What Are Your Thoughts On Buying Land and Building Townhouses?

What are your thoughts on buying land and building townhouses this year? Is it a worthwhile investment strategy?

 

Transcription:

What are your thoughts on buying land and building townhouses, two or three? What’s a good size? How long will it take, the cost, the process, etc. Now ben, I know you’ve got some experience in doing jewel occupancy properties and stuff like that. So joiN us, shed some light on like the, I guess some costs to think about how long it would take a land size, all that sort of stuff. Sure.

It’s, it’s very, very difficult to make it two or three m site development actually stack up financially right now. There’s just not as much margin in those projects is there was um, you know, again, depending on the marketplace in Australia, what you really need to sit down and do is a really, really decent feasiBility. So that means what is your land component? What are your construction costs, what of the contrIbution costs, what are the project costs, what are the holding costs, what are the entry and exit costs, what are the tax implications of selling the project? And you need to put all of the outgoings versus the potential value of the property very, very, very conservatively into a spreadsheet. And then if, if the project doesn’t stack up with at least the 20 to 25 percent net profit margin after all of those costs, um, you know, none of the developers that aren’t, I would touch it. So I think it’s very difficult at the moment, defined those types of projects that do stack up, um, unless you picked up the land in the past or unless you’re one of that one percent of investors that just specialize in building that type of product and have really good experience in making it work even in tough markets. So it can be very difficult.

Why is it harder now? It was, say a few years ago. The place has got very, very educated. So real estate agents as well as the people selling the properties, uh, putting the margin already into the price. So a few years ago, um, you know, people weren’t as educated as they were because we’d just come out of recession.

You had a whole different generation of investors in the marketplace. And so, um, you know, often dental town planning changes and I’m often the real estate agents didn’t understand what those changes were and um, you know, as soon as somebody in Australia or a suburb stays a certain project go up, the first thing they do is they’re considering selling their home is to check out what is the highest and best use of the site. And then if an agent has had experience of saying one of those in the suburb, they’re going to educate that client and obviously they get more commission if they sell it for higher price point. So in the past I saw they saw 10 years ago in brisbane for example, I could make 20 percent, now they might be five to seven percent in the deal. So they just don’t work as a short term strategy. But again, if land prices increased by 40 percent in the next 10 years, for example, there might be margin if it’s a long term buy and hold strategy.

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