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You gots to spend money to make money
Apr. 30th, 2006 05:59 pmSo I've been looking at Realestate.com.au again (co-incidently, Liz is almost level 60 in WoW..) and found this block of land : 3000 square metres of "soon to be" R160 zoned land in Scarborough for $5,775,000! The R160 zoning will (apparently) allow 48 units in an 8 storey building.
Now before we go too much further into this hypothesis, let me just show that I'm not entirely naive and say: Yes, I'm aware it isn't yet zoned R160, and if it isn't rezoned, you couldn't build those 48 units, and yes I'm aware that residents of Scarborough don't like 8 story buildings, and so there's a lot of risk in this proposition.
So anyway.. $5,775,000 + stamp duty puts purchase cost at $6,051,105. Assuming 48 units, you're looking at it costing you at least $126,064.68 per unit, before you even start building. Now let's assume that your units are 3 bedroom and really nice, and have a build cost of say $250,000 (including all approvals, design costs, building common areas, etc), which makes the cost per unit about $376,064.68. Assuming you can sell them each for about $450,000 (at least, I mean, these places have ocean views!), you're making $73,935.32 per unit, or a gross profit of $3,548,895.36. Let's assume you're looking at 50% capital gains tax on this, so you'd make a smidge over $1.75 million. However, if you could sell the properties for $500,000 instead of $450,000, you could make an extra $2.4million, or about $3million net profit.
However, in order to make that money, you need to spend $18,051,104.64. $18 million is a not insignificant risk. Now, you can reduce this risk using the condominium model, in that you don't start building till you sell enough of the units off the plan to cover your build costs for all of the units (in this case, you'd need to sell 41 off the plan), but you still need to front the $6 million to start things off, along with another large sum of money for architects, project managers, etc.
So my next question is, does anyone reading this have a spare $19 million they can lend me at 0% interest?
... anybody?
... Bueller?
Now before we go too much further into this hypothesis, let me just show that I'm not entirely naive and say: Yes, I'm aware it isn't yet zoned R160, and if it isn't rezoned, you couldn't build those 48 units, and yes I'm aware that residents of Scarborough don't like 8 story buildings, and so there's a lot of risk in this proposition.
So anyway.. $5,775,000 + stamp duty puts purchase cost at $6,051,105. Assuming 48 units, you're looking at it costing you at least $126,064.68 per unit, before you even start building. Now let's assume that your units are 3 bedroom and really nice, and have a build cost of say $250,000 (including all approvals, design costs, building common areas, etc), which makes the cost per unit about $376,064.68. Assuming you can sell them each for about $450,000 (at least, I mean, these places have ocean views!), you're making $73,935.32 per unit, or a gross profit of $3,548,895.36. Let's assume you're looking at 50% capital gains tax on this, so you'd make a smidge over $1.75 million. However, if you could sell the properties for $500,000 instead of $450,000, you could make an extra $2.4million, or about $3million net profit.
However, in order to make that money, you need to spend $18,051,104.64. $18 million is a not insignificant risk. Now, you can reduce this risk using the condominium model, in that you don't start building till you sell enough of the units off the plan to cover your build costs for all of the units (in this case, you'd need to sell 41 off the plan), but you still need to front the $6 million to start things off, along with another large sum of money for architects, project managers, etc.
So my next question is, does anyone reading this have a spare $19 million they can lend me at 0% interest?
... anybody?
... Bueller?
