Typically a dual occupancy development where two dwellings are built on one lot can create some pretty good equity. You see it’s fairly simple to understand that if you take one piece of land and get two dwellings on it, each dwelling is basically benefiting from half the cost of the land and this is where a lot of the equity is created, plus the economies of scale building two dwellings at once also contributes.
Lately I started studying some suburbs of the Hunter Region in NSW where Property Bloom manages developments for our clients that we would not normally target for dual occupancies or medium density development. Mainly because there are usually covenants on the land in these new estates so this type of development is not permissible. I watched the sales on the more premium houses and amazed at some of the results. Some of these suburbs we were seeing house sales exceeding the median price for the LGA by around $150-$200,000.
For a single house, the land price may be lower than that of a dual occupancy site as you don’t need such a large block (although a larger block will add to the end value in some locations so needs to be considered). You must find a location where homes are selling at a premium and there is good demand then find a way to build them as cost effectively as possible to create your margin.
You need to make your profit from low construction costs and you need to be very clever with your design, fittings, decoration and landscaping – all areas you can cost effectively add value with.
The key to this strategy working is also location. Find land within a short distance to strong sales references and build something similar. Then you have a good idea of what your house should be worth and you can work back from there as you get your construction quotes in.
It’s all in the numbers, if you get the land at a good price in a good location with strong comparable sales and the build cost is right then there is equity to be created. It won’t work in all areas but it is working in the Hunter and that’s why we’ve just launched our new single house build strategy. A project management service from finding the right land, using discounted rates with our local builder to finding tenants on completion. The depreciation benefits are good too. This strategy allows clients on a budget to dip their toe into development on a single house build and reap some of the rewards of a larger development project.
For around the same cost of a one bedroom unit in Sydney you can build a four bedroom house in the Hunter, is that worth thinking about?