"He wanted to know if he should sell the front lot off with approval or build the duplex and keep them or sell them."
How to determine whether to build on your land or sell it
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I met an interesting chap today. He has developed property before and is experienced but was looking to fast track his property portfolio this year. He also owns and runs a large business and doesn’t have the time needed to focus on property developing. Although he loves it, finding suitable sites was time-consuming. He needed some help because he understands too well the rewards developing can reap and how time equals money.
I’m happy to say that our meeting today may have made him $110,000 and we haven’t even located a site for him yet! I’ll explain how.
He is currently holding two development approved dual-occupancy sites, and one of the questions he asked me was “Jo, should I build my approved duplexes or sell the land DA approved? Which will make me the most?”
A good question to ask. His strategy was to accumulate property quickly and hold for the long term, but what was most important for him was to create equity. So, what scenario would be more profitable?
To build or not to build, that was the question.
I thought I’d nut it out for you today so you can see how I answered him.
OK, firstly you need to know that the approved site he was thinking of selling is part of a prior development. He had purchased a large block of land with an existing, yet run-down house. He gained approval to build a duplex behind the house and subdivide, essentially cutting the block in two. He has already completed this part of the development. Then he gained a second approval to demolish the old house and build another duplex on the newly created lot at the front.
He wanted to know if he should sell the front lot off with approval or build the duplex and keep them or sell them.
There are several considerations:
Remember he had developed the block originally and the old house was renting for $180 per week, which helped cover holding costs so he could easily sit and land bank if he wanted to.
He paid $200,000 for the land with original dilapidated house; it was on a large block with separate access at the back.
The cost to build the duplex at the rear of the house was $350,000, including subdivision costs.
The two villas he built were valued at $300,000 each.
So on this part of the development, his cost was $200,000 (land) + $350,000 (build) = $550,000.
Remember the two villas are valued at $300,000 each. So he’s made $600,000 less costs of $550,000.
His equity is only $50,000 so far, but he still holds half the land with the old house on it.