We look at four things to determine the level of building
investment required:
- Demographics for the suburb
- Surrounding properties to the site
- Tenant demand in the area
- Recent sales references in the suburb
Today I looked at a dual
occupancy site in a suburb that had a couple of different demographics; young
families with one or two kids attending the local private school and retirees
looking to downsize and live close to shopping facilities in low maintenance properties.
I’d been given a build cost
based on what had been built in this estate to date. It is an upmarket
estate. The build cost for a three bedroom,
two bathroom duplex to the standard that had already been built in the suburb was
around $400,000.
I knew we could build a similar duplex, slightly smaller without a
walk in robe to the master (that the other duplexes have) for about $370,000. There were other small differences to the façade
and finishes but were they worth the difference of $30,000? My take on it...nup, because tenant demand is
high and we could get the same rent as the other, slightly ‘better’ villas in
the area.
A few years ago, I build some fabulous duplexes in an upmarket
estate in the Lower Hunter Region of NSW.
I wanted to build something of a standard above what was being offered in this estate. So I had the duplex
architecturally designed with asymmetrical roof lines in lieu of a pitched roof
and we included upgrades such as rendered external finish instead of brick, stone
kitchen and vanity benches, shadow line finish to living areas, upgraded
European appliances and smart looking column fencing with aluminium slats. I thought when the bank values these villas
they will see that they are higher in standard than the past sales references
of 3 bed, 2 bathroom villas in the area.
Wrong. The valuer looked at
past sales of 3 bed, 2 bath attached villas and valued them at the same
level. The upgrades we’d included were
not seen to be substantial enough, but of course they did add to the build
cost. A few years later the client
decided to sell one of the villas, he was convinced by a local agent that the
price was acceptable for 3 bed, 2 bathroom villas as that was what they had
sold for before. I’m sure if the client
had ‘sold’ the property to the agent, meaning he needed to emphasis all the
points of difference that his villa had to the others, he may have sold at a
higher price (mind you, a good agent would pick up on these ‘selling points’)
but he didn’t and so his more upmarket villa did sell at the same price as the
stock standard ones.
So now I’m faced with the opposite opportunity. Can we build
slightly below what is in the market,
save on costs but end up with the same value on completion? I reckon we can. Being a bit of a city
slicker, I’d always thought higher cost means higher quality. But I also have a ‘value for money’ vein
running through me. I ran the numbers
and our client is looking at making an additional $30k or so in equity out of
this project for not much concession.
As a property developer, I think this can sometimes be a better option. Look to build slightly below the market than
the other way around. But this is based
on this particular location in a large regional country area. It may be different in capital cities. My message
today; walk the fine line well and you
could make more than if you pay for the fine upgrades.
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