1. Client Brief
Referred by their financial planners, a busy professional couple came to Capital Property Advisory initially looking to acquire a development site. CPA were engaged to provide buyer’s agency services initially, before being engaged to provide end to end development feasibility and management expertise.
The clients saw the benefit in engaging CPA as they wanted to increase their exposure to property, but, with two demanding jobs, were very time poor. On the back of our diligent research and search process our acquisitions team was able to source and secure a development site in an area we felt would outperform from a growth perspective throughout the project timeline – every developers goal. As it turned out, from the start of planning to completion, the suburb increased in value by 6.3% all while the overall Perth market fell by 3.9% (Source: REIWA January 2020).
2. Research, Search & Negotiation of Price & Terms
The property was originally secured pre-market via an agency relationship at $705,000. Further negotiation during our due diligence period produced an additional discount of $10,000 – reducing the final purchase price to $695,000.
As outlined above, the market outperformance of over 10% in a subdued market is sound evidence of CPA’s ability to research and secure properties in areas that our proven market research suggests have the potential to outperform the Greater Perth market.
3. Project Feasibility Summary
|Estimated Development Costs||$1,627,324|
|Projected End Sales Value||$1,860,000|
|Projected Profit Margin||$232,676|
|Margin on Development Cost||14.30%|
|Internal Rate of Return||16.73%|
|Project Timeline||22 months|
4. Design & Subdivision
The target property had a number of elements that caught the attention of our buyer’s agent. The existing duplex pair provided the option for an above market yield during planning. The extra wide frontage allowed us to create two street-front homes – always a desirable and more profitable outcome.
Our comprehensive development due diligence process uncovered a number of potential issues before it was too late, including some boundary and significant tree issues that were resolved at the seller’s cost. We pride ourselves on our attention to detail and our strict process-driven approach ensures we can quickly and efficiently review all potential development outcomes on a site, in line with State and local council planning regulations, while factoring in sub-market supply and demand and potential feasibility outcomes to ensure the final result is the best for the site, the target market, and most importantly… our client.
5. Development Outcome
Our clients are delighted with the built form designs and financial outcomes. If the dwellings were to go to market for sale, the client has potential to return a very healthy $230,000 over the 22-month project timeline. However, the client’s brief was to develop and hold their investment. The CPA Leasing team advertised the project with a view to secure three suitable tenants in short order. Interest from prospective tenants was overwhelming with over 30 enquiries received in the first week and tenants placed in all three within days of handover from the builder. Gross rental yield on the overall investment exceed 4.4% p.a. and is expected to increase in the short term through our proactive approach to increasing rents in line with market movement.
The clients were ecstatic with the outcome and immediately engaged us to start the search for their next project!
If you would like a closer look at the completed project check out our 3D Virtual Tour HERE and the Floorplans for each villa HERE.