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 side by side development case study that we completed for a client in August 2021.
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 at the eleventh hour, we needed to make a call on in within 24 hours, so we pushed our due diligence and, in the end, managed to secure the site in that time frame.
Talk about life in the fast lane, making million-dollar decisions in rapid time – and most importantly, it was a huge success which you will begin to see as this case study unfolds.
Let’s break down 16 Elimatta Road, Carnegie.
It was a side-by-side dual occupancy site, with a west-east site orientation. It was approximately 669 square meters of land with a 16.1m frontage and 41.6m in depth.
- 16 Elimatta Road, Carnegie
- Dual occ site
- West east orientation
- 669 square meters approx.
- Frontage 16.1m
- Depth 41.6m
Before we get into the numbers let’s look at the project’s timeline.
While you’re consuming the timeline below, I want to point out some site-specific un-common issues that we had to resolve early on.
This property had a 2m easement running along the north boundary, we knew this when we made the purchase, but we had done the proper due diligence that gave us the confidence that we needed that the risk would be mitigated.
We knew that easement was empty and didn’t carry any services and it was going to be extremely unlikely to be required in the future it was simply part of the very old subdivision, so we were super confident about its successful removal.
What we ended up doing was running the easement removal application in parallel with the planning application, which was great as it didn’t cost us any time, and as we know in townhouse developing time is money.
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, and adjustments which included the conveyancing.
- Buy: 1,217,500
- Stamp duty: 66,960
- Adjustments: 6,420 (includes conveyancing)
- Total: 1,290,340
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 10 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.
The land surveying and town planning were both slightly higher than normal due to addressing the easement removal.
- Land surveyor: 3,600
- Drafting: 12,500
- Planning: 4,200
- PM stage one: 22,000
- Total: 42,300
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: 14,600
- Construction docs: 15,300 (Working drawings, engineering, energy etc.)
- Interior design: 6,600 (Presentation document. Fixtures, fittings and finishes schedule)
- POSD & services: 18,400 (Power pit, service connections such as NBN, telco, water)
- PM stage two: 22,000 (Town planning approval)
- Miscellaneous: 6,750 (Smaller costs such as building insurance, council rates etc.)
- Total: 83,650
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 water.
Our stage two development management service invoice for achieving town planning approval was also paid at this point.
Then it was the Construction costs. All 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: 968,000 (10-month contract with $750 per week liquidated damages)
- Building permit: 5,600
- PM stage three: 22,000
- Total: 995,600
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, the client was 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: 68,320
- Total: 68,320
And finally, we had some completion costs. Which included the agent’s sale commissions and portal listings, which were also paid at the settlement of the three sales.
- Agent commissions: 41,900
- Portal listings: 4,900
- Settlement: 2,700
- PM stage 4: 22,000
- GST (margin scheme): 96,000
- Total: 167,500
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 three 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 case study shows that if you purchase at the right level. And the market looks after you even just a little bit. There is plenty of money to be made undertaking these side by side dual occupancy projects in and around Melbourne.
It is also important to point out that this site had the easement curveball that we needed to navigate early. I would assume that most would have walked away at that point, but we had confidence in our knowledge and due diligence process.
So we were happy to take on the risk and push forward, which ultimately turned into a huge result for our client. As you can imagine, they were ecstatic and rolled straight into another project.
No doubt this project was a huge success. Obviously, not all projects get to this level, but the key was the client was able to do the most important thing, and that’s committed to the project in the first place – I can assure you that the feasibility didn’t have t at this level.
You need to be in it to win it. You need to be happy with pessimistic/realistic feasibility to put yourself in the box set to enjoy any upside that the market affords you.
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.
It’s no secret that money makes money, so get on the developing merry-go-round and start growing your capital one project at a time.
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-years time and you’ll be able to appreciate how good it’s been to you.