How a dual occupancy development can work out cash positive: A real life case study
Our clients Lorraine and Steven live in Sydney and are active property investors.
Both are very busy professionals with a young family. Steven is a medical specialist and on call all hours of the night and Lorraine a solicitor with a young toddler.
We located a dual occupancy site for them in the City of Maitland in the Lower Hunter Region of NSW. The official population of Maitland City as of the 30 June 2013, is 73,447. It has grown by 2.16% over the past year.
Maitland City is a solid area to develop in as we've been working there for over nine years and seen the population steadily rising and announcements of large infrastructure projects mean there is good investment being made by the government. NSW Planning have Maitland's annual growth rate projected to be the highest in metropolitan areas outside of Sydney.
As part of our research process, after pinpointing a city or town to develop in, we then drill down into suburb data. We look at median price history and trends and availability of land and housing. Our research with local agents confirms the type of housing in demand and we check for low vacancy rates. We then look for development site locations that are close to infrastructure such as good schools, shopping centres, public transport and quick access to Newcastle and to the M1 to Sydney.
We were offered Lorraine and Steven's development site off market through one of our land developers and quickly moved to secure it for our clients. The dual occupancy project was completed within 12 months of settlement on the land.
Here are the details:
- 890 square metre development site; land cost: $210,000
- Stamp duty & legal costs: $2,285
- ($5,000 NSW New Home Grant applied. The government contributes $5,000 to offset stamp duty)
- Construction cost for two freestanding, three bedroom, two bathroom, DLUG villas, includes Torrens title subdivision all design and council fees and charges: $460,627
- Total cost: $672,912
- The villas were valued on completion of the project at: $390,000 each. Total end values for both villas: $780,000.
- Equity created: $107,782
- Gross yield after villas were rented at $400 per week each: 6.2%
If you are borrowing at around 4.5% then a development project like this may be cash flow positive for you. This is when the rent and depreciation benefits combined cover the costs of interest, insurance, council, water rates and management fees.
The other big benefit on a dual occupancy project is the depreciation benefits. On the above case study depreciation came in around $21,000 year one (using the diminishing method).
What Lorraine and Steven got out of using our service is the experience of being a property developer without having to deal with all the fine details and issues. Our weekly update reports act as a handy reference guide for clients to use when/if they have time to manage their next project themselves. Our role is to bring in the projects as quickly and efficiently as possible. Our long standing relationships with builders and contractors, land developers and agents allow us to pass on discounts and exclusive offers to our clients.