We’re in the leafy suburb of Eltham, in Melbourne’s outer North East with an unfortunate example of how poor planning and a lack of experience cost this investor a lot of money.

The redevelopment started over 5 years ago as a single residence located at the front of an 841m² block and the plan was to renovate the original residence as well as building two new townhouses on the rear of the block.

Unfortunately the project had been plagued with problems from the start. The investor had not locked in a complete contract to finish with the builder, nor undertaken any sort of feasibility testing before commencing, and the cost of construction kept going up as the project progressed.

The builder kept asking for more money and the investor had run out of money. This caused a five year court battle between the two. The investor had reached their limit and contacted Ryve to see if we would be interested in buying the project as a going concern, and seeing it through to completion.

They were chasing $1.7 million, a figure that was based on what they needed to achieve to repay loans and recover their costs rather than the actual value of the project. We took an in depth look at the project and created an estimate of the costs involved to take it to the finish line. Aside from the unfinished construction of the units, there was a long list of problems that needed to be solved, including.

• The court case was still ongoing in county court.
• There were multiple construction certificates that needed to be chased up.
• One of the units had been built over the boundary.
• The sub division needed to be finalised

With the land valued at around $1 million plus close to $1.2 million required for stamp duty, construction and holding fees, we made a verbal offer between $1 and $1.2 million. Similar townhouses in the area were selling in the high $900,000 range giving us an estimated $2.65 million income. This included an estimated $264,000 profit. Had we paid the asking price of $1.7 million, we would have made a loss of $236,000.

The developer declined our offer and went to auction against our advice. There were no bidders at the auction and just a few offers under $1,000,000 afterwards. The project was eventually sold off with the investor making an overall loss.

Better options for this project would have been a one into two development or just split the block and sell off the rear, both of which would have made a profit for the owner and saved years of headache. When approaching a property development like this, it is crucial to do your due diligence with research and feasibility first.