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Alastair Moore: Maximising rental returns - a case study

Tuesday, April 14, 2020

IMG SOURCE: KEITH HAY HOMES

A little note from us:

Though the effects of Covid-19 are being felt acutely across the board at the time of this article being published. We feel that it is important to, as much as possible, keep with our original content schedule to maintain normalcy and provide a balanced range of information to help our readers make better decisions long term. This article was produced before current events without accounting for or addressing the extraordinary circumstances we find ourselves in right now. It is not intended to distract or diminish the current challenges of Covid-19 for property investors and their tenants.

 

Project Description

When developing properties our customers come to us with a variety of wants, needs and goals. When investigating properties for development there is not one way to develop or a cookie cutter approach. We look at what your situation is and how we can then maximise the property to meet your long-term goals.

In this scenario, the customer is looking to get an investment home with a high return. Their property was on a sloping corner site with the existing house in the middle of the section. There was potential in completing a subdivision, however they were not looking at expanding their portfolio or getting a capital gain, they were just focused on the return on investment.

When investigating any property, there are number of challenges to overcome, and this is just the nature of developing in Auckland.

 

Customer Situation
  • Although the proposed location could have been sub-divided to increase their immediate capital gain, the customer wanted to limit their overall investment.
  • Novice in building and did not know what their first step was to develop the property and who were the consultants and professionals that needed to be involved in the project.
  • Has existing tenants on the property and wanted to minimise the disruption on the property as the tenants were losing some of their yard space and were not keen to endue a long build on the property.

Due to the location of the existing house, the new house could be built in a Keith Hay homes yard then delivered to the customer’s house which saved a lot of disruption on the site.

 

Project challenges 
  • Flood Plain - The proposed site was in a flood prone area and this can be common in a lot of suburbs in Auckland. The requirement is to build a certain level above the highest level of the flood.
    • Solution: Keith Hay homes build on timber pile foundations so it is not expensive to build up foundations. The standard foundation is 600mm off the ground so it is not difficult to lift enough for flood zone.
  • Slope of the site - The site drops down to around 2 metres. The customer was told this is going to be expensive to build on with the amount of fill required and retaining walls .
    • Solution: Building on timber piles enables us to build on sloping sites without a lot of additional costs, you would only need to factor in timber decking, handrail and steps.
  • Water connection - There was no on-site storm water connection available which was a council requirement. The closest connection point was across the road and approximately 50 meters down the street. Stormwater is a big factor in Auckland and can be a deal breaker.
    • Solution: A pipe was thrust underneath the road, which required traffic management, and connected to a new manhole on site.

 

Outcome
  • Keith Hay Homes were engaged to complete the project in its entirety. We engaged all the consultants and engineers and gave the customer a fixed price contract. We then completed the building consent and construction of the home. The home was then delivered to site and Keith Hay Homes managed all the site work to code of compliance approved.
  •  

    Total cost breakdown
    • House cost including consent - $172,000
    • Site costs including new storm water line - $79,700
    • Consultants and engineers - $14,000
    • Customer costs ( curtains Post Box) - $4,000
    • Development contributions - $16,000
    • Watercare - $14,000
    • Total - $299,700

     

    Returns
    • Weekly rental - $ 520
    • Annual rental - $27,040
    • ROI pre expenses - 9.02%

     

    Project pictures

    IMG SOURCE: KEITH HAY HOMES

    IMG SOURCE: KEITH HAY HOMES

    IMG SOURCE: KEITH HAY HOMES

    IMG SOURCE: KEITH HAY HOMES

    Every Development has its challenges. At Keith Hay Homes, we have a great team that we work with to help your project run smoothly, and achieve your goals . If you are looking to maximise your investment portfolio or starting off your first project , then please don’t hesitate to book an appointment with Alastair at alastair.moore@khh.co.nz or call 022 077 3523.

     


    ABOUT THE AUTHOR

    Alastair Moore

    Alastair is a property investor and works for Keith Hay Homes as a Home Consultant. 

     


     

     

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