other developments similar that you wish to recreate similarly. Are they recent, if not, planning regulations around garden space, and other planning constraints may have changed and no longer represent what you could achieve.

    • 2a Feasibility
      You need to work out what can be achieved on the site, this is where you may now need to engage a professional to sketch out what is possible to achieve. Get different scenarios.
      Ie. 2 townhouses does it stack up. 3 townhouses does it stack up.
      Look also for any easements, covenants on the title, catches lots of people out.

    You need to get to your break even point. This will convert to both construction cost, sale price, and what can be achieved on site.

    ie. If you had a 3x 2 bedroom units, 1x 3 bedroom units, it may cost less than 3x 3 bedroom units, but your sale price may be x, does it still stack up.

    You should then speak to realestate agents, advocates, etc anybody who is more familiar with markets you are trying to target (ie. rental, investment, sale, first home buyers, downsizers etc)

    A good architect or designer should guide you along the way with all of this.

    Once you have made a calculated assessment of risks, (planning risk) (construction cost) etc.

    • Engaging professionals purchasing property etc.
      Your next will be design and consultants.
      You need allow in your costs for at minimum
    1. Building Surveyor, Permit Fees, Any Development Levies, Lodgement Fees, Titles etc.
    2. Land Surveyor, Survey + Subdivision
    3. Architectural costs
    4. Engineering (structural and civil)
    5. Energy rating
    6. Town planners if necessary

    It's a lot more complex than people are lead to realise. To be honest I have seen my self get undercut by others who are cutting fees so low that they can't be diligent (ie. divide their fee by an hourly rate). A lot of the leg work, or research is put onto the client, with very expensive repercussions which are not visible looking forward but are obvious looking back.
    ie. inexperience in the area or typology, or construction methodology, to rectify or to engineer out is more costly than the price difference often many times over, especially when choosing one designers work means you yield a lot less on site.

    • Construction
      Could keep going….

    • Marketing, Sales etc.

  • As someone who lives in an estate with 3 townhouses on each corner block all I have to say is…just don't.