Property Bloom - Jo Chivers

First Impressions Do Count

2012-02-22T12:36:00.002-08:00

Ever walked down the street and thought...’yes I really like that house’ or ‘yikes! That house does nothing for me’?

At the very first glance of a property we instantly form an impression. It is human nature to judge a book by its cover,

You'll never get a second chance to make a great first impression. You may have heard that people will form an impression of you, your character, your personality — an impression that is nearly indelible — all within the first 60 seconds of meeting you. But wait...recent reports say now it could take as little time as a blink of the eye!

It may take just a tenth of a second to form an impression of a stranger from their face, BUT objects are categorized as soon as they are perceived! OMG, that really leaves nothing to chance.

Try this...stand on the opposite side of the street from a property and turn your back to it…then turn around to face it for a few seconds… and turn away again. Anything that caught your eye in that time should be neutralized or removed. Perhaps there was an over grown bush, a bright coloured balustrade, a broken window awning. If you noticed anything that did not bring you a ‘good feeling’ then the property hasn’t give you a good first impression.

Whilst it’s pretty important to like a house if you are living in it, it’s equally important for your tenants to like where they live too. When developing property for our clients, we want a great ‘first impression’. When it comes down to it, we are creating a dream; for both our client as investors but also for their tenants so they look after the property and stay a long time.

Once Property Bloom locates a development site for clients, we’ll move quickly to the design phase. We’ll ensure our design blends in well with the local surroundings. We’ll look at direct neighbouring properties and what materials they are made of and we’ll look at the best property in the street (based on the highest sale price) and see what it is made of. Whilst we’re conscious of not over capitalising, we still want to stand out in the street so our development will be noticed.

Today there is so much choice when choosing exteriors for the new dwellings that there’s really no excuse to produce a boring front façade. Street presence is what house facades are all about. It can be a little overwhelming to start with. Do you go with metal roofing or concrete tiles? Do you choose a face brick or go for the clean rendered look? Should you combine weatherboard cladding with other materials? Obviously your budget may dictate some choices.

When looking at exterior colours for your project consider this:

· The roof represents around 30% of the total look;

· The walls are roughly 60% and the;

· The fascias and guttering represent about 10%

The exterior of even a low budget development can be maximised. Here are a few suggestions to discuss with your architect:

- Use a combination of finishes – perhaps some rendered walls combined with face brick or other elements such as lightweight cladding or stacked stone (depending on location and budget).

- Another finish making a big comeback is external panelling. There are products we use that look like weatherboard but are actually a lightweight fibre cement panel – its low maintenance and rot resistant.

- Use contrasting brick work – two different face bricks. It won’t cost any more as long as both bricks are within the builder’s range.

- the mathematical precision of brickwork can be emphasised by using a contrasting mortar to the brick colour ie dark brick use a white mortar. Or by using a light coloured brick with flush mortar joint finish in a matching colour will give the impression of a large single-coloured area similar to a rendered surface. I call this the ‘poor man’s render look’.

- Feature Columns –we’re not talking Julius Caesar style but contrasting brick or bagged columns to the front can add some interest.

- Bagging – Is a lighter form of rendering which isn’t straight with perfect angles. Allows for the slight imperfections to be seen but can look just as good on the right property and is much cheaper.

- Timber inserts to gables – A gable is the triangle formed by a sloping roof. Rather than just paint it, you can use timber, aluminium panels or even Colourbond cladding.

If you really do want to make a “statement”, remember the garden planting you put along your facade is another opportunity, and probably contributes just as much to the street impact. And the good news is, when you grow tired of a garden bed, it’s much easier to change about than the front of a home.

Granny and Investors Have Never Had It So Good

2012-02-15T21:54:00.000-08:00

If you are looking to become a property investor things are looking good for you right now. And, if you happen to be the grandmother of an investor you could count your lucky stars.

Interest rates are steady after dropping over the past few months, rental returns are climbing and it’s a great buyers market. But wait, there’s more... there is a way you can increase your return dramatically.

With the introduction of the Affordable Rental Housing – State Environmental Planning Policy (SEPP) or Granny Flat initiative introduced by the NSW Government in 2009, you can add a granny flat to your investment property and rent it separately, resulting in an increased yield and good depreciation benefits. You can also add a granny flat to your own home if you have a large enough block size.

This strategy allows investors to dip their toe in property developing starting with a smaller project like the granny flat to build their property portfolio.

The Sydney market can be expensive which is what sent one me further afield to find a more affordable investment area.

After purchasing a few investment properties in Sydney, I found that they were all negatively geared. I needed to find properties that would assist with cash flow not drain me. My research took me to the Hunter Region of NSW and it’s there that I found the perfect fundamentals for an investment market. The local economies are booming thanks to the coal mining industries but also very diverse with wine growing, tourism, manufacturing, agriculture, horse breeding and retail all supporting strong employment. Coupled with massive government spending on infrastructure projects and strong demand for rental properties, I thought I’d struck gold.

Property Bloom™ now offers a granny flat service along with our other development strategies. We find properties suitable for a granny flat development, usually three bedroom houses on large blocks, but not just any houses. They need to meet a long list of our criteria. We manage all the fine details, including renovating the house and building the flat, creating a positively geared investment.

Investors will benefit from cash-flow from the rent on two dwellings and also receive good depreciation benefits on the new flat. This means people can keep moving forward with their investment strategy. Unlike buying a single apartment in a capital city for instance, which is likely to be negatively geared, adding a granny flat to a property that already has an existing dwelling can result in a cash-flow positive situation.

In the past granny flats were only permitted in certain residential zones, but this SEPP has opened up a whole new real estate door. The aim of the granny flat is to boost the supply of

affordable rentals by providing housing for the elderly so families can support each other, as well as the younger generation who are living at home and are not in a position to move out just yet.

Government projections show us that single-person households are likely to be the fastest growing sector over the next 20 years, so demand is definitely there.

Small secondary dwellings are an attractive option for singles and couples who don't need a lot of room and are the most likely people to be under rental stress. Young people are also staying at home longer and granny flats can provide extra space for them and be a lifesaver for Baby Boomers who were hoping to empty their nest sometime soon.

In the Hunter, we are finding properties for around $240,000 and with the addition of a 2 bedroom granny flat which we can build for around $95,000; it’s a really affordable investment for a total cost of around $350,000. These projects are creating a 9-10% gross rental yield, and like the northern beaches, the rental markets are extremely tight in the Hunter. This type of development suits someone starting out in developing or an investor looking to create a positively geared investment.

To take advantage of the NSW Government’s Affordable Rental Housing - State Environmental Planning Policy (SEPP) the regulations include:

· Granny flat must be no more than 60sqm in size· Land must be more than 450sqm· Can only be one house and one granny flat on the land· The land cannot be subdivided· You will need to comply with the LEP of your council (contact council re building
requirements)· It must meet the requirements of the Building Code of Australia

For more information on the Affordable Housing SEPP go to:

http://www.planning.nsw.gov.au/plansforaction/pdf/Affordable%20Housing_Fact_Granny%20Flats.pdf

Being Present with Property

2012-02-08T15:31:00.000-08:00

I’m not going to talk about interest rates and the RBA’s decision not to cut them this week because every man and his dog has an opinion on that right now. Rather, I’m going to talk about being Present in your investing.

Being Present is what you experience when you are completely focused on this very moment. Often our thoughts and feelings are focussed on the past - which has already gone - or the future - which hasn’t yet happened.

The way I see it, our cash rate is 4.25% at present and that’s pretty damn good in the scheme of things. Yes it would be nicer at 4% but let’s not worry about a few dollars in extra costs if you can make a great rental return like most investors are doing right now...in the Present.

Australia has escaped a lot of the wrath of the GFC (round one anyway) and we are lucky to have our mineral resources to thank for that. Yes the cash rate is only .25% in the USA, but their housing market is up the creek without any paddles...yes the cash rate is only .50% in the UK but they are part of the Euro catastrophe with high inflation. Yes the cash rate is only 1% in Europe but they are waiting for the GFS Round Two and there is a 10.4% unemployment rate in the 17 countries of the euro zone as reported by Reuters.

Look, I’m no economist, I really can’t comment on what’s happening overseas, and it is unfair to compare our interest rate or economies right now with theirs. All I can comment on is what’s happening in the regional towns Property Bloom is developing in...Presently.

If I were to give you a quick overview on these towns in the Hunter Region of NSW this is how it go; strong, diverse economies, low unemployment, high demand for rental property, decent quarterly increases in median prices and awesome average annual growth of median prices of over 12%.

I was taught that paying interest is a cost of doing business and as long as we’re not paying 18% like my parents did in the late 80’s then I’m happy.
When it comes to property development funding you may (but not always) need to pay a little more, but if you get good accounting advice (and I’m not an accountant) then the interest you pay should be a tax deduction together with paying an experienced project manager to manage your development. Consultant costs such as this and others can be taken up in the depreciation schedule.

When it comes to analysing the rental returns once you have completed your development it’s pretty simple. If you are getting a higher net yield than the cost of your borrowings – the interest rate plus any fees – then you are out front. If you decide to lock into a fixed rate and think that your rental return can be increased slowly over time whilst your rate is kept steady, then you will find peace of mind in holding your dwellings and taking advantage of the depreciation benefits that a new build will bring and hopefully some good capital growth to come.

My advice right now – in the Present - is not to get caught up in external (and particularly global) events that you have no influence over. Focus on the area you want to invest in and study it. Find out what is happening that will boost the local economy (infrastructure projects, new employment opportunites etc) and become an expert in that area. Look at what’s already happened or planned for the short term. Become Present in your town and understand the dynamics of now, not of what may be.

Get fired up for property development in the Year of the Dragon

2012-02-02T03:16:00.001-08:00

The Year of the Dragon. 2012, has the potential to breathe life-shaping fire, to be magical and even mythical.

So as we approach the first day of 2012 under the Chinese Astrology Year – February 4 – we can look forward to a “year of great deeds, innovative ideas and big projects. This will be an advantageous time to begin new projects in business and socially”.

“The Year of the Dragon will bring excitement and big ups and downs in our lives,” according to one online site.

I’m happy to say I’m a Dragon. After reading various overviews, I think it’s a pretty cool sign – I’m told it’s one of the most powerful and lucky signs in the Chinese zodiac. This is the Year of the Water Dragon, with water having a calming influence on Dragons’ fearless temperament, and also making them more perceptive of others. That’s good. This also links into my Pices status. I do love a swim in the ocean!

It’s all fun and games to check in on our horoscopes –I always read mine in the Sunday paper – but really it’s up to you as we move into a new year to set down exactly what you want to achieve and not just leave it to chance, or Dragons, or any other belief.

Property development is like what we can expect this year from the Year of the Dragon: it is exciting, it does bring ups and downs (plenty of those) and hopefully in the end, it’s rewarding.

How can we sure up our property development results? I think it comes down to few simple rules:

Conduct massive due diligence before you decide to buy. You need to understand exactly what is permissible and what the local market needs in housing. You should understand the local economics, where the employment is coming from and what projects are in the pipeline that can affect your development. You should know the suburb inside out so that when a good deal comes along, you can jump on it.
Know what the potential outcome should be. Study rents and sales results in the suburb so you know what your dwellings will return/sell for. Put this into a simple feasibility spreadsheet.
Have a good property accountant who can check over your numbers and advise on the correct structure to purchase under to maximize your tax situation.
Have your finance pre-approved before you start looking so that you can move quickly to secure a good property.
Check out local builders, surveyors and tradies so you can quickly set up your development team.
Negotiate everything; purchase terms, deposit, renovation costs, building costs, agent management fees, etc. Each discount you get will lead to a better bottom line. Be careful not to “screw” your suppliers, as it needs to be a win-win situation for all.
Project manage your development closely so you can ensure it’s moving along as quickly as possible. This takes lots of time and patience. If you don’t have them, use a professional project management fire (like Property Bloom).
Consider holding property. It’s my opinion if you go to all the trouble and time to develop property the benefits of holding can be massive, especially in a few years time when you look back and ask yourself, “Why did I sell?”. Of course you need to have a good yield and depreciation benefits to support your holding costs.

So why not take advantage of the Chinese astrology forecast and make 2012 a year of great deeds, innovative ideas and big (property development) projects?

Happy New Year, Happy New LEP

2012-01-18T23:05:00.001-08:00

As we moved into the new year of 2012, I found myself celebrating another milestone. One of the council’s we work under finally gazetted a new LEP - Local Environmental Plan. Right now, the NSW planning system is undergoing the biggest change in 30 years. The NSW Government is changing the way that LEPs are developed and approved for our communities. This means many councils are undergoing a change to their LEP.

One of the biggest challenges of a property developer is keeping up with council regulations.

If you’re thinking of renovating, extending, building new dwellings, demolishing or subdividing you will need to lodge a Development Application - DA with your local council. But even before you are ready to put your DA together, you must have a good understanding of the council’s Local Environment Plan - LEP.

Something very important you should ask your council is whether there is a draft LEP in existence. A simple search of their website should tell you what’s in their planning pipeline.

There are no general regulations that apply throughout Australia –so as a developer, you must contact your local council for specific details relating to what you want to do. DAs allow councils to assess whether your plans are appropriate for the area based on their LEP and DCP – Development Control Plan.

This brings me to share an ‘interesting’ period we’ve had with several local Hunter councils as they went through the process of introducing new LEPs.

A LEP is a legal instrument that imposes standards to control development. These plans determine the areas in which various types of development can be considered and which areas of open space and environmental sensitivity need to be protected. These plans can have a profound and lasting impact on local communities.

A LEP generally comprises a written document and accompanying maps. LEPs apply to a particular area, generally the whole, or part of, a local government area.

Most LEPs remain in force until they are amended or repealed by an amending LEP. The process to amend an LEP is massive. We’ve been waiting for one council to draft and finally implement their LEP for five years! There were many changes and each time a new edition of the Draft LEP went on exhibition, we had to study it. Finally, the LEP was gazetted. When the Draft LEP is gazetted, it takes over from the current LEP as the primary environmental planning instrument.

In the case of our local Hunter council, the new LEP will provide more than 1,000 additional residential lots at eight sites across the LGA – Local Government Area. In addition the LEP zones new employment land which will encourage job creation in close proximity to the existing centre of town, while protecting the environmental values of the area.

The LEP also identifies planning controls for a major new town. For a developer, this is very important information. A whole new town will impact greatly on the economy and the demand and availability of housing, so you can see it’s crucial for you to know of any changes to your council’s planning process.
Importantly we’ve found that as the new LEP comes in there is a big, grey area. DAs that were submitted prior to the date that the new LEP was gazetted will continue to be assessed under the old LEP and the old DCP, with due consideration of the new LEP. What the?
This may sound a bit confusing but as a developer it’s your responsibility to get a handle on the requirements of your local council. I’d suggest you use a planning consultant with a strong understanding of your council’s requirements if you don’t have the time. Remember, the planning phase is just one of the many phases you’ll journey through as a developer. It’s a time consuming pursuit but one that can bring many rewards.

Surfs Up in 2012

2012-01-08T18:29:00.001-08:00

Personally, I am really bullish on the investment property market for 2012. Please note my reference to ‘investment’ market as I do see a split between the owner occupier markets and think these may remain subdued or perhaps grow slowly. Its property investors that will dive into action and stimulate the market into a steady capital growth wave.

Whilst some of the points I base my predictions on relate to the national market, most relate to the Hunter Region of NSW where Property Bloom develops property. It’s where we focus our research efforts. The Hunter Region has one of Australia’s largest regional populations. It is also within about a two hour drive from Sydney, so we are not talking boondocks here. It’s made up of 5 major cities or centres; Newcastle, Cessnock, Lake Macquarie, Maitland and Port Stephens. However smaller towns like Singleton and Muswellbrook have become major contributors to the region’s economy primarily due to their large coal mining projects.

Here are some of the facts that I have built my 2012 forecast for the investment property market:

- Major Banks decide to pass on the full .25% cut last week. According to Westpac’s chief economist, we will see another .50% cut by June 2012.

- Tight labour markets in the Hunter Region

- Federal government funding just announced in training to increase skilled labour

- Major regional capital expenditure, particularly resource sector related or transport related initiatives will be a driving force in the Hunter economy over the next few years. Planned expenditure of over $3 billion in the Upper Hunter alone in the areas of mine expansions, rail and wharf investment, on top of a $1.7 billion Hunter Expressway roads project in the Lower Hunter. These major projects are expected to also flow on to small-medium businesses in the area.

- Low vacancy rates and still falling, in November we saw a drop of .3% to 1.4% in the Hunter Region and the Sydney Metropolitan area vacancy rate is also just 1.4%.

- High yields. In most towns we develop in the projects finish with a 7-9% gross yield.

- Shortage of housing. We have seen four declines in five quarters with the Sept ‘11 quarter seeing an 11.5% decline in total new dwelling commencements.

To me these conditions are ripe for investors to take advantage of lower holding costs as interest rates drop. There is one massive factor that will impact what happens in 2012 and that is consumer sentiment. With the continued doom and gloom messages coming at us from Europe and other international markets and the dissatisfaction with our political leaders right now, I think this will also impact on consumer and investor confidence.

I see a fantastic opportunity for savvy property investors over the next 12 months to take advantage of the current environment and get in early before the mainstream investors hit the market, because when this happens it will increase demand which will result in higher prices and translate into capital growth.

Let’s take it one step further....by developing property in this environment; you can fast track your portfolio by creating up to three properties from one. You can create more, but keeping to three or less minimises risk and works within the current lending criteria. Banks will lend on building up to three new dwellings on one title right now.

Developing property is exciting, but if you can develop at the right time when the market is moving into a growth phase, then you will see the real benefits of creating equity through the development process whilst also completing your development in time to catch the next capital growth wave. Happy surfing in 2012.

All I want for Christmas... is some more houses

2011-12-21T16:49:00.001-08:00

Just in time for Christmas we’ve received the results of the National Housing Supply Council’s State of Supply Report 2011.

The Council’s report provides independent and consistent data on housing supply, underlying demand and the supply-demand gap, as well as affordability. The report has become a trusted resource for both government and industry. Reference: http://www.nhsc.org.au/supply.html

With so much debate going on with whether there actually is an under supply of housing or not, this report gives some real weight to the argument. In fact, it’s pretty clear.

The Council projects that underlying demand and supply over the next 20 years will see a shortfall of over 600,000 dwellings nationally.

Wow...that’s a lot of housing that will be required despite ‘weaker market conditions’ that are being touted right now. But I’m not really seeing ‘weaker’ conditions. In the areas Property Bloom develops things have started to move. Just this week we found a fabulous development site. It is a solid three bedroom house on 1012sqm with two street frontages (there’s the twist). This potential development site had plenty of interest, so much so that we had to race to exchange in order to secure it and take it off the market before Christmas. The agent received over 30 enquiries in under a week. On this site we’ll build a three bedroom duplex – two attached 3 bed villas – for our clients. So we’ll create three properties from one.

This is where I make the familiar reference to the two speed economy. You will find that in any large region where there is lots of employment opportunities – as we see in the Hunter Region of NSW – there will be strong demand for housing.

But it’s not just any housing that’s required. We need to tailor to the needs of the community. The State of Supply Report uncovers that the numbers of households comprising couples without children and lone-person households are projected to grow much more rapidly in all regions than are the number of households that are families with children. With an aging population this all points to a need for smaller dwellings. The projections suggest that most regions can expect a greater relative increase in demand for flats than for separate houses.

Here’s an important point: “...demand for private rental dwellings may well increase more sharply than is projected, due to social housing stock not increasing in proportion to increased underlying demand...” What is that telling you investors? Rents will continue to increase, combine this with interest rates dropping, buy in the right area and you should end up with a very strong yield.

With affordable housing in great demand, Property Bloom addresses this by developing properties; renovating houses and then building a granny flat. This strategy can be turned over very quickly and we basically double the housing capacity for that property and create a 9% gross yield for our clients.

By building villa developments in large regional towns like Muswellbrook, Cessnock and Maitland we are also providing good quality, affordable dwellings. These are quickly snapped up in the rental market.

So if you are looking for to give yourself a Christmas present, consider developing property, or at least purchasing one, in areas where there is an under supply and strong demand. You’ll not only be doing yourself a favour, but also the communities you are investing in and assisting with the shortfall of housing. Merry Christmas!

Property Development…The Answer to the Housing Shortage

2011-12-20T21:41:00.000-08:00

If you are a property investor looking to take the next step into developing property, then there’s never been a better time. Just take a quick look at the current market conditions and you’ll see what I mean.

Australia’s housing shortage is likely to get much worse before it gets any better because construction of new housing continues to fall well behind the number of properties required. We are seeing Australia’s population growing although the ABS reports that at March 2011 growth had slowed slightly over the prior year. But we still grew by 312,400 people. In contrast, we saw a 7% decline in new dwelling commencements (nationally) over 2010/11 to 154,877.

Then there is the continually rising demand for rental properties. The national vacancy rates are now 1.8% and a lot lower in most of the areas of the NSW Hunter Region where Property Bloom is developing. There is massive demand for new rental stock and tenants will pay a premium for brand new.

And here’s a tip for what to build: The changing demographics of Australia - particularly a smaller proportion of couples with children and ageing of the population- is likely to increase underlying demand for smaller dwellings proportionally more than demand for separate houses.

The Government’s National Housing Supply Council’s 2010 State of Supply report concludes:

Underlying demand has continued to grow since the last report (by more than 200,000 households) and is projected to increase further by 2029 (by 3.2 million households to 11.8 million);
Supply is not responding to this increase in demand (and that the impact of the global financial crisis on residential development in 2008-09 is likely to reduce dwelling completions in the next few years);
State and territory data on future infill and greenfield supply may be higher than actual delivery of lots (contributing to a larger gap);
The gap between demand and supply has continued to increase and will continue to increase without any changes to demand and/or supply;

So the writing is on the wall. We need more housing and depending on where you are developing, villas or units will be in demand. It’s a perfect time to step up and become a developer. But if it’s your first time, you should use a project manager to guide you through the development process.

At Property Bloom we start by finding suitable and affordable development sites for clients in the right locations where there is good demand for new dwellings. Then through a detailed process, we’ll guide the project to a result of building anywhere from two – six new villas, more if clients can finance larger developments. In some areas we are building larger houses as this is what is in demand right now. The total cost of a typical development is $650,000, around the price of a two bedroom unit in Sydney.

Whilst all the hard work is taken care of, clients can be as involved as they like in the process. We have some clients that are first time investors and need their hand held through the process. Others want to learn the development process so they can do it themselves next time. At the other end of the scale there are experienced investors who work in demanding jobs who don’t have time to source development sites for themselves, let alone manage the entire process. Property Bloom has managed over 45 developments, so we have a tried and tested system in place.

Using a project manager to handle your development means you are handing over all the detail to someone with the experience needed to successfully manage your investment. Some of the responsibilities of a project manager include:

locate suitable sites
run feasibilities on potential development opportunities
brief designers and work with them ensure the site is optimised through good designs
consult with architects, engineers and other technical workers to make sure that design intentions are met.
interpret plans, estimate costs and recommend reliable suppliers
manage the planning phase to ensure the fastest possible approvals
study building contract documents and negotiate with building owners and subcontractors
manage construction methods and procedures
coordinate the supply of labour and materials
direct site managers and subcontractors to make sure standards of building performance, quality, cost schedules and safety are maintained
control payment to subcontractors by valuation of completed works
communicate effectively and report accordingly
keep project budgets

Is there a good time for your builder to go broke?

2011-12-15T16:57:00.001-08:00

The Definition of a Developer’s Nightmare is: hearing that your builder is going into liquidation. So what happens when a builder you’re using does go into liquidation?

With the announcement of Cosmopolitan Homes in NSW going into liquidation last week, I thought I’d share what I know about this topic.

When your builder raises a contract, they also need to raise insurance. The policy that is most important is the Home Warranty insurance.

Home Warranty insurance is issued to the developer/homeowner to protect them against loss due to non-completion, defects and breach of statutory warranties by the builder. It is legally required and is only triggered if a builder dies, disappears or becomes insolvent before completing the home or fixing the defects.
I’ll repeat...you can only claim on this policy if your builder dies, disappears or becomes insolvent. These are pretty drastic outcomes really for the builder but can also have dire consequences for you.
I think we all understand what ‘dies’ means. ‘Disappearing’, well I’m not sure how this is legally defined, I couldn’t find an explanation. How long does he have to be gone for? Does a three month trip to Vegas count? What I do know more about is the process of ‘becoming insolvent’ and it can be quite drawn out.

If you find yourself in the situation where your builder has gone into voluntary or court appointed liquidation, the good news is…you are most likely covered by Home Warranty insurance. The bad news is…your cover may not be enough to complete your building works.

I’m going to let you into a little known fact: Your Home Warranty insurance policy only covers 20% of the builder’s contract and up to a maximum of $300,000 for incomplete work. So the stage your builder goes broke is very important, but totally out of your control. I’ll come back to this.

Going into liquidation is not easy for anyone. For voluntary liquidation the builder needs to acknowledge that they just can’t keep trading. There can be a period of denial as he comes to terms with this. Hopefully, he won’t be trading whilst insolvent because that’s against the law. Signs of distress may include; delays in completing the stage of build and disgruntled tradies who have not been paid or are continually having to chase payment and the builder being over anxious for their next drawdown. So when the builder finally faces reality and goes into liquidation, he needs to appoint an accounting firm to manage this process. They will be known as the liquidators. Their job is to notify all ‘creditors’ of the situation. A creditor will be you if you are under construction with the builder and anyone else he owes money too like staff, contractors and suppliers.
The builder may be put into Court Appointed or Official Liquidation. This is when someone applies to the court that a company should be wound up in insolvency. If this happens the court will appoint a liquidator.
Either way, before you can make a claim under the Home Warranty insurance policy, the status of the company must change from “registered” to “Under External Administration and/or Controller Appointed” on the ASIC website. Once the company’s status has been changed, you can lodge your claim.
When you make your claim, you’ll be asked to complete a schedule of payments you’ve made to the builder up to this stage. You’ll know how much you have left in your construction loan account. So then it’s a roll of the dice to see if you can complete the works with the insurance payout.
The insurance company will appoint an assessor who will inspect the site and put a building schedule together for the works that are outstanding. This is sent out for tender to builders on the insurance company’s panel and you can also get your own quotes. This is when you may discover that the works required to complete the project may not be covered by the claim and what’s left in your construction loan. With just 20% of the original builder’s contract to play with, there really isn’t a good time for your builder to shut down.

How can you avoid the situation of a builder going broke? Well you can certainly do your research on them before signing up. Get a list of their tradies and talk to them about how they are treated by the builder. Does he pay on time? Is he good to work for? How long have they been working with him? Talk to past clients and ask how their experience was? Check the Department of Fair Trading website for any past complaints and the ASIC website to see how long the builder’s been trading and his status.

At the end of the day, you will need to trust yourself and go with how you ‘feel’ about a builder. After all, we cannot know everything that is going on with a company. When you find a good builder, stick with them!

Interesting links:

https://homewarranty.nsw.gov.au/portal/server.pt/community/a%3Bhome/255

http://www.fairtrading.nsw.gov.au

http://www.search.asic.gov.au/gns001.html

www.propertybloom.com.au

A tweak in the schedule is worth two in the bank

2011-11-27T22:37:00.001-08:00

So you’ve just received your DA & CC consent and it’s almost time to start building. Just how long will the construction phase of your development take? Or more importantly, the question is how long before you start making a return on your investment? I guess this is like asking, how long’s a piece of string? Because the answer will depend on many factors;

- The number of dwellings you are building – single house or multi unit development?

- The type of construction process; slab and brick, timber floor and walls, partially prefabricated materials etc

- The size and degree of difficulty of the structures.

- The weather; how many rainy days will delay progress?

- Material and contractor availability.

- The builder’s ability to manage his contractors – his relationship with his trades and communication skills.

- The knowledge and experience of those managing the project.

- Any issues that may arise during the development process i.e. hitting rock when excavating.

Generally speaking, the build phases on Property Bloom projects range from a dual occupancy being completed within four months to a four villa project being completed in six months. Our granny flat developments are only two months from receipt of approval to completion of building works.

Now you have an idea on how to estimate your build time...is there a way you can save on holding costs too? The answer is yes and it’s all about analysing your building drawdown schedule. A simple revision to a builder’s drawdown schedule can end up saving a considerable amount of money in interest holding costs.

Typically, my builder’s drawdown schedule would go something like this for a dual occupancy development....

Deposit – $5,000 due when signing the tender (before DA is lodged)

Slab Less deposit paid – 20%

Frame & Trusses – 20%

Lock up – 25%

Mould out – 25%

Completion – 10%

By requesting a change of just a few percentages over each phase we can save thousands of dollars for our clients. This was our proposed change to the schedule:

Deposit – $5,000 due when signing the tender (before DA is lodged)

Slab Less deposit paid – 15%

Frame & Trusses – 20%

Lock up – 20%

Mould out – 25%

Completion – 20%

This is a much better schedule for our clients as there is more to be paid towards the end of the build. Not only does this save on interest costs, but it keeps the builder ‘in the game’ as there is more for him due at the back end of the build.

If I was really good at maths, I could calculate the exact amount saved be tweaking the percentages....but alas, I’m not that clever. So here is a challenge for all you clever readers...

Assumptions:

Build cost and construction loan is $500,000,

Total build time frame is five months from slab down.

An equal amount of time between each phase, although not likely, just to make it easier to calculate.

Interest rate 7%.

Can you tell me what would be the difference in interest payable for each scenario? I look forward to hearing from you. Please email your answers to: jo@propertybloom.com.au

Systemise the Success of your Development

2011-11-21T02:45:00.001-08:00

This week I created a system. My aim was simple; to achieve more in less time.

I had decided to set up a meeting with one of my builders. The builder and I only started working together fairly recently when I introduced this particular type of development earlier this year, and over a short period of time we were now up to our sixth project. I knew we could fine tune our process. He’d had some recent staff changes so it was the perfect time to gently tell him exactly how I wanted my developments to run.

Before the meeting yesterday I’d prepared a draft Procedures document which was based on the way we had been doing things up until then.

But it wasn’t until I started documenting pretty much everything we did that I realised how much was involved in this somewhat basic development strategy. What started in my mind as a one pager has turned into four. It’s funny how we simplify in our minds a process because we’ve done it time and time again. But when you really break it down in writing, you can see all the fine details.

Using a System or Procedure keeps me on track with our projects...I now literally have a written system for everything I do. It gives me something tangible to show to my clients and helps explain exactly what Property Bloom really does when managing their development. It’s also an important tool to use when training new staff as they have a documented procedure to follow.

By the end of the meeting with my builder, we had agreed on a three very important changes that will impact the bottom line of my developments;

1. We changed our standard floor plan slightly to make it more cost effective to build, without reducing the size. Now I could offer my clients a cheaper build price that will not impact on the end value or rental return.

2. We changed the payment schedule so my clients would pay less in the first half of the build phase, saving them valuable holding costs.

3. We minimised choice to save time. By setting up standard inclusions plus a list of ‘optional extras’ it meant that clients would not feel overwhelmed by choice on fittings, fixtures and colour selections and we could manage this process faster moving to the next step and saving time.

I was happy with my new system and excited to put it into action immediately and already we are getting more done, in less time. Because as they say...time is money.

Fast Track your Development by using a Project Manager

2011-11-15T01:12:00.001-08:00

I often get asked what I do for a living. My ‘elevator pitch’ or quick answer is…” I help people develop property by managing all the details from finding the right site through to finding the right tenants on completion. The result is creation of a large amount of equity through the development process.”

Their next question is always…why don’t you just develop property for yourself?

The answer to this is a bit longer, but to keep it short and sweet… I love sharing knowledge and find it very satisfying project managing developments. I do have a stake in all our developments anyway, as I share in the equity we create. This means I take personal ownership of the developments. Over the past 8 years the number of developments Property Bloom has managed stands at 53. This is on average of 6.6 developments per year. Also, the bottom line is that there is no way I could finance 53 developments on my own. By doing them for others, I get to do what I love and make a living from it. No brainer really.

So what are the benefits of using a professional project manager for your development?

Save money; a good project manager will have established discount structures in place with builders, architects, surveyors and other contractors. On a 3 villa project, the builder’s discount alone saves our clients over $12,000. On a 6 villa project we’re saving them well over $30,000. These savings help offset the project management fee.

Save time; To set up your own development team, find the right site, run feasibilities, design the project, manage the planning phase and then the build phase for even a small dual occupancy can be very time consuming. If you are trying to hold down a full time job at the same time, you will find it challenging. Using our refined system, we fast track all stages of the project for clients.

Minimize risk; if it’s your first development then just one error may mean the difference between a profitable development and a non-profitable one. Using an experienced PM takes some of the risks away. Developing will always have an element of risk, every development is different and we’ve learnt something new from each one we’ve finished.

Learn how to develop; simply by going through the process whilst working with a PM you will learn so much. If you engage a PM that is happy to teach you along the way, then you may be ready to manage your next project on your own.

Access to sites not on open market; our sources know what we’re looking for and will contact us about sites they may have available or have coming up. About 50% of our sites have not hit the open market.

Professionally managed & recorded; the paperwork alone can be mountainous and you want to ensure all documents are kept to maximize your tax return and so you can use them as a reference when doing your own project.

Local knowledge and experience; Property Bloom specializes in the Lower Hunter Region of NSW. So we know the markets very well and can quickly analyze a potential site location. Our contact base of agents, contractors, builders, professionals is broad and we have been able to weed out any suppliers we have not been happy with in the past. We continue to fine tune and improve our systems and processes.

Keep your day job; cashflow is important when developing so all of our clients have day jobs to fund their developments. It enables them to keep moving forward with building their property portfolios. We often have clients running two projects simultaneously to fast track their wealth creation.

If you’re thinking of developing but are a little worried, work with a project manager who has local knowledge and good experience in the area you want to develop in. You’ll essentially be buying yourself the time and experience it would have taken you to get up to the same level.

To Sell or Not To Sell...that is the question

2011-11-01T02:01:00.001-07:00

Even before you start looking for your development site, you’ll need to clarify one thing. Are you developing to sell or to hold?

To answer this question, you may need to answer another...

Is your strategy short or long term? If it is short term, then selling may meet your needs to make a quick return on your investment. If you have a long term strategy to build up a property portfolio, then holding will be the way to go.

There are several factors that will influence your decision:

Location

Your development is in an awesome location but in a poor rental market. An example of this may be a coastal area where there may be higher demand from owner occupiers wanting to purchase low maintenance property to retire to. In this case you may sell to realise your profits as holding would not be viable due to low rental returns.

Timing

If you complete your development and the market is in an upswing with high demand, then you may get a higher than anticipated sales price. So this may influence you to sell. But if the market is down and there is an oversupply of property, but a tight rental market, then holding may make sense.

Interest Rates

An important factor in calculating holding costs is interest. If interest rates are around 6.5% as they are now yet the rental yield is around 8% in the area you’re developing in, then holding the properties makes good sense. You may look at fixing rates for a few years, to take the risk of rates rising out of the scenario.

Taxation

You need to discuss your personal and/or company tax situation with your accountant before starting to develop property. There is capital gains tax to consider when selling as well as GST implications when selling brand new dwellings. These alone may sway you to hold. You also need to check on land tax to see if this will affect you if you decide to hold.

Most of Property Bloom clients develop to hold. This is because they choose to access the equity – which is created through the development process - through refinancing on completion. This means they don’t have selling costs like agents selling commission, capital gains tax and GST. Once refinanced, they can pull some equity out of the development if they choose.

Another deciding factor in holding is in the areas of the Hunter Region we develop in, we are getting very strong rental returns. We find that we can maximise the rent because the villas are new. Tenants do pay a premium to live in a new dwelling. Also the vacancy rates are less than 1%. The gross yield on completion can be as high as 9%. The yield does also depend on the size of the development. A three villa project will have a higher yield than a dual occupancy.

Another reason our clients hold is take advantage of the high depreciation benefits they receive on the new dwellings. On a typical dual occupancy, our clients are receiving around $17,000 in year one (based on Diminishing Value method). If you are paying lots of tax, then this is definitely one of the rewards of holding.

The final reason Property Bloom clients hold is because they want to build up a retirement fund and take advantage of future capital gains. In the suburbs we develop in, there is high potential for capital growth because of many factors including increased population, projected housing demand in the council’s Regional Strategy, spend on infrastructure and the benefits that the coal mining industry bring to these towns. The long term growth figures are over 12%. So if a client can create around say $80,000-$120,000 in equity through the development process AND then holds for ten years, they stand to receive 12% growth on average, each year. The future value of their development will be considerable.

Whatever your strategy, make sure you put down a solid plan that you feel comfortable with and set up a professional team to help you achieve your goals.

It’s not over till the fat lady sings!

2011-10-25T23:46:00.001-07:00

Last week we ran a massive race. It could be said it was the grand prix of property purchases. You see, I found a really, really fabulous development site for my client and there was no time to waste as I realised that the property was way under priced!

It all started with a call from the agent. “I’m listing a property you might be interested in Jo” she said. The grin on my face broadened as I asked a few crucial questions...what were these questions?

There were five:

What is the land size? I was told 1,000sqm (it was actually 1,039sqm)

How many rooms does the house have? FOUR (most houses in this suburb are 2-3 beds)

What’s it renting for? $265 per week (ears prick up...WOW this is way under rented!)

Where is it? Did I hear you say “on the corner”?... YES, it was a corner block!

What is the listing price? $270,000...hmmm I knew a four bed house on 500sqm (more than half the land) had recently sold for $272,000 a few doors up and it was not a corner block.

As I asked these questions and even though I actually received some incorrect answers, my heart was pounding. I knew this was an extraordinary property. As luck would have it, I was going to be in the Hunter the very next day so I could check it out immediately.

I sweetly asked the agent... “Can I inspect the property tomorrow?” After a few hours wait, the answer came by email....No, not yet as the contract had not been received, although they had a signed agency agreement. I picked up the phone and after a few minutes chat, I had gleaned the address of this property.

The next day I could think of nothing else as I hit the freeway. My curiosity was soon satisfied as I stood at the fence, peering through the bushes to grab photos of the property we were soon to secure for our client.

Had I not had a good relationship with this agent, I may not have been able to get the address. But she knew that my clients were always strong purchasers. As part of our process, before a client even signs up with Property Bloom, we ensure they have done THREE things:

- Sought independent financial advice to ensure property development is the right strategy for them.

- Had a preapproval from their lender on figures relating to the type of development we’d be project managing for them.

- Discussed the correct structure to purchase under and tax implications with their accountant.

So we were able to move quickly, before this property had officially hit the open market. We had a two day head start. We knew the property would hit the internet sites and be advertised in the local newspaper very soon, so time was of the essence.

I took lots of photos and rang my surveyor. Had he done a survey on this property in the past? Sometimes I find this to be the case and we can obtain a copy of an old survey. But, today he said “no, he had not”.

I rang my client and told him my feelings about this property. The house had a lovely Federation style with wrap around veranda. The large corner block was a no brainer. BUT...even without seeing the contract, I knew that the zoning for this suburb was changing to low density under a proposed Draft LEP. In the past we could have lodged a DA to build a duplex behind the house and complete a two lot Torrens Title subdivision. But I knew this was no longer an option. I had developed in this very street before, so I knew where the sewer main ran. I knew rental demand was strong. Most importantly, I also knew that being a corner block with kerb & guttering on just one boundary meant that council would condition kerb & guttering to be completed on the other boundary as part of the DA consent if we were to lodge a DA for a subdivision. Whilst the block was large enough to subdivide, this cost of approximately $30k - $50k for 50m of kerb & guttering including the bitumen sealing of the very wide road shoulder, could kill the project. This was the deciding fact for me. An inexperienced punter, not knowing the local council requirements, may have easily found themselves in hot water.

The answer for this site was a strong yield creating development strategy and we would build a two bedroom granny flat to supplement the four bedroom house. This would not over develop the block and leave adequate outdoor living space around each dwelling. We would not be asked to upgrade the road as part of this Complying Development. The property was opposite a school, the four bedroom house would rent to a family with kids needing some yard space and the two bedroom flat may well be rented by a retired couple of a single parent.

So with a little freshen up renovation, paint and new carpet, the house will rent for $350 per week. Remember we paid just $270,000 for it (full asking price was our very quick second offer, before the property was ‘officially on the market’). It will cost us $90,000 to build our granny flat and this will rent for $270 per week. The result is a 9% gross yield for my client.

By this time, we were well and truly sprinting to exchange. I knew as soon as this property hit the open market there would be mega interest in it. Little did I know, it would also be the catalyst for some very unscrupulous agent activity. We later found out that one local agent who DID NOT have a sales agreement with the vendor, tried to gazump us by talking directly to the vendor telling them he could bring them a buyer above asking price. You can only imagine how the listing agent reacted to this!

That’s why we were sprinting. Within 5 days we had received three crucial pre-purchase documents:

- pest & building report

- Ident survey

- Bank valuation and unconditional loan approval

My client’s conveyancer had to hound the vendor’s solicitor to make them act fast and move to exchange as quickly as possible. They didn’t know what had hit them. Usually it’s the other way around with the vendor pushing to exchange. My job was to keep all parties fully informed so everyone knew that my client was moving as quickly as physically possible to exchange. This communication process was crucial in the success of the deal. The vendor had told the agent to keep the property on the market until it was exchanged. So if for one minute, the agent thought we were moving too slowly, they could well have taken another offer to their vendor.

My message from this experience to you is....run loudly and fast...don’t ever let things go quiet! Manage the process till the end if you want to ensure you buy that property. As they say...it’s not over till the fat lady sings or in other words...until you sign the contract and exchange takes place!

Renovations with a twist

2011-10-16T23:08:00.000-07:00

This week I was really excited to find a fabulous property that we could add value to. Add value?…in what way I hear you say. Perhaps you are thinking through renovation…new kitchen, new bathroom, paint throughout, perhaps a deck out the back or even maybe add another bedroom? Yes, this kind of work would usually add value to a property. But actually, I was thinking along other lines and two words had sprung to mind….GRANNY FLAT.

By adding a granny flat to this property, we could literally double the rental return.

This four bedroom house, in a Hunter Region of NSW town, was renting at $260 per week. But as soon as I saw it, I knew it could achieve much more. It is a large block, over 1000sqm with dual access. By building a 60sqm, two bedroom granny flat on the property it could be rented for around $270 per week on its own, just for the flat. But it does get better….the house is way under rented. You see, I’m finding right now that as rental markets have continued to tighten over the past few years, there are some owners and managing agents who haven’t bothered to increase rents. This house was being rented by a long term tenant and quite frankly, she is on a very good wicket! The market rent in this town for a four bedroom house is actually up to $350 per week. So the house is under rented by a whopping $90 per week.

So if we spruce up the house a little, and this one only needs a paint and new carpet, we can increase the rent to $350 per week. The purchase price is $250,000 and we may spend $8,000 of a cosmetic reno, so already that’s gives us a 7% gross yield. Not a bad return when the average yield for houses in Sydney, for instance is 4.18%.

The granny flat will cost us $92,000 to build, this includes the design and complying development application fees. It also includes separate service connections for the flat so that we can rent it to a different tenant to the house if we need to. Remember, the flat will rent for $260 per week. If we add the cost of the flat to the purchase price of the house plus the small renovation costs, and include purchasing costs of stamp duty, legal fees, reports etc then we end up with a gross yield of around 9%.

Did I already mention that the average rental yield on houses in Sydney is around 4.18%?

Ok here is the twist. If you have a Self Managed Super Fund or are thinking of setting one up, you may be able to do all this from within your fund.

On 14 September 2011 the ATO released draft Ruling SMSFR 2011/D1 clarifying its views on key issues surrounding borrowing arrangements (Limited Recourse) as they apply to Self Managed Super Funds (‘SMSF’), allowing fund monies to be used to renovate property.

Importantly the ATO has given clarity to concerns of fund trustee’s in regards to repairs, renovations and improvements to properties held in SMSF’s under Limited Recourse borrowing arrangements. It is clear these can now be done within such arrangements. Borrowed monies cannot be used in all cases for such work; however other monies within the SMSF can be utilized.

This information comes from Nic Ellis, Director of The 2020 Group, who tells me he’s had more enquiry than ever on this topic. People want to utilize their Super to not just invest in property but to renovate and add value. With such a volatile global situation and stock market, Australians want more security around their retirement funds. Nick says he’s happy to see the draft Ruling as it falls in line with his company’s interpretation. The SMSF Limited Recourse borrowing for purchase of property has seen significant growth in recent years and this draft ruling will help turbo charge this sector of the market.

However, the area remains complex and care needs to be taken to ensure expert advice, appropriate structures and experienced administration of this process. So if you want clarity on this go to: http://go2020.com.au.tmp.anchor.net.au/index.php?pageID=10#sectionStart

In the meantime, if you think you may be interested in a granny flat development then let me know and I can provide more details on the property we uncovered this week.

Dual Occupancy - Strata vs. Torrens Title Subdivision; and the winner is...

2011-10-12T03:23:00.000-07:00

Last week I presented the pros and cons of Strata vs. Torrens Title subdivision for a dual occupancy project.

For this project, we are building two free standing homes. The land is not a corner block, so one home is positioned behind the other and they will share a common driveway.

Our first response was to try and achieve a two lot Torrens Title subdivision because it’s what most people understand when purchasing houses. Strata subdivision tends to be associated with multi unit developments, rather than house and land projects.

But, when you think about it, if you have two houses sharing a common driveway, then there should be some formal arrangement on who is going to pay for the upkeep of the driveway. A strata subdivision covers this off whilst a Torrens subdivision leaves driveway maintenance up in the air or for owners to fight over.

We asked our surveyor to set up the Strata Plan giving each house its own land on title, minimising common areas to the driveway and the dividing fence between the two houses. Being a small, two lot strata subdivision; it means that we’d be exempt from the more formal strata management of larger schemes. As the houses are freestanding and have their own yards, it is quite a simple process.

If our client, on completion of the development decides to hold both houses, they may also decide not to even register their subdivision immediately. We would have the approval in place and this has no shelf life, so they could register the subdivision years down the track when and if they decide to sell.

If they decide to sell one house and keep one, after registering the subdivision, all costs for managing, maintaining, repairing and insuring the common property are shared by the owners in direct proportion to their lot's respective unit entitlements. In this case it is an equal share; each lot has one unit entitlement, so it is very straight forward to manage. Each owner is responsible for 50% of any costs to repair or maintain the driveway/common area.

Small Strata Schemes (2 Lots)

The special provisions for 2-lot schemes are:

· the 2 owners automatically form the Executive Committee removing the requirement for an election

· a quorum for all meetings is when the 2 owners are present

· Building insurance is not compulsory where the two buildings are detached and there are no additional buildings on common property. However, both owners must decide to forgo insurance cover by unanimous resolution at a meeting. Each owner may then insure the structure on their own lot.

· If the buildings are detached, the owners can decide not to have a sinking fund provided there are no additional buildings on common property. Both owners must decide this by unanimous resolution at a meeting.

With the advent of the compulsory 10-year sinking fund plan legislation, 2-lot schemes managed to get special consideration. Essentially, a 2-lot scheme doesn't need to have a sinking fund.

Finally, there are no requirements for two-lot schemes to have any audit of accounts and financial statements. Reference: www.strataman.com.au

Property Bloom found by setting up the strata title subdivision in the right way that it was the better way to subdivide. Not only does a small strata subdivision (two lots) cost a lot less in development costs than a two lot Torrens subdivision, it is also a much quicker process.

The winner is, in our books is a Strata Subdivision for a dual occupancy where there is a shared driveway.

State Policy Will Help Empty or Feather Your Nest

2011-10-03T23:19:00.000-07:00

In 2009 the NSW Government released a new policy that has been well accepted by most property owners; including investors and owner occupiers alike. The Affordable Rental Housing - State Environmental Planning Policy (SEPP) is encouraging people to build more granny flats and Property Bloom has introduced this as an affordable development strategy that may help you to grow your property portfolio.

Property Bloom™ finds properties suitable for a complying development. This means we do not need to go to council for our approval. We can use a private certifier and fast track the approval process. We’ll then manage all the fine details to create a cash flow positive investment for our clients. A granny flat development is a really quick process as we use a builder who prefabricates the walls of the flat in a factory. From the time the slab is laid, the flat can be fully completed within a few weeks.

The new policy introduced by the NSW Government is a fabulous strategy as it allows more property owners to add value to their homes or investments in the short and long term. From a development perspective, it can be a quick and easy way to build your property portfolio and create high rental yields. Owners can benefit from cash-flow from the rent on two dwellings and also receive good depreciation benefits on the new flat. This means people can keep moving forward with their investment strategy. Unlike buying a single apartment for instance, which is likely to be negatively geared, adding a granny flat to a property that already has an existing dwelling can result in a cash-flow positive situation.

In the past granny flats were only permitted in certain residential zones, but this SEPP has opened up a whole new real estate door. The aim of the granny flat is to boost the supply of affordable rentals by providing housing for the elderly so families can support each other, as well as the younger generation who are living at home and are not in a position to move out just yet.

Government projections show us that single-person households are likely to be the fastest growing sector over the next 20 years, so demand is definitely there.

This policy means that if you have a block over the size of 450sqm you are able to build a granny flat no larger than 60sqm on your existing property; you may get approval in approximately 10 days as long as it is complying with the council’s regulations. Not only will this add value to your home, but you can rent out the flat and do your bit to assist the chronic rental shortage we are seeing not only on the northern beaches but across NSW.

Property Bloom™ focuses on developing property, including granny flat developments, in the Hunter Region due to its affordability and strong, diverse economy. The area is earmarked for long term growth in the NSW government’s Lower Hunter Regional Strategy. The 25 year plan, provides for 160 000 new residents and 66 000 new jobs. With the existing mining, retail, construction, tourism, low unemployment rate and low rental vacancy rates, the Hunter Region ticks all the boxes for a strong region to be investing in.

We are finding properties for around $220,000 that may need a small cosmetic renovation of around $5,000. With the addition of a 2 bedroom granny flat which we can build for around $90,000; it’s a really affordable investment and a great way to dip your toe into development. These projects are creating a 9-10% gross rental yield. This type of development suits someone starting out in developing or an investor looking to create a cash flow positive investment.

To take advantage of the NSW Government’s Affordable Rental Housing - State Environmental Planning Policy (SEPP) the regulations include:

· Granny flat must be no more than 60sqm in size

· Land must be more than 450sqm

· Can only be one house and one granny flat on the land

· The land cannot be subdivided

· Will need to comply with LEP of your council (contact council re building
requirements)

· It meets the requirements of the Building Code of Australia

For more information go to:
www.planning.nsw.gov.au

Hunter a Shining Star

2011-09-28T18:52:00.000-07:00

I’m often asked why I continue to focus my developing efforts in the Hunter Region. Good question. It’s been nine years since we started working in the area and I continue to be amazed at the research we uncover. Because when you are a developer you need to understand the dynamics of the areas you will invest in. As I’m sourcing sites and project managing developments for my clients, I need to be sure that the projects will be in the right locations. So I’ll explain a few of the reasons why the Hunter continues to be my shining star.

Firstly, the Hunter Regions is currently feeling the pressure from the much publicised “lack of housing” situation in Australia. My agents are telling me the same story over and over. Jo they say...”we can’t get enough quality rental stock, hurry up and finish that development would you!”

One of the reasons we are seeing rental markets in the Lower Hunter continue to tighten is the billions of dollars worth of infrastructure projects currently underway which is creating hundreds of jobs for both local and new residents. One three bedroom house that Property Bloom renovated as part of the overall development, a few months ago in Stanford Merthyr, a suburb under the Cessnock LGA, was purchased for $210,000 and was rented quickly for $325 per week to contractors working on the Hunter Expressway. The Newcastle Herald reports that there are 133 major projects worth $2.61 billion under way in the past year, with the majority taking place in the Cessnock local government area.

In Muswellbrook, Property Bloom has gained approval for dual occupancy projects and we are about to start building. Each time I update my feasibility the rental estimates increase. These clients will end up with close to an 8% gross yield and create a large amount in equity by developing in this town. Here, it’s the Mining Industry that is contributing to the desperate cry for housing, with employees moving to the town from all over Australia and even from New Zealand. Several mines are undergoing expansion in Muswellbrook. Contractors come to the area to work on the development works and then one the expansions are complete they will be replaced by full time workers as the mines increase their capacity.

John Boyle of John Boyle Real Estate in Muswellbrook reports “We have limited land releases available for the amount of growth in the area. This growth is mainly coming from construction employees who are working on infrastructure in the area and mining support and services,” said John.

“We have only six homes for rent at the moment. Before the homes are completed, they have been rented. We need the developers to get a move on and finish their developments”, said John.

This lack of housing is ticking all the boxes and bringing investors to the area as they can see the potential growth destined for this area. BIS Shrapnel, expects median house prices to rise a further 18 per cent by 2014.

Leading Australian construction analyst Cordell Information reports there are 310 major civil projects in the pipeline for the region, with most of those planned for the Newcastle LGA. The boom is being led by Upper Hunter mine expansion and earthworks, major road and rail projects and BHP-site remediation work.

With Maitland being the fastest growing inland town of NSW over the past few years, we are always looking for potential sites in this area. We recently found a 2000sqm piece of land where we’ll be building six villas for our client. This area is earmarked by council for ongoing growth and Maitland has all the facilities you need in a town to support the fast growing population increase.

Todd Fisher from LJ Hooker Maitland, says the lack of housing for current and potential employees is distressing. “I feel sorry for tenants as there is a 1% vacancy rate. It is not unusual for us to have 50+ people at an open house. It is unbelievable,” said Mr Fisher.

“The Mining Industry is bringing in a lot of new blood especially from Western Australia, Queensland and New Zealand”, said Mr Fisher.

To top it all off, there is the most beautiful tourist attraction in the form of the vineyards and rolling green countryside that makes up the Hunter Valley. In addition to the wine industry, we see tourism growing substantially from the ongoing famous Concerts in the Vineyards where international artists such as Elton John, Fleetwood Mac, Meatloaf, Dolly Parton, Rod Stewart to name a few come to perform. In addition there are spa, health and golf resorts and large five star hotel chains who have launched into what was not long ago a ‘bed & breakfast’ market.

For me, the main sparkle for this region is affordability. It’s one of the important factors that will drive the region in the short term, with a medium price well under all our capital cities, the Hunter will continue to shine on.

Surround yourself with only people who are going to lift you higher." Oprah Winfrey

2011-09-20T19:08:00.000-07:00

This week I sat around a table with a group of very important people. Why were they so important? They are the people who, at this stage of our development, could make a massive difference in the result of our project.

We were there to brainstorm the best way to build six villas on a 2000sqm block of land that I had sourced for my client.

This land is in a suburb of Maitland in the Lower Hunter Region. The main driver at the moment of this suburb is one of NSW’s largest infrastructure projects that is under construction right now; the Hunter Expressway. It will have an interchange less than 3kms away. So people living in this suburb will have very quick access onto the F3 to get to Newcastle or Sydney. They could also live in this town and still work in one of the large coal mines as travel time to Branxton on the New England Highway will be cut. Another driver for this suburb is that the town of Maitland has been the fastest growing inland town in NSW for the past few years. So there is good demand in this market.

Ok back to the meeting. The most important person there was my client, let’s just call him Jim. Whilst obviously important to me, he should be congratulated for taking on what is a very exciting property development. Jim has vision and can see the potential that I do in this project. Jim has a clear strategy; to create wealth through developing property as quickly as he can. He understands he has a set number of years before he retires and he doesn’t want to muck around. This is Jim’s second development with Property Bloom so he is well on his way. If all goes to plan (which is what the meeting was about) Jim will come out with a very handsome amount of equity that will be created through the development project. He can use this to pay down any personal debt and continue to build his property portfolio.

Also at the meeting was our town planning consultant. This man has invaluable experience working with the local council and gave us a clear strategy on how to tackle the DA. This was not straight forward as we need to consider the lending criteria and stage the DA in the correct way so it can be financed.

Next to him was our architect. When I met him, I was impressed to find out he used to be a carpenter. This meant he had actually worked on a building site! This is a rare find, so I immediately thought he was pretty important.

Our builder has been in the game for over 20 years and bought along his construction manager who is very experienced and managers all the builder’s projects. I thought this was a great initiative as this guy is going to be directly overseeing our build, so what a great idea to include him at the design stage. I recon he’ll take ownership having been involved at this level.

Also in attendance was the builder’s senior estimator who is the man who prices every aspect of the project, every square and lineal meter of it...so very important to have him there as he could tells us the areas where the big costs lay.

The final person was one of my project managers who had managed many projects not just for Property Bloom but for other builders so he has a strong understanding of the way builders work and also in the planning phases.

I had called the meeting as we had just received a price back from the builder on our initial concept plan and we wanted to see how we could bring down the costs to increase the profit.

The architect, construction manager and the estimator started bouncing off each other on the engineering of the two double story villas, was there a way to decrease the metal beams required? Did we need double story, yes. We were happy with the floor plan design of the villas, so our focus switched to the site levels and the extent of the retaining required. There was some fall on the land which meant the development would be stepped. It wasn’t long before an agreement was made to minimise the height of the walls so that they didn’t need to be engineered by clever slab design and site preparation. We talked about the best and most cost effective way to subdivide the villas and then discussed maximising the street appeal and front façades of the villas.

The table was buzzing and I found myself quietly reflecting on how lucky I was to do this for a job. I loved the interaction between my team and pondered on the value of the accumulated expertise of the people I had on my side.

We left the meeting on the final note of an amount that we’d be happy to wipe off the costs; the architect would proceed with more detailed plans and work with the estimator to ensure he had the details to deliver the next round of costings. The solutions that were found in that one hour meeting are very exciting.

So don’t try and tackle a property development on your own, as Oprah says, you can be lifted higher by others, get yourself a great team of experts that you can rely on and enjoy the process.

Developing a Positive Attitude

2011-09-13T04:18:00.000-07:00

Tuesday this week saw the most volatile day for Australian share markets in 27 years, with shares down 5.6% at one point. Apparently, it was the only day where the market was down by such a significant margin, only to turn and finish in the black. Talk about a roller coaster ride.

We are seeing very low consumer sentiment, in fact confidence has fallen for the past four months straight as everyone is spreading their doom and gloom thoughts.

This week, the Australian dollar fell below parity for the first time since March this year and the US Central Bank announced they would keep interest rates at zero for the next two years.

Retail spending across the country is growing at its slowest pace in 50 years.

This is just some of the data I’ve been pondering today when writing this column. It wasn’t hard to Google up the negative news, so when I was asked to write about my take on it all and how it may affect starting a new development, I really had to stop and think.

Because what is extremely interesting right now, as we see these turbulent times in the stock market and world economies, is that we are getting a lot of enquiry from people wanting to take the next step into developing property. We’ve never been busier. You might think this strange as developing is often referred to as a ‘risky’ strategy. And if there’s one thing we don’t need now in these volatile times is more risk.

But is developing really that risky? Not compared to what else is going around right now. By developing, you are adding value to your property. I’m not suggesting you build a block of 50 units, perhaps look at a simple dual occupancy development, creating two properties from one. By doing just this, you can also create equity rather than wait for capital growth to come. If you take it one step further and build three villas on your land, you will see the equity creation grow substantially with little further risk. Three villas may take only a little longer to develop than two. Minimise the risk by using a project manager to help you fast track your development.

Our clients at the moment are also holding investment properties. They want to add to their portfolios quickly and they see opportunity in today’s buyers market. Hmmm....on one hand there is the doom and gloom of what they are calling the ‘Second GFC’ and on the other hand we have clients lining up to buy development sites.

I think I know why. Over the past few years, we’ve seen our rental markets tighten and tighten and keep tightening. So those of us holding investment property have finally been able to reap the rewards of higher yields. In the meantime, our access to credit has loosened up, a little bit anyway. Most lenders are offering higher LVRs and softened serviceability criteria compared to the drastic changes that were made in 2008 as a result of the global credit crises. Construction loans are becoming easier to obtain for multi unit developments and I’m working with one lender who is now lending on Tentative on Completion valuations, meaning developers can borrow against the end value of the development, maximising their finance and using less of their own cash. As a result, investors holding high yielding investment properties can service a development.

Property Bloom™ develops property in the Hunter Region of NSW, but only in large towns where the government is spending up on major infrastructure projects and where there is growing employment. The coal mining industry has an impact on most of our towns but we still like to develop where there is a diverse economy. We choose towns that have already been earmarked for high growth to take up the area’s growing populations and where there is strong rental demand. In fact, these towns are powering along, some are even opening retail stores, it’s like they are on another planet, oblivious to what is happening in some parts of Australia and other parts of the world.

So is property development a good strategy right now. It’s a yes from me, but only in the right areas. I think we’re on the cusp of a growth phase that may be triggered when interest rates drop. The demand will come from mainstream investors wanting less volatility than the share market is offering. If you are adding value to your property at the same time as the market moves up, it’s a double whammy. I really think this is a window of opportunity rather than a gloomy dark place.

The Evolution of Building Costs

2011-09-05T19:52:00.001-07:00

Property developing can throw many different challenges at you and one thing I have learnt in this industry is there is always a solution to a problem. The trick is to understand what possible problems may arise and preparing yourself for them. Unfortunately things don’t always go to plan and as a project manager it is up to us to make sure the development gets through as efficiently as possible.
One of the biggest areas for problems is not allowing enough for building works.
When pricing a development and running feasibilities, it is important to understand that your building estimate is an organic creature. By this I mean the building estimate you start with will nearly always be different to the one you end with. It will evolve throughout the process as you obtain more and more details. Once you have all the fine details, the building estimate can be finalised to the fixed price builder’s tender.
If architecturally designing our villas, we generally follow this process:

1. Concept plan – this will show the number and size of villas on the land, but not much detail

2. Development Application (DA) plans – enough information is included on the plans to satisfy council

3. Construction Certificate (CC) plans –more detail, including engineer drainage and slab design

The starting point for our build estimate will be based on similar projects that we have recently completed and an allowance for the different site.
This progresses to an estimate based on the Concept Plan. Still a very ‘loose’ estimate as there is usually not enough detail on the Concept Plan for the builder to have all information he needs. The build estimate we have at this stage will tell us whether we are tracking within budget. If not, we can make the necessary changes required, perhaps reducing the size of the villas working with both our builder and architect to design the right dwellings for our project to be successful.
Once the Concept Plan is approved, the architect will proceed to full DA plans. It is here that much more detail is added and we will have our builder price the DA plans. Again, this does not give us a final build cost but we will be getting closer to the expected outcome. Once approved by our client, the DA plans are finalised and the DA is prepared.
During the DA process, council may request some changes to the plans, so it is important to understand we are still ‘evolving’ at this stage. We also need to review the Conditions of the DA Consent before we have more detail to finalise the build costs.
Once council have approved the DA, we will start to prepare the CC plans. Engineers will be briefed and a drainage and engineered slab design or footings for the foundations will be produced. More detail is added to the CC plans, finalising levels and double checking schedules.
Before we lodge the CC plans with our private certifier we will have our builder issue a third costing. It is this costing that will give us the final build costs...well almost. We still need to have the CC approved and ensure there are no further revisions to the plans required.
After we have the CC stamped plans, our builder will issue their final tender and building contract. This will be a fixed price contract; however, there may still be a few items that will be ‘provisional’. They are usually some site works, removal of fill and retaining walls. The builder may mark these items as provisional as they won’t know until works proceed exactly what the cost is. For instance, if rock is hit during the site cut, this will increase the site costs. If the site cut differs slightly to the plans, this may impact on the height of retaining walls. So these ‘provisional’ items will be charged at actual cost whether it is lower or higher.
So you can see how the build estimate must evolve through the development process and until your development is completed, you really won’t know the exact cost. It’s important you allow a contingency amount for any variations that may crop up along the way.
As a developer, you will embark on a challenging journey from start to finish and the path you choose can be simplified with the help of a project manager to guide you along the way. Always take the time to have full builder’s estimates done at each stage to avoid any nasty surprises.

Is developing property the right strategy for today's market?

2011-08-29T17:08:00.000-07:00

This week we’ve been inundated by reports in the media about an impending market crash. I watched in interest as one current affairs program sensationalised and dramatised a story by editing quick grabs of what a few different commentators were talking about.

If you missed the host’s introduction that ‘some markets were at risk of collapse’ then you’d be thinking that we were all doomed and there was an impending national market crash fast approaching. Little cuts to the US property market didn’t help. Later in the story we do find out they were talking about what was going on in two Queensland suburbs where two people had purchased units off the plan in a massive high rise complex in a very densely built up area (a risky investment strategy). Further into the story up popped a list of other ‘difficult’ suburbs around Australia. The interviews with several commentators were edited so much that I’m sure a lot of the really interesting detail they spoke about wasn’t included.

The problem with these reports is that they are designed to keep you glued to the TV and up the ratings, not necessarily to educate you on the topic. So if you were thinking about developing property and watched that program, you would certainly be having second thoughts.

It’s up to us to dig down to the detail, sift through all the noise and get to the facts. We need to become a specialist in the areas we want to invest in.

I do this by tracking a certain postcode’s medium quarterly sales going right back to 1997. I buy this data from Residex and to me it’s the best investment I can make as I can see:

- How fast the market grew during its boom years;
- The actual number of property sales each quarter;
- The median price has stabilised and enjoys steady incremental growth over
the past 6-7 years even though the number of sales seems to fluctuate; and
- I know the average 10 year growth rate is over 12% which works for me.

This long term statistic can help you compare different suburbs. I overlay this historical data with the current research I collect on these towns. I read regional strategic council reports, I look for government and council spending on infrastructure and what is happening in the community.

A $1.7 billion freeway link is under construction and will have an interchange in one of the towns in this postcode. We are seeing two major supermarkets opening in one of the towns and this is boosting employment. Another town under this postcode is enjoying incremental spend from the phenomenal concerts in the vineyards industry which is bring massive artists such as Elton John to the area and boosting the hospitality and tourism sectors. I know that the vacancy rate is under 1% and the type of dwellings that are in demand. Armed with all this information, I feel very confident that developing property in this post code is going to continue to pay off.

As a developer you need to be extremely confident about the location of your development because there are so many other factors that can affect investment, the more you can sure up, the better chance you’ll have of a successful result.

So is now the right time to be developing property? It will depend on the areas you are looking at. For me, it’s a resounding YES as I’ve done the research and know that my client’s projects in the Hunter Region of NSW are going to do well for them.

Infrastructure – Why It’s Important to Your Investment

2011-08-22T00:09:00.000-07:00

When I first decided to develop property, I was overwhelmed with where to start. I’d purchased four properties in Sydney and realised that I couldn’t keep buying negatively geared property, coming up with the short fall required certainly puts the pressure on. By this stage, the major cities in Australia had become too expensive, so I began doing the figures on areas within a 200 kilometre radius of Sydney.... Wallah... the Hunter Region came up trumps!
I found that I could buy large residential lots of around 1000sqm and develop them a lot more cost effectively than if I was to develop in Sydney. Everything was cheaper from the land purchase through to consultant fees and building costs. I also found the people there fabulous to work with. Most importantly, I found that there was a lot of infrastructure investment being made in the area.
Infrastructure investment is very important to an area as it stimulates the local economy by creating lots of employment and attracts more people to the area. Infrastructure projects create demand for rental property and other goods and services. As the projects progress, money is spent in the local community and there is a flow on effect to associated businesses. For instance, the local cafe sells more coffee and there is demand from contractors for convenience services such as laundry mats and take away food. Once the project is complete it adds to the local services. A great example of an infrastructure project is a new freeway being built where the benefits may be to cut travel times, improve efficiency within the roads network, relieve congestion of vehicles in certain areas and attract more people to the area as it is now quicker to access.
But you can’t just look at infrastructure investment when searching for a good location for your development; one of the other things you should consider is growth rates. The latest RPData figures show that although values across Australia have fallen, New South Wales regional areas such as the Hunter and Illawarra are still performing well with median house prices up 2.2 per cent and 3.6 per cent respectively over the past 12 months. Both are in close proximity to Sydney and this is a key reason for their standout performance.
John McGrath, CEO of McGrath Estate Agents points out that Newcastle is a great example of an area growing for local reasons.
“It’s shedding its steel city image and positive media attention is encouraging retirees, seachangers and investors from as far as Melbourne, Brisbane and Sydney. Great value is available and Sydney is just a two-hour drive. The median house price is currently $380,000, up almost 12 per cent since 2009,” said John.

Two weeks ago, the NEWCASTLE Herald revealed figures from BIS Shrapnel that house prices are set to increase 18 per cent in the next three years. It also states that residential properties in Newcastle are set to rise at the same speed as Sydney.

The Residential Property Prospectus for 2011-14 outlines an increased migration rate from Sydney, north to Newcastle and south to Wollongong with Wollongong experiencing higher price levels at the moment which will result in a slightly lower growth rate of 16 per cent compared to Newcastle and Sydney.

The migrations north and south of Sydney are the result of a housing shortage in Sydney and a combination of higher prices and increased interest rates according to the survey. It seems as though people are quite happy to commute to work one or two days a week to be relieved of the pressure of a huge mortgage.

When purchasing a property, we are told to “look for infrastructure” so just what impact can an infrastructure project have?
I’m seeing right now a massive tightening of rental markets in two major Hunter towns I’m developing in. One town has a large coal mine that is being expanded. After many years in the planning, this expansion has been approved and now contractors are flocking to the area to work on the infrastructure required within the mine for it to expand. Once the project is complete the contractors will be replaced with additional full time workers required to work the larger mine.
The other town is literally being put on the map by an interchange for a major expressway to be built. It’s a $1.7 billion infrastructure project and the impact is being felt. All of a sudden we have seen McDonalds, KFC, a new Coles supermarket and an Aldi store being built in this small town. Consequently, there are a lot of contractors working on the road works looking for rental properties and rental returns are increasing. Employment prospects are bright now in this small town.
Whilst we love infrastructure spend, other boxes the Hunter Region ticked when I was researching the area include:
- Proximity to Sydney
- Affordability
- Strong rental demand and low vacancy rates
- Undersupply of new housing
- Strong population growth – Maitland has been the fastest growing inland town of NSW for a few
years running
- Diverse economy, whilst the mining industry supports the area, the wine, hospitality, tourism and
retail industries are also providing many jobs
- Large lots of residential land
Developing property is challenging and getting it right takes a lot of time and research. But we are lucky to have a plethora of information and statistics provided to us by qualified researchers, companies and the media. So it’s up to you to sift through it all and work out what may be a viable location for your property development. Good luck!

Planning Permission or Punishment?

2011-08-16T01:55:00.000-07:00

Property developing can be very rewarding and can also be overwhelming, especially if you are building in an area that you are unfamiliar with for your first development. The best way to become familiar with your choice of location is to find out how the local council work and what they would like to see built in their area. Developing relationships with the local town planner could save you a lot of time and money and help make the difference between a frustrating development and a fabulous development.

To get off on the right foot, do some research on the type of new development you see driving around the town and what you would like to build. Then call the council and organise a meeting with a town planner. Sit down with them to discuss your ideas and plans and find out what will help your development to get across the line with minimal stress. You’ll also need to do some ‘light’ reading so you have the heads up on what is and isn’t permitted in the area. This way you won’t be wasting the town planners time asking questions that have been answered in their plans and you can go in with questions relating to your particular development.

Some documents to read include...

Local Environmental Plan (LEP). You will find this on the council's website. An LEP defines the land zones and outlines permissible land uses within these zones. You will need to be familiar with this as this will determine what type of building you can put on the land, low, medium or high density. Right now, a number of councils in NSW are preparing Draft LEPs so ensure you check to see if your council is working on a new LEP as when processing your DA, they will take the Draft LEP into consideration, even if it has not yet been gazetted.

Development Control Plan (DCP). This document contains more detailed provision than those in an LEP. Its information is specific to geographic zones or development types. It will give you a thorough understanding of the guidelines to follow when developing in your chosen area.

Regional Strategy Report (if the council has one), is used to locate areas with the greatest potential for development. The document will outline plans for land releases land rezoning, population and employment projections and will pinpoint specific areas that have been earmarked for future growth.

When you meet with a council planner, come prepared with the 149 Planning Certificate from the contract of sale of the property or land you are looking to buy. The 149 will inform you about things such as whether the land is in a bushfire or flood zone or if the land may be considered for complying development and it will tell you what may be prohibited on the site, whether it is heritage listed etc. If you are not sure about some of the information in the 149, then the planner can explain it to you. Also bring with you a survey and sewer diagram, also found in the sales contract.

Council Meeting Minutes will sometimes give you valuable information on other DAs that have gone to a council meeting and comments made about the developments. You can also read other DA Consents to get an insight into the type of Conditions that council may include in your consent.

Some questions you can ask the duty planner:

What kind of development is council wanting to see in the area?

It’s important you work with your council rather than against it if you want a smooth process. You want to align your project with council’s vision for the community.

Can they see any problems in developing this particular site?

They may see a problem such as access onto the road if it is perhaps a major road or they may be privy to information on neighbouring properties for instance.

Is the land in a flood zone?
Although this will be included in the 149 Planning Certificate, it is really important to ask this question. The planning certificate you have may be out of date or lacking in information. For example, the council might be working on a new flood study, but this won’t be reflected in the planning certificate. By the time a DA is lodged, the property's flood zone may have changed and it could be rejected. The council will have a flood and/or drainage manager who can give you up-to-date information over the phone. If the land is in a bushfire-prone area, be aware that you’ll need to comply with current fire-safety regulations, which will add to your building costs.
What is the minimum lot size?
This will be specified in the DCP r Subdivision Guidelines, however, sometimes council may be a little flexible on this, so it is an important question that will help narrow down your search for properties. If you are looking for land to subdivide, you will need to look for land more than twice the size of the minimum lot size.

Are there any issues that may arise in developing in this area?
This is a good question to ask a town planner, who will be aware of social issues outside the constraints of the DCP. For example I developed in an area where the local neighbourhood fought any DA that had been lodged for more than one dwelling on a title. I soon learned that the deputy mayor lived there and was rallying neighbours to fight these DA’s. I sought legal advice and was able to negotiate with council and gain consent as my DA met all the requirements of the DCP.

Once you have secured your development site, have your draftsman or architect put a concept plan together. You can use this to go back to council to show them your design and get valuable feedback from them at this stage. Also check if there are any specific reports that may be required to be included in your development application. These may include acoustic reports or traffic reports for instance. You can easily make changes at this stage and ensure that your DA is processed as quickly as possible.

After your DA has been lodged, check to see if your council has a DA tracker on their website that you can follow the progress on. If you see it is not progressing as forecast on the tracker, then certainly make a call to the planner assigned to your DA to find out what the hold up is. If there is no online tracker then make regular calls to your planner to keep on top of the progress.

All councils work to different timeframes according to their resources. Sometimes I am surprised at the speed of council, but mostly we find the process does take too long. So staying in close communication with your council can help fast track the process. Enjoy this important part of your development journey; you will learn so much from going through the planning process.

How to determine if a development site is Feasible

2011-08-07T23:42:00.000-07:00

You’ve found what you think is a brilliant development site. Now it’s time to jump on that roller coaster and start the ride of your life as you commence the analysis process. Will the project be feasible? What is feasible anyway?

Let’s find out. Feasible is really another word for “is it going to be financially worth it for you to spend your time, energy, money, blood, sweat and tears developing this site?”

Some advice I can give you about property investing and anyone in property will also tell you, to stay emotionally unattached to the property, as this is where bad decisions can be made. I have seen it many times and this is where it can all come undone.

Firstly, it’s important to determine your development strategy and your investing criteria prior to looking for a development site. Your strategy may include:

- Land Subdivision

- Renovate an existing dwelling

- Dual occupancy or low density development

- Renovate an existing dwelling and build new villas/units also on the land

- Medium density development

- All of the above

Your budget will help to determine your development strategy. A simple land subdivision will be less costly (but not necessarily quicker) than a larger villa/unit development for instance.

As part of your strategy, you will need to think about what profit margin you would feel comfortable making from a development. You may have heard about the ‘20% profit margin’ rule for developers? Once all development costs are taken from the potential sale result of the properties, (when selling the properties) there will be a 20% profit margin. Personally, I don’t always work back from a certain profit margin as I find this restrictive.

Most of my clients are looking to boost their portfolios and hold the new properties long term, so we also need to meet other criteria. By other criteria, I mean rental returns on completion. For instance, if a client wants to create a positively geared development the end gross yield will need to be around 10% and we will actively search for development sites in very strong rental areas of the Hunter to meet this objective. Other criteria will include the amount of equity we can create from the project. We strive to create over $100k in equity after our project management fee.

To determine the feasibility of a site, you will need to:

- Talk to an accountant who specialises in property and one who preferably develops property themselves as they can advise you on the best structure to purchase under and explain the tax implications when developing such as GST and CGT.

- Meet with a financial lender or a Bank to determine your budget and the best loan structure for your development. It’s important to choose a lender that offers construction loans and find out what their lending criteria is around this i.e. not all residential lenders will lend to you for a four unit site for instance. Check interest rates on these loans.

- Meet with solicitor to determine their costs. They will check for restrictive covenants or easements that may affect the land. They will also make sure services are available and connected especially if you are developing in a new area as well as finalising the deal for you.

- Read the local Development Control Plan (DCP) and Local Environment Plan (LEP) and speak with your council’s town planner to find out DA and CC (Construction Certificate) costs. Get friendly with the Town Planner to find out which developments they want to see in the area as this could save you time and money by getting it right the first time.

- Meet with an architect and builder to determine what you can build on the site. Some builders offer standard designs which will save you design fees. If they do this, then they will be familiar with the local planning requirements. If you are not happy with a standard design, engage a local architect to design specifically for the site. Get a quote.

- A surveyor will give you advice on the subdivision process. They’ll prepare your subdivision plan and estimate costs relating to the subdivision including sewer extension and service connection costs.

- Once you have a concept design and before you lodge your DA, meet with builders to determine construction costs. Try to get 3 quotes and make sure they offer you a Fixed Price Contract.

- Talk to real estate agents to determine the value of your development and rental returns on completion as this will have huge impact on the success of the feasibility.

- Research other costs such as Stamp Duty, reports, Insurance and Interest payments.

The aim is to keep the above costs to a minimum so you will receive a higher profit margin. All this information can be kept in a spread sheet or there are software programs to help you with this process.

Below is a quick one page analysis I do to determine if a development is going to be feasible. In this case the client is keeping the three properties we have created from one.

Purchase price three bed house on 1012sqm of land: $210,000Estimated set up costs, stamp duty, legals, pest & building reports, survey: $8,500
Estimated renovation cost: $8,000
Build cost for a two bedroom duplex (2 x villas) to be built behind existing house: $353,000
Contingency: $20,000Note: build costs includes all council, subdivision and other fees & charges. I always ask my builder to wrap all development costs into their contracts so my clients can maximise their lending.

Total development cost to create three properties from one in Hunter Region of NSW: $599,500

Estimated end values:

Renovated three bed house on 400sqm: $220,000

Two bed villas $260,000 each: $520,000

Total end values: $740,000

Potential gross equity to be created: $140,500

Note: lending costs are not included at this stage:

Estimated rental returns:

Renovated house $300 per week

Two bed villas @ $280 per week each: $560 per week

Total rental return: $860 per week or $44,720pa

Gross yield on completion of development: 7.5%

Gross Rental Yield – How it worksOne of the first calculations you will need to understand if you intend renting the properties on completion is the Gross Rental Yield (GRY). To calculate the GRY you need the annual rent and the total cost of the development. If we use the above example:

Annual rent: $860 per week x 52 = $47,720pa
Total development costs: $599,500
Gross yield: $47,720 divided by $44,720 = 7.5%

The yield on the above example of 7.5% is ideal at the moment as anything over 7% is considered to be a strong yield. Some of our developments are creating up to a 10% gross yield.

Once you have obtained the estimates for your development and the figures are looking good, you have some actual estimates to go back and speak to your lender about and ensure you can finance the project. There are various finance options so seek professional advice on the best one for your situation. Then before you purchase, ensure you have discussed the best legal entity to be purchasing under for your individual circumstances with your accountant.

When your finance is preapproved, you can then start to negotiate the purchase. Always ensure you have a preapproval before making an offer so you can move quickly to exchange. This is a good negotiation tool. Ask for a longer settlement and a lower deposit which will reduce your holding costs.

There are many more things to consider for your site selection, so it’s important you do your due diligence. In the development game, time is money. So you will need to learn to assess a potential site very quickly. One way to fast track the analysis process is to engage other professionals to do this important work for you. If it is your first development then work with an experienced project manager so you can learn from them as you progress through the complicated and challenging journey of your property development. Enjoy the ride!

If you are interested to learn more about what I do, please go to http://www.propertybloom.com.au/ or give me a call on 0418 293 575

Choosing an Awesome Development Site

2011-08-01T20:17:00.000-07:00

What exactly is a property developer? I quite like this description found on Wikipedia;

“Developers buy land, finance real estate deals, build or have builders build projects, create, imagine, control and orchestrate the process of development from the beginning to end”

I especially like the words ‘create, imagine and orchestrate’ as this is exactly what I do. When I find a development site, I stand on it and spend some time visualising what can work on the land, then I dissect this down by considering several factors including:

The local market demand – what do people want to buy or rent in this are?

Local economics – what is the income of the people living in this area, where do they work, what can they afford? What infrastructure spend is going on right now or planned for the area?

Population growth – what is the growth right now and what is it forecast to grow to?

Budget –how much have we to spend on the development process

Market growth rates – what historically has this suburb been growing at and what are you expecting it to grow at?

End values – what are similar dwellings selling or renting for now?

Choosing the right area in which to develop is crucial. It requires research, research and more research. Most first-time developers can’t afford to develop property in areas such as capital cities where everything- including land, building costs and professional services is more expensive. Instead, I suggest you cut your teeth on an affordable area within a three-hour radius of a capital city.

Look for areas that:

- offer promise; perhaps going through a gentrification phase
- going through a growth phase; median prices are historically performing well

- where the population is expanding;
- where diverse industries support employment;
- where private enterprises, such as large retailers or mines for example have announced expansion plans.

All these factors result in strong rental and sales demand. Once you’ve settle on a location, search the area for land in close proximity to schools shops and public transport which will attract buyers or renters.

Below are tools to add to your research in finding the perfect location for your development. These include:

Newspapers – subscribe to the local paper to keep up to date with community news

Property Data sources – where you can purchase specific reports

Property Magazines –

Web sites - realestate.com.au, domain.com.au and Property Observer to name but a few
Budget Reports – look at federal and local government budget and spending reports as this will show you where money is being spent on infrastructure and you will find areas that are pin-pointed for future growth.

Planning Information- from your state planning body and council’s website
Once you have found the area you want to develop in, it then comes down to good site selection. To get ready to assess a site, you will need to:

- have narrowed down your area or suburb where you want to develop;
- completed extensive due diligence on the economic and social factors of the area;
- know whether the suburb has a high rental demand;
- know what the vacancy rate is and what the median sales price is;
- understand council’s Local Environment Plan (LEP) and Development Control Plans (DCPs) so you
know what the council will and won’t allow in your area.

You need all this information to determine if the land you are assessing has good development potential... or not. The next step is to find the right property within your chosen suburb. This is called site selection.

The site selection criteria is based on a number of factors including:

- Location

- Aspect

- Slope

- Frontage

- Depth

- What’s on top of the land

- What’s underneath the land

Location of your development site is obviously important, we all know that being close to community amenities is top priority whether you are planning to keep your new dwellings or sell them, being close to schools and universities, shops, transport and medical facilities is very important. You should check out the neighbours on all sides of the land to make sure there are no dog breeding kennels, chicken coups, car workshops or noisy businesses that may make the location undesirable for tenants. Ask the locals about crime rates and take a drive around the streets to get a ‘feel’ for the area. Trust your gut feel or intuition; we will often get an instant negative feeling if something is not quite right.

Aspect is the direction the land faces; north, south, east or west. It’s important to have the living areas of your development as close to facing north as possible to maximise natural light. Aspect is also very important for the energy rating of your development.

The slope of the block is important. Most people think a dead flat block may be good for developing, whilst it may be better than a steeply sloping site but you may need to build up the site with fill and retain it to meet drainage issues. So the ideal block will slope or fall slightly to the street which will assist with natural stormwater runoff and drainage.

A wider frontage or width of the block is usually desirable particularly if you are looking at a medium density development as you will be losing some of the width to a driveway to access the rear dwellings. Some councils have a calculation as to how wide the driveway needs to be based on the number of dwellings. So make sure you have taken this into consideration and have a wide enough block.

Depth is important and will determine how many dwellings you may get onto the land. Be careful with very deep blocks as the deeper the block, the longer the driveway. A long driveway can add thousands to your costs. You may also need to run services such as sewer, water, gas and electricity from the front of the block to the back, depending on where the connection points for these services are located.

What’s on top of the land? For a quick assessment, take a look around to see how many large trees may need to be cleared, a mature gum tree can cost up to $5,000 to remove, so if there are a few of these, you will need to allow more for you site clearing costs. Also look out for asbestos sheds on concrete slabs which are expensive to remove. If there is an existing house that you plan to keep, check there is good access to the back of the block for the large site clearing machinery that may be required.

What’s underneath the land? In some regional areas, you should check for old mines. If you know it’s a mining area, then you can apply to the local mine board for a subsidence report. You can still build over an old mine, but it adds considerable costs to correctly under pier the project for stability. Is there a natural water course running under the land? The soil type is also important. In most cases, you won’t know unless you commission a geotechnical report which is advisable to have done if after all your research you are sure this is the correct site. It may cost around $800 but worth every cent if it means you can more easily assess projects viability. You will also need to know the location of the sewer line, sewer junctions and sewer manholes as some of these may be built over but one of them most certainly cannot. You can request the sewer diagram from the agent or the local water authority. A detailed survey will show other important things so again, if you are serious about the site, get a detail/contour survey done as you will need this to have a builder or architect work on a design for your project.

There are many more things to consider for your site selection, so it’s important you study what is required. Or engage other professionals to do this important work for you. A development project manager will be able to assist you with every stage of the process. If you are interested to learn more about what I do, please go to http://www.propertybloom.com.au/ or give me a call on 0418 293 575, I would love to help and are happy to teach you along the way

Ladie's Laying Foundations....literally!

2011-07-24T20:56:00.000-07:00

Did you know that women are two and half times more likely to live in poverty in their old age than men? By 2019 on average, women will have half the amount of superannuation than men have?* and 40% of women over 50 will be single through choice, divorce or death of their partner.

As at February 2011, the gender pay gap in favour of men was 17.2%, based on average weekly ordinary earnings, and it increases dramatically when we look at different occupations. For instance, professional women are earning 32.4% less than their male counterparts, sales women are earning 39.4% less and community and personal service workers had a gap of 28.9%. source Australian Government Equal Opportunity for Women in the Workplace Agency

So what can we do about it? We all need to take control of our future and plan ahead for our retirement. Building a property portfolio is a great way to complement our superannuation.

Right now, I’m seeing many women not just buying houses but taking on property developments. My business, Property Bloom™ project manages developments for others and I’ve noticed a massive increase of women taking the next step into developing property.

For every male client I have three female clients. And these women are not afraid to take on a little risk. They are developing up to four properties from one. I think in general, women are in a hurry to build their property empires. This doesn’t mean women are rushing in; they are very astute and carry out extensive research. They can see that property development can boost their portfolios quickly. They are all extremely busy juggling work or their own business and raising children. I can totally relate to that with two young boys of my own!

It is still very expensive to develop property in many capital cities around Australia. Land prices, building costs, labour and developer charges are high yet block sizes are small. So Property Bloom™ focuses on the fast growing Hunter Region of NSW for their development projects.

There are many factors that will see the Hunter Region continue to grow. Whilst the resource sector plays a big role in the local economy of these large regional towns, they are certainly not reliant on mining. There are many other sectors making the areas we develop in very diverse. With 133 major projects underway there are lots of employment prospects. Population growth is also tracking well with the town of Maitland is the fastest growing inland town in NSW. The Lower Hunter Regional Strategy, a 25 year plan for the region has earmarked several suburbs as major residential hubs with significant growth planned. There is a large amount of investment being made in local infrastructure projects such as the Hunter Expressway, a $1.8 billion freeway link that is currently under construction. The cherry on the top is that it is only a two hour drive from Sydney.

The land in the Hunter is affordable and the long term growth trends are over 10% in the towns we develop in, with rental markets tight, the area is perfect for investing and developing.

Let’s take a look my client Angela’s three villa development project. I love Angela’s attitude, she’s an avid property investor, mother of two children and working full time. When I found a large piece of land, just under 2,000sqm in a growing suburb of the Hunter I thought it may be too large a project for her. Angela’s budget allowed for a three villa project; however this land was large enough to build six. So I came up with a plan to subdivide the land, get a DA approval for 3 villas on both lots. Then Angela could sell off one of the lots DA approved.

Land cost 1900sqm: $265,000

Stamp Duty, legal fees, survey: $2,500

(she will save on stamp duty under NSW Builder’s Bonus scheme)

Works for a two lot Torrens Title subdivision: $30,000

Total $297,500

Net price after selling DA approved lot @ $180,000 (includes selling costs)

Cost after selling lot: $117,500

Design costs to obtain DA & CC for villas: $15,000

Estimated build cost for 3 villas: $680,000

Contingency: $10,000

Total Cost: $822,500

Estimated end value of each 3 bed villa @ $350,000 each x 3 : $1,050,000

Estimated equity to be created (equity less cost): $234,500

The rent on 3 villas will give a 7-8% gross yield. So this will be a great development for Angela. She can choose to

use the equity we create to pay down personal debt or for her next investment or development.

Source development sites
Run feasibility reports
Brief architects and designers, interpret plans, estimate costs
consult with architects, engineers and other technical workers to make sure that design intentions are met
plan construction methods and procedures
coordinate the supply of labour and materials
direct site managers and subcontractors to make sure standards of building performance, quality, cost schedules and safety are maintained
study building contract documents and negotiate with building owners and subcontractors
control preparation of cost estimates and budgets
make sure that building regulations, standards and by-laws are enforced in building operations
negotiate discounts
assist in finding tenants

*(Queensland Government (2009), “Women and Superannuation”, Focus on Women, Office for Women, Information Paper

**www.equalpayday.com.au

http://www.eowa.gov.au/Information_Centres/Resource_Centre/Statistics/EPD%2012_V2_May2011_OnlineVersion.pdf

To learn more about Property Bloom™ go to http://www.propertybloom.com.au/ Or please phone 02) 9905 9955

or 0418 293 575.