Without a doubt, the two questions we at Little Fish get asked the most are around cost and time so in this townhouse development case study, I am going to lift up the hood on a three-townhouse corner site that we completed for a client towards the end of 2020.
Let’s get into it.
Now before we rip the hood open and sink our teeth into the project particulars, I think it’s important to note that our client purchased the property in the heat of the 2018 Melbourne property market and ended up selling the new dwellings through 2020 amidst the COVID-19 pandemic.
Which you will see on the timeline when we get to that part of the case study.
The reason I wanted to mention that now, is because I want to make it clear that you can and should be able to make money no matter where you are in the market cycle.
Let’s break down 47 Reed Street, Spotswood.
It was a three-townhouse corner site with a north-south orientation. It was approximately 584 square meters of land with the northern frontage at 16.5m and the eastern frontage at 36m.
- 47 Reed Street, Spotswood
- Three-townhouse corner site
- North-south orientation
- 584 square meters approx.
- Frontage 16.5m (northern)
- Depth 36m (eastern)
I also want to point out that the western neighbour’s setback was approximately 9 meters. If we were to abide by the setback regulations and meet our neighbour at 9m this would have made it to achieve the development that we did.
Thankfully we were able to work closely with the council and our town planner to successfully argue a reduction in the setback requirement to 6m. Which was a huge result for the overall development.
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.
Due to the pandemic, the construction timeline was affected, which you’ll notice was approximately 3 months.
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.
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.
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 deposit for our project management services. The land surveying so the re-establishment and features and levels surveys and the drafting and planning costs.
Middle Development Costs
These were all the costs incurred from the planning permit approval right up until construction.
They include the demolition, construction documentation, the interior design package, and 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 Project Management invoice for achieving town planning approval was also paid at this point.
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.
It also included some additional funds for earthworks after we hit some rock. I’m not going to lie, we hit a fair bit of rock.
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.
Bank Interest 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 loan was closed out.
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.
There was the open space contribution given it was a three-townhouse site. Some minor settlement costs for the solicitor and the final payment for the project were our stage four Project Management invoice that was due upon project completion.
As shown on the timeline earlier in the article 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.
Not only was it purchased in a strong market and sold in a soft market there were complications with building supplies, lockdowns and the like due to the global pandemic.
The buyers were happy, the clients were happy, and we couldn’t have been happier.
You want to get in the game at a level where 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 years’ time and you’ll be able to appreciate how good it’s been to you.
Lastly, I share more townhouse designs and prices from recently completed projects here.