selling off the plan

“is there any books that give an indepth detail of doing this or articles”

The OTP strategy is covered as a topic in many books, but because every project is different, it is difficult to provide specific guidelines.

However, the approach is quite simple. Typically the OTP strategy is used when the developer wants to limit his/her risk and capital requirements, and/or acquire assets/equity at a minimal or zero cost [property retention].

General steps you need to follow:

1. locate land – secure extended option [if possible]
2. locate “qualified” resources, i.e. architect, engineer, quantity surveyor, etc
3. conduct feasibility – supply/demand, cost analysis, etc
4. prepare concept/preliminary design
5. planning approval
6. select sales channels, i.e. real estate agents
7. prepare marketing materials
8. implement sales strategy

Once sales have been achieved:

9. prepare working drawings, etc
10. commence construction

Note: you do require cash reserves or assets, etc to offset preliminary [pre-construction] costs. Typically an institutional lender will not become involved until your sales target has been reached, i.e. sales = or + 70/80% cost.

The above is a very general summary of the steps involved.

The land component often requires the most negotiation. For example, avoid committing financially until your sales target is reached and secured.

And there should be an out-clause [conditions] in the land agreement which enable you to walk “subject to” finance, planning, etc – and retain any deposit [incl. interest] required to secure the contract.

The deposit can also be a point of negotiation, dependent upon you/the vendors specific requirements and the project.

“hire entire teams to flog their investments, beleive the commissions were pretty high, way beyond what a RE agent charges.”

First, it appears you are going to retain the 3 bedroom for yourself, and sell the 2 units to cover the debt.

Either way, you do not need to hire a “team” to sell 2-3 units. Because you are selling OTP it is recommended that you employ a real estate agent and/or RE marketing company with experience promoting this type of property.

I think you will find any marketing team employed by an experienced developer will not cost “way beyond what a RE agent charges”. The cost is generally on par, or slightly more than a RE agency, based on reputation and track record.

RE agencies do not only charge sales commission when marketing a OTP development.

— Michael

“In my limited experience I have not seen such a small development employ that stategy, they usually just employ an agent.”

Correct.

“the sucess in the boom of the OTP stategy was in part due to the teams, who were independent of the develoipers and used to approach the developers for stock.”

Successful developers conduct due diligence on each company/person involved in the development team before selecting them – it is very rare for equity to be involved in the equation unless the developer is short of finance.

“if you can find a team that charges “slightly more than a agent” please let us all know.”

Most “marketing” companies generally cost on par, or not much more than a real estate company that specializes in “marketing/selling” OTP projects.

Real estate agencies with a successful track record in OTP projects charge considerably more than a sales commission.

“I personally thought that Harry and Multiplex were more careful with their money than you infer.”

I have no idea who you are referring too.

— Michael

[AP] “a lot of this discussion seems geared to bigger projects”

It seems to have taken this direction. In terms of the original question re: 2-3 units, the developer should simply use a qualified general contractor – with an established network [team] and a real estate agent.

[AP] “not sure if it eludes to the developer walking away from the whole deal if the targets aren’t met”

To clarify this point, try and delay “settlement” for as long as possible – the contract is generally unconditional. Use cash reserves to finance the preliminary stage and not sit dormant in an escrow account.

As noted, “there should be an out-clause [conditions] in the land agreement which enable you to walk “subject to” finance, planning, etc” – the out-clause is only applicable prior to the sales phase to protect the developers interest.

[AP] “if you are buying OTP please make sure the developer is actually committed to the project and not just sitting back and hoping to make the sales”

There is a lot of work and cost involved before getting to the sales phase. Therefore, it is not often the developer is not committed – although correct, the buyer must ensure the developer is financially secure [part of due diligence].

[AP] “Usually it comes down to a unique point of difference”

Correct. It will be very difficult selling a property OTP unless there is a clear point of difference. This is why most developers only conduct OTP projects in markets where demand exceeds supply – preventing the need to discount the property’s value.

— Michael