Property Bloom  just finished a great little duplex project for a client. The site was in an older suburb and had a derelict house on it and it came with some challenges. 

When you are looking at a knock down, it's important to factor in a few things. One of the biggest of course is the demolition costs. These can range dramatically in cost. As we had time whilst waiting for the DA to be processed, I ended up getting no less than seven quotes. The old house was full of asbestos of course so that was factored into each quote and there was a big garage slab to be removed. The highest quote I got was $22,000 and the lowest was $13,000. This was a contractor who actually recycled a lot of the materials, on selling them and was therefore cheaper.  

Lesson number one, it is worth the efforts of getting lots of quotes. 

The cost of the site was $160,000 (negotiated down from $180,000) plus demolition costs bought it up to $173,000. This was a nice big 876sqm block of land located close to the school and a good price to pay for a dual occupancy site. It had a 20m frontage but there was no kerb and guttering to the front of the house, just a gravel shoulder.  

The site had a slight fall to the rear and we planned to build up the site to drain to the street. But council had other ideas and one of the conditions of our DA consent was to drain to the rear where there was a gravel laneway. The problem was that there were no drains in the laneway and we had to install a dish drain to direct the water to the nearest cross street, which was pretty ridiculous considering there was no drain there either. 

Lesson number two, look for land that has establish drainage in the street, preferably with kerb and guttering.  

The next hurdle we found building in an old suburb was the water and sewer infrastructure was aged. We were asked to install a new water service which included boring under the road to pick up the main for the water service and install a new junction as per the minor works contract issued by the local water board. This added about $7,000 to the development costs effectively wiping out most of our $9,000 saving on the house demolition.  

Lesson number three, make allowances for infrastructure upgrades. These are not required in new land estates. 

The good news for this development was that the villas were in high demand, being in an older suburb where there was very little new housing. Typical dwellings consisted of eighty year old miners cottages with a sprinkling of 1950s brick homes.  All through the construction phase I had people phoning me wanting to rent them or buy them. Our client was building to hold and so as we neared completion, I was able to have both villas leased for our client before Handover. We have a great relationship with our builder and they allow us to hold open houses and show through prospects before Handover which is invaluable and means cashflow from the moment the final builder's drawdown is paid. 

This little duplex project ended up costing $570,000 including land and construction costs to build two x three bedroom attached villas (a duplex).  Both were rented for $350 per week, giving a gross yield of 6.4%.  There was some equity created as well with the villas worth about $320,000 each.

There are advantages and disadvantages of a knock down rebuild project. It's important to get the land cheap enough to compensate for any additional issues that may arise due to the older area.