Thank you for tuning in to
Leverage Addicts. And I'm just going to go over this
development deal that is already in the course.
The reason why I went unconditional and, you know,
I took the move on this, it was purely just a cash flow play
and knowing, like just just understanding the fundamentals of this property.
So it's like - this is in Mount Wellington, which is like
very close to one of the biggest malls, busiest mall in Auckland, Sylvia Park.
And this piece of land is on terrace apartment zoning.
So it's got dual income.
So at the time in lockdown, I'm buying it with a 5% cash flow
and interest rate at the time was only around 2.8, I think 2.8%.
So I got 5% cash flow in Auckland, in a decent location
and it was a positive cash flow property at the time.
So it just made a lot of sense.
If I can just lock in the interest rate even at 3.2%
for three years, I know I can get through the slumps
without worrying about the property too much, if that makes sense.
So that's that's why I made the decision
it was purely understanding the fundamentals,
which
is if you guys remember for the development properties
you've got, FFS, which is flat, relatively flat,
as you can see here, contour is pretty good.
And then you've got free of flood planes and then you've got services.
Now at the time, like if you look at the site, there's no stormwater on the site.
But what I did was I got the property files
and because this property like this minor dwelling was relatively new.
So so I thought about, well,
it doesn't have stormwater, but how does it get a minor dwelling?
So then we did the property files, we ordered the property files,
and we found out that this property like this property has soakage.
So that's how they were able to build the minor dwelling.
So literally, they dug a hole here.
You can see you can actually see the stormwater hole here, manhole.
So they basically dug a manhole and then they, they they plug their stormwater.
So what it means.
So it just means that the ground is like good for our drain
draining for water, stormwater because it's volcanic rock.
So that's what they already had on site.
And so because of that, it made like
it made sense because it's got everything and it was at a very good price.
The cash flow was good.
And so the latest valuation for this property,
if I have not shown you guys yet,
I'm just going to show you guys right now.
So yeah, so this is the current valuation, 2.45 as it is.
And then you've got the lot one and two.
I'm just going to show you the rough
consent so you can you know what it is.
So basically it's 8 lot. And then you've got the
two bedrooms at 850 and then the three bedrooms that's 950.
And I've just got the building
building proposal from the, from the construction company.
I've got a one month quote I can take.
So the costs have gone up significantly.
Then what I, what I intended and I was,
I was really conservative with my with my costing.
So I'm going to show you the actual difference of what's happened
with this particular site. So
this is the
actual numbers that you saw inside the course.
So what what we bought it for was 1.1 to 5 million,
and then it was an eight lot subdivision.
So the built costs back in the days like in 2020 was probably closer
to like 2400 per square meter, but I use 2750
and then the infrastructure cost was much lower as well.
Right?
So if you look at the per lot for subdivision cost,
I only used
four - sorry it'll be seven.
So around 50k.
Like that was.
No that's not right.
Sorry it's this one here.
Yeah it's around 120K at the time.
That's what I used.
Okay.
And, and then you've got your financing costs,
so this whole project at the time cost 4 million.
That's what I projected in 2020.
But the sale price was significantly lower as well.
So as you can see back then I just projected the price to be 650.
This is just keeping it with within the government
I guess the new build scheme that you can have the government deposits
so I thought yeah, it shouldn't go lower than that just because that's,
that's where all the new builds are sitting because of the government funding.
So at the time the gross margin was around 28% and the net margin was 20%.
So it was a good deal back there, but now the costs have gone up.
So what does it look like now?
So basically I,
I put this all on a spreadsheet like this to show you guys,
so I got quoted for the build costs
this is going to be a fixed price at 3237.
So I know the margins are pretty fat because they're willing to do the
fixed price for us
because this is a
relatively bigger developer, I guess construction company.
And so they, they can lock in the price
for the materials and so as you can see, this is significantly higher
than what it was before, which was like my conservative figure was 2750.
Now the cost has gone up to 3237.
Okay.
The this is, this is the architectural cost
and all the engineering costs like all the engineering reports, survey report
I haven't got the cost for the water metre and final approvals yet
for the legals and the titles, but I'm just assuming around 5000.
This is based on like the Ashcroft homes.
I guess that's what they quoted me before to to get the titles issued.
And then these are all the cost quoted
and he believes they will be under what he quoted me
and so these are the actual costing that I got
for all of the site works and the infrastructure
it'll tally up to around 620,000 including GST.
So the other thing that I added in here is a 2% contingency
so just talking to another developer
friend, just giving me some advice on the construction proposal,
he said you might want to like do variations on like the, you know,
like stuff in the kitchen, you know, like some, some of the lighting stuff.
In the end you might want to upgrade to better stuff
and then also with landscaping, you might end up wanting more
and you might spend more money.
So he gave me some advice on that and said, hey, look, you better
add some margin into your built costs.
So he said like at least 50,000.
But you know, I just put 2% as around 84.
So now you can see my construction cost
has gone up to 4.4 million
from a total cost from 4 million.
It went up by like 400, 400K, which is around 10%.
Quite reasonable I guess.
I guess like the actual cost has gone up by like 20%
if you saw the construction inflation is around 17%
but the
yeah, but because I was more conservative here, like it's only 10% difference.
But the great thing about the current market is obviously we have experienced
like significant growth in terms of the values.
So you can see our proposed values here was 650 and the end value
now has gone to 7 million, whereas this was only 5.2 before.
But just in saying that though
like about a million of this value is just from the land.
So the margin actually haven't increased all that much.
So that's so I mean it looks like there's a lot of margin here in here
based on the, the price that I bought if for.
I mean, yeah, I think I think we're very fortunate to be in this market
where the price have gone up significantly.
So the construction can start as soon
as - as as short as three months,
but potentially probably going to be more likely four months
because he reckons the like he needs he needs that amount of time
just to make sure that all the materials arrive
so if we don't look at today's value, so what what
what's going to be different?
Like, let's say if you were to do something like this, right.
Obviously potentially construction costs is going to be slightly different.
And also the the price of the land is going to be significantly different.
So I think if you were to buy something like this, today,
maybe you could potentially buy it for 2.2 million.
Okay.
But keeping all of the costing exactly the same.
You can see if you buy this for 2.2 million,
the margin is still around
like that 23 and a net margin of around 17%.
So you can see it's not too much difference from what it was in 2020
when we projected like we're working with bigger numbers,
slightly higher margin net net profit around 540.
But because this project
is going to be bigger you need more money it's 662,000 net profit.
After all your GST and tax