I have found a site that I can pick up in Launceston for a very good price. I know it’s not the usual place to develop, but I live here.
It is in a great location and is made up of several titles all owned by the one owner. He is happy to sell for the right price and will also take some of the money as equity in the project, but doesn’t want to be tied up in the development.
It is worth far more than I can finance at close to 1 mil, but has the potential for about 6 terrace type town houses (3 at each end of the site) with 2-3 houses between. The town houses will be worth around the 400k mark and the houses will be more in the 550-600k.
I am happy to do the work and get the thing going, but how do I approach it? I should also mention that I only have about 40k cash to work with.
The plan that I'm looking at the moment is like this…
Stage 1 – 3 Town houses
Stage 2 – 2 to 3 small lot houses
Stage 3 – 3 more town houses
Negotiate the purchase of the site in stages and make it conditional of my final bit of due diligence working out (we have conditional contracts in TAS)
Use my money to get the DA on the first stage all done and approved
Either get finance or JV to settle on the land for stage 1 (maybe even sell it to a developer)
Build the first stage
Once some funds come in from stage 1 use the money to DA stage 2
Once stage 1 is finished use the final profits to settle on the land for stage 2
Build stage 2
Sell stage 2
DA stage 3
Settle on stage 3
Build stage 3
Sell final stock
Thoughts people? My goal is to make money and maybe hold some of the properties at the end and also to build something that adds to the area and I can be proud of.
Where do you currently live?
Dave Ward | Geronimo Finance
http://www.geronimofinance.com.au
Email Me | Phone MeProperty Investor, Property Investment Expert & Advisor, Finance Expert & Strategist
In Launceston, about a 5 minute walk from the site. Why?
There's really only 3 ways to do this if you haven't capital to get it done, a partner with capital and/or you presell off the plan to fianance the build. The 3rd is a 3 way kinda deal similar to Derek's model in WA. You effectively become the middle man and do all the admin/design/legals/DA's etc work, the land owner supplies the land and buyers provide the building capital.
Derek could be the man to set you on the right track.
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goneos wrote:build something that adds to the area and I can be proud of.Pride comes at the bottom of the list. When you're starting out not going bust is the first, middle and last order of business. Pride reflects an emotional attachment to a project. Too much screws with your priorities and is the best way to go under.
Thanks for that Freckle. The placement of that sentence at the end of my post was deliberate. If I can't make money then there is no point.
If the site is really that attractive and or you cant afford, cant find people, cannot find investors to come in.
I would buy, get the DA for as many townhouses/houses as possible on the site and then onsell the site.
Perhaps try negotiate a long settlement. maybe 8 months to 1 year.
The key is here if you only have 40K is that You wouldn't be able to afford to settle. so long settlement is crucial (did you say the owner would leave equity in the property, vendor financing a portion of it for you?). 40k would just be enough to get all the planning approvals etc drawn up.
Previous property experience ? first house or 10th house etc.
previous development experience ?
building design/ building experience?
Is your Job occupation relevant to developing, or do you have significant wage that you can buy yourself out of trouble when you invariably make mistakes and delays?
People go out trying to make a killing and get killed more often then not
The owner doesn't want to get involved with the development, but I think we'll be work something out where I can settle on one part of the site at a time and possibly even settle on completion with a premium added to cover interest.
This is not my first property as we have several investments.
No previous development experience, but I have to start somewhere and if I can break this site down into parts and do the first as s duplex or triplex, I am starting with a fairly small chunk to lean on. If it goes well, then we settle on the next bit and go further.
I've run reno projects before, but never built. I do have a very experiences architect and a town planner as immediate family.
Job is not relevant, but income isn't too bad. It provides serviceability, but I couldn't just pay my way out of trouble.
Thanks for the input!
Just off the what you have said. It is a fairly large development proposal and with only 40K i wouldn't think a good first option. As much about the deals your don't purchase then the deals you purchase. If you had said you had 240K then i would say go for it. But 40K isnt enough really.
But if he is willing to sell In stages with settlement on completion. That changes things. You could sign the contract subject to building and planning consent and even subject to the completion of the 3 initial dwellings. with a higher purchase price to cover the interest. I think that looks pretty attractive and not often you could negotiate that type of deal.
Can you draw out any equity from other investments ? a couple Lines of credit etc.
Thanks for the Wilko.
Is it foolish to think that the land for stage one (leave the rest aside) will be worth more WITH the DA and everything in place and ready to go. Would it not be reasonable to then approach a bank with everything in place and then ask for finance based on the DA and value on completion?
We can then use the finance to either settle and build, or maybe just build?
Its not going to be worth significantly more.
ie if the block can fit 3 homes on it and thats within the development plan. it might only be worth the cost of the plans more ie 5-10k more. Not significantly more. If it was something that was extremely valuable. Ie a uncomplying development approval that has managed to get through council. This can be valuable… A example is say 10 units on a 800sqm block that is not complying with council but got through and got approval. This would be a significant increase.
Depends on if the owner is leaving equity in the property for you.
The bank will only usually value at contract price. The only exceptions i have seen with that.. Are with commercial property, large residential holdings and if the contract had a longer then or 1 year settlement (more often then not if the prices in the area went up significantly the long enough time period is enough to value at the higher amount)
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