Without a doubt, the two questions we at Little Fish get asked the most are around cost and time so in this article, I am going to lift up the hood and share a dual occ case study that we completed for a client in mid-2021.
I’m going to share all the projects timing and costs including the eventual result as far as profit and the clients return on investment.
Let’s get into it.
Now before we rip the hood open and sink our teeth into the project particulars, I think that it is important that we note that this client engaged us to help find them a site to develop and sell for profit.
As it turned out the property was presented to us as an off-market opportunity, it took us four days to complete our due diligence.
Once we were satisfied, we were able to negotiate a favourable purchase price for our client and ultimately deliver a successful outcome which I’ll detail over the coming minutes.
Let’s break down 14 Wilmoth Avenue, Carnegie.
- 14 Wilmoth Avenue, Carnegie.
- Dual occ site
- East-west orientation
- 561 square meters approx.
- Frontage 13.8m
- Depth 40.9m
Before we get into the numbers let’s look at the project’s timeline.
While you’re consuming the timeline on the screen, I want to give the project some perspective.
Pretty much the day we purchased the site the south neighbour put in a pool which was a total coincidence but meant that we had to navigate this through the design stage
Even though there are no regulations specifying that you can’t shadow a pool we had to negotiate with the neighbour to avoid VCAT which we were successfully able to do by altering the upstairs setback on the south unit.
I also wanted to touch on the importance that all subdivision requirements are met timely throughout the construction process so that the new title registrations are done either prior to construction completion or at the very latest in parallel.
Thanks to the hard work of our team here at Little Fish all the subdivision requirements were met in plenty of time.
It guaranteed that settlement with the buyers was achieved within 14 days of project completion meaning they got their capital back and saw their profits sooner ready for them to roll into their next project.
Now you’ve got some perspective around the timing let’s get into the numbers.
Let’s start with the costs.
For the purpose of this exercise, I’ve broken down the costs into seven categories:
- The purchase
- Early development
- Middle development
- Holding (bank interest)
Finally, I should point out that all these costs are ex. GST as our client was able to claim back the GST quarterly essentially cancelling it out.
First up, let’s look at the purchase costs. These include the contract price, stamp duty, adjustments which included the conveyancing.
- Buy: 1,113,000
- Stamp duty: 61,215
- Adjustments: 4,800 (includes conveyancing)
- Total: 1,179,015
Early Development Costs
Next are the early development costs – these were the costs incurred from the purchase date right through until town planning approval.
So essentially in this case all of the costs for the first 8 months.
These costs included the project management fee deposit for our project management services, the land surveying so the re-establishment and features and levels surveys and the drafting and planning costs.
- Land surveyor: 2,800
- Drafting: 12,000
- Planning: 3,500
- PM stage one: 22,000
- Total: 40,300
Middle Development Costs
Next were the middle development costs – these were all the costs incurred from the planning permit approval right up until construction.
- Demolition: 12,500
- Construction docs: 14,800 (Working drawings, engineering, energy etc.)
- Interior design: 6,600 (Presentation document. Fixtures, fittings and finishes schedule)
- POSD & services: 16,150 (Power pit, service connections such as NBN, telco, water)
- PM stage two: 22,000 (Town planning approval)
- Miscellaneous: 4,100 (Smaller costs such as building insurance, council rates etc.)
- Total: 76,150
They include the demolition, construction documentation, the interior design package, the plan of subdivision application. It also includes the new power pit that was required and all the service connections such as NBN, telecommunications and the water.
Our stage two development project management invoice for achieving town planning approval was also paid at this point.
Then it was the Construction costs. All of our construction contracts are fixed price and are full turnkey so it included everything you can think of from the landscaping to the letterboxes, clotheslines and everything in between.
- Fixed price contract: 910,000 (10-month contract with $600 per week liquidated damages)
- Building permit: 5,200
- PM stage three: 22,000
- Total: 937,200
Next up were the marketing costs – these were some minor costs for marketing assets to support the sales campaign. It included some 3D renders, the hoarding and marketing banner and the custom brochure design and printing.
- 3D renders: 5,200
- Custom brochure: 6,750
- Total: 11,950
Bank Holding Costs
Next was the bank Interest or holding costs – for this project like we do with most of our projects we were able to have the bank interest capitalised which essentially meant the interest was accrued over the duration of the project and paid in full, from the proceeds of the sales when they were settled at the end – so when the development loan was closed out.
- Bank interest: 59,670
- Total: 59,670
And finally, we had some completion costs which included the agent’s sale commissions and portal listings which were also paid at settlement of the sales.
- Agent commissions: 39,650
- Portal listings: 4,900
- Settlement: 4,300
- PM stage 4: 22,000
- GST (margin scheme): 89,000
- Total: 159,850
There were some minor settlement costs and the final payment for the project was our stage four Development Management invoice that was due upon project completion.
As shown on the timeline earlier in the video all properties were sold off the plan and the new titles were registered timely. So, the properties were able to be settled with the buyers 14 days after the builder issued the certificate of occupancy.
If your goal is to maximise your financial return, then this is exactly how you want the end of your project to go.
The key is to settle with your buyers as soon as possible so you get your money sooner, pay down your debt and roll into your next project.
Now the moment of truth. The result.
This real estate development case study shows that if you purchase at the right level and the market looks after you even just a little bit that there is plenty of money to be made undertaking these dual occupancy projects in and around Melbourne.
In the end, the buyers were happy. The client was ecstatic, and we here at Little Fish couldn’t have been happier.
Since this project, and even before completion, we’ve helped this client secure multiple other sites and it looks like we will be working with them for many years to come which is what it is all about.
You want to get in the game at a level that you aren’t overexposed financially so you can begin to grow your capital with as minimal risk as possible.
Worry less about market cycles and focus more on learning, relationships, networks and efficiencies.
Because if you do, you’ll look back on your journey in ten-year time and you’ll be able to appreciate how good it’s been to you.
To check out a similar case study for a side by side development in Carnegie click here.