Can you Make Money on Small Property Developments in Perth?

These days you hear of many people getting into the property development game to try and make extra cash to pay down their mortgage or get a head in their savings.

Gone are the days of just renovating for profit or buying a house to hold and make money from in the long run, people are getting impatient and want to make instant cash. So is property development a good place to give it a go? 

A lot of mum and dad investors are trying their hand at the property development game, and why not? It is a lot of fun and you get to see more than one property being built from ground up! What could be more exciting…? That is of course from a builders view point.!

But the questions I hear repeatedly here in Perth is- Can you make money doing smaller developments?

We recently completed The Hunter Way Project in Padbury for a client -

The project consisted of demolishing an old 3 bed two bath brick and tile home on a 717m2 block.
Distinct Renovations built three new dwellings and subdivided the land into three separate survey strata titles.

Distinct Renovations worked along side Brett at Anthony and Associates to design three villas to fit the block of land. Each villa had three bedrooms, two bathrooms and an open plan living space.  They also had a 2 car garage bigger enough to fit the Land Cruiser for the down sizes and campers and a decent sized outdoor alfresco. 
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The fixtures and fittings were medium specification in order to wow the buyer and hope for a quick sell. When developing you are building smaller houses with a lot less land, so you need to make sure what you are building is going to wow the buyer.  That same buyer in most cases can buy something similar in price, but an older style home with twice the land just down the road!  We don’t add massive mark-up to our medium spec range so that you only pay slightly more (market price) to get that wow factor the development needs. 

Developing is a risky game and one that needs to be investigated carefully when it comes to doing the numbers.

Budget blow outs happen to the most experienced of developers, you just don’t know what’s underground and you certainly don’t know what the council will say or do regarding your development application.
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However, given all the above and how rough the Perth property Market is our clients on this project still managed to make a relevant profit, however that was in part to keeping one of the properties. Which saves on selling costs and GST.
 
So what were the numbers and how much money did this investor make?

The Numbers:
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• Purchase Price: $545,000
• Stamp duty and other purchase costs: $28,000
• Demolition, site works and building costs: $650,000
• Borrowing costs: $55,000

 
Total costs: $1,278,000
Selling costs of 2 properties: $18,500
 
Grand Total costs: $1,296,500
 
Proceeds / Value

• Sale Unit 1: $475,000
• Sale Unit 2: $445,000
• Value of remaining: $ 490,000 (recent bank valuation after built)

 
Total Proceeds/value: $1,410,000
Profit: $113,500

So, the answer to the questions is YES if you are careful on the initial feasibility studies and you chose the right property in the right suburb in the right street and don’t come across too many developer risks, you can still make money being a small time developer in Perths current property market. 

Also worth noting- the remaining units rent is covering the mortgage for the owner as well as annual rates payments and giving the owner a low risk property investment that should grow over time. Really it was a winner all round.
 
Distinct Renovations can help you with home renovations, new builds as well as full unit site developments.  Feel free to contact us now with your next project and we will be happy to assist.  Don’t forget we are a small builder here to make your next project stress free.