Forum Replies Created
“You wouldn’t need additional security, but the valuations have to stack up.”
– In some instances the above is correct.
However, if the “developer” has no prior experience/track record, and has not employed a reputable QS and qualified professionals, i.e. architect, project manager and/or building contractor to conduct the development – no matter how large or small – the lender often requires access to security over and above the projected valuation.
“these sorts of loans are not cheap – probably 10-12%.”
The above rate of interest is typically charged by lenders other than commercial banks, and often incurs an additional 1-4% establishment/origination fee.
— Michael
“what was your biggest and best seed (or tool) that you planted to get you where you are today?”
seed = “education” ->
resulted in no money -> ignited drive and determination -> knowledge derived through education translated into viable business concept -> still no money, but committment -> concept attracted experienced and proficient individuals [team/network] -> concept + experience attracted finance -> concept became a reality.
Education is the foundation of where I am today.
— Michael
Yield is important in determining whether you should invest in property A or B – similar properties in the same price range, but different maintenance costs/overheads, for example.
Furthermore, a property’s yield can be compared with other investment options, i.e. stocks and bonds, a business’s cash flow, term deposits, etc, to determine the most profitable – take into account risk, liquidity, etc.
For example [2 year holding period], a property in a flat market demonstrates a 6 percent yield. A term deposit offers a 5 percent yield. The option I would choose is the term deposit due to the ability to easily liquidate this investment.
If an investment is held for, i.e. 12+ months, inflation should be factored into the projected yield.
— Michael
” 2. 5-7% for these are shit. There are plenty around going at 10%.”
– correct, 5-7 percent is not generally considered a feasible ROI [return on investment].
3. I’m pretty sure they’re residential, but with a commercial LVR ie 60%
– apartment developments are generally residential; hotel developments are often commercial due to commercial amenities/services.
4. You never own the property, just the rights to it. The hotel leases it back from you usually in 10 year stints, increasing it’s rent 3%pa or CPI. But they do go up as an investment, as normal.
– typically in this scenario the apartments are constructed by an independent developer, another entity secures a lease or management contract, the apartments are sold.
If the transaction includes a title, then you own the apartment and can on-sell, etc, as you would any property.
“how can i know if such an apartment-hotel would increase or has increased in value?”
– you can monitor the market to determine if values are increasing, stagnant, or decreasing.
If you require a more accurate valuation, it is recommended that you employ the services of an “independent” valuer – who has experience in this type of property and management structure.
— Michael
“It’s usually the land that brings most value and that goes up in value – not the property itself.”
– The above statement is not necessarily correct.
The foundation of any property’s value is supply and demand. Limited supply of land will increase value, however, properties that do not have a direct land component will also appreciate in value if supply is limited.
Keep in mind apartments do have a land component in the valuation.
— Michael
As noted, you will need to check local council zoning provisions to determine what can be built on the site.
Being 920 sqm and assuming you have consent to build multiple dwellings by right, you may have sufficient area for three “attached” dwellings.
Alternatively, you would need to subdivide the site for multiple detached dwellings. Which if allowable can be a costly exercise.
To avoid the complications of subdividing the land [three titles is not likely given the gross area] any attached dwellings should be strata title – each strata title sharing maintenance of the common property, etc.
My recommendation, if allowable, [based on the information provided – although subject to site feasibility] is to build three adjoining townhouses and sell strata titled.
— Michael
In order to secure a 60 percent LVR loan with capitalized interest, as suggested above, the lender may require additional security in the form of [discounted] assets – if you do not have a positive track record, in terms of property development.
Furthermore, there can be a number of costs involved during the preliminary stage – prior to securing a lender.
You should contact a qualified lender to discuss – recommend one which specializes in development finance, i.e. most commercial banks.
— Michael
Mini – the point of my reply was De Roos is not as experienced [beyond RE [SFH] investment 101] as he portrays. Nor are any of the projects he is involved with unique.
He has partnered with a developer who is successful in his own right, but the foundation of this partnership is questionable from my perspective. In saying this I hope for the sake of their investors that the partnership is successful.
“compared to 95 percent of the world let’s call him a big time developer”
– This statement is quite incorrect. The reason I am wasting my time reiterating these points is less sophisticated investors [possibly others reading these posts] must not confuse literature/incl. a website with reality.
“Is he your competition”
– Without wanting to sound arrogant, I would not employ someone with De Roos’ limited experience, let alone consider him or the projects he is involved with competition.
— Michael
“I don’t put conditions in a contract. Finances are organised, inspections are done, contract is checked, and then I sign, with no CO period.”
The above may be fine in the perfect world, but in reality quite often a contract/option has to be secured before adequate due diligence can be conducted – which appears to be the foundation of this post.
This scenario quite often applies to deals I am associated with where there is high demand or other factors result in not enough time to first assess the deals viability before securing a contract.
The contract should include conditions which enable the potential buyer sufficient time to evaluate the property without inconveniencing the vendor to any great extent, i.e. a standard SFH transaction may include a 7 day provision before the vendor has the option to accept another parties offer.
— Michael
“subject to due diligence” is not a condition of contract due to being subjective and not easily defined.
Terms and conditions of contract cannot be ambiguous.
“the more “subject to” clauses attached to your offer, the less appealing it will be to the vendor”
This is not correct nor the mindset to have. The “number” of terms and conditions is irrelevant. The validity of the terms and conditions is what is important.
However, if a straight forward transaction is preferred then “subject to financing” ensures an adequate outclause whether such results from a building inspection, planning, or otherwise – which in most cases must all be apporoved in order to secure finance.
Whether the deal is straight forward or not, a qualified lawyer should be involved in the contractual process.
— Michael
“We have recently upgraded our property market forecasts from potential crash to rather bullish.”
– The potential for a “crash” has not existed in the most recent downturn/market adjustment.
The best time to invest in any market [within reason] is when capital is limited, i.e. too risky for the mass/less sophisticated investors.
The key to wealth is to acquire property during a correction, not when the market becomes “bullish”. Sydney is a prime example.
“I think the Sydney market especially is driven to far greater extent by the media.”
– Every market is driven to some extent by the media. But this is not always a negative. Less sophisticated investors start a selling trend which results in opportunities for the more sophisticated investor.
— Michael
As noted above the filing only affects Trumps Hotel and Casino’s Group.
The group has filed chapter 11 bankruptcy protection which is a reorganization of assets and liabilities. Or in other words, it enables the group to write down most if not all of its debt.
In the United States this is often more a strategic move than indication the company is in the process of being “folded”. Which is the case in this circumstance.
Unfortunately a number of creditors will get burned, and Donald cannot continue to act as CEO, but in only a few months the group will be in a much stronger position financially which will be reflected in its stock price.
To clarify a point noted, the hotel and casinos group makes up only 2 percent of Donald Trumps net worth and is therefore somewhat inconsequential.
— Michael
“Some things he [De Roos] is doing in real life are visible for all to see.”
— Correct.
“Check out his website for the property ventures he’s doing. They are great,”
— The facts and figures behind the projects are what is important.
“and he’s the first to do anything like that in his areas.”
— Incorrect.
“So he may be a big time developer these days”
— Incorrect.
De Roos has packaged the fundamentals of real estate investment [SFH’s] for the masses and in doing so become successful in his own right.
But his experience beyond the fundamentals of financing and/or investing in SFH’s is limited in practise, and his experience as a developer is even more limited.
The moral of my comments is to not put absolute trust and confidence in everything the “guru’s” write [or post on their website’s] – including John T. Reed, whom I personally have no time for.
If however confidence is gained which translates into success, then the “guru’s” have done their job. But it takes more than these books and seminars to become “independently wealthy”, which I am sure those who are in this category will agree.
— Michael
Take from the following articles what you will, but having read these authors [“?”] books quite recently – and having intimate knowledge of transactions both parties have been or currently are involved with, I would have to agree with most of John T. Reed’s comments – although somewhat cynical at times:
http://www.johntreed.com/DeRoos.html
http://www.johntreed.com/Kiyosaki.html
Personally, I have no problem with people such as DeRoos and Kiyosaki promoting a sense of direction or generating enthusiasm, but the reality is these books contain fictional and unsubstantiated stories, experiences and methodologies which can be misleading.
What I do despise is people who have a mediocre track record/experience at best in the real world, and limited knowledge of investment/finance strategies beyond the basics, yet portray themselves as the opposite as a means selling stories – which in reality is the foundation of their supposed wealth, not real estate.
— Michael
Although the government plays its part, you will likely find smaller lots are a result of demand and maximizing capital gains.
I have just completed a transaction where the only option was to acquire multiple adjoining lots [due to their size and to prevent view obstruction] in order to meet the developments objective.
At first acquiring adjoining lots – to build a duplex for example, may appear a costly endeavor. But it is all about the numbers [feasibility].
If the project is feasible you will likely find your out-of-pocket investment and time commitment do not vary to any great extent, i.e. securing two adjoining lots versus one smaller lot.
It all depends on how you secure the land.
As an example, because we acquired adjoining lots our bargaining power increased. The end result being the land was secured with a small [refundable] deposit and settlement was delayed for two years – when the project is completed.
Although this is a larger scale development than a duplex – which can provide more leverage, the same principles apply.
For example, the land owner may agree to settlement when your duplex is completed, i.e. for a small premium above the asking price – although this should be the last card you show during the negotiation process.
Subject to supply/demand considerations, typically the asking price is at a premium, i.e. testing the market. The land owner is more than often prepared to accept a lower figure – which he/she will have established.
At the end of the day, the bank/primary lender should be covering the cost of the land – this is not an out-of-pocket cost, but the lower their perceived risk/up-front debt, the more leverage you have in terms of securing a lower interest rate and/or more capital.
It is all about the agreement you can reach with the land owner. You may be surprised what can be achieved after sitting down and discussing each parties objectives.
Keep in mind zoning provisions do need to be investigated if considering a single development, i.e. duplex, on adjoining lots.
— Michael
“NZ offers better cashflow, however at present QLD provides better capital growth.”
What data do you have to back this up?
Following are a couple of figures [capital gains] for the last quarter – compared with the same quarter last year.
Applies to the New Zealand housing market, not apartments which in some sectors have increased at a higher rate, or commercial property:
Napier +30.0%
Dunedin +29.5%
Tauranga +28.2%
Christchurch +27.8%
Invercargill +25.2%
Waitakere City +24.5%
Auckland +20.0%Several markets including Queenstown and Wanaka have exceeded these gains quite significantly.
Queenstown for the same period 38%; Wanaka estimated at +35%.
These gains are not expected to continue in the short-term, but I am confident a [comparable investment] buy and hold strategy of 3-7 years will outperform Queensland and most, if not all, Australian markets given the same period.
— Michael
The above recommendation is your best option.
It really should not matter how long you have been with the bank – although loyalty plays its part, a better rate of interest can be more important.
The level of debt is also inconsequential in most circumstances because banks/lenders are reliant on securing new customers and holding as much [secure] debt as possible.
— Michael
I do not know the details of the project you’re referring too, but two points that stand out – and should be approached with caution are as follows;
“because he’s built or building it cheap“
“his risk of doing it this way is minimal“.
“cheap” more than often results in “increased risk” – and failure.
— Michael
Focus on New Zealand – and short to medium term [3-7 years] capital growth.
— Michael
Putting the negative remarks aside, I do have a recommendation [for Mark] that may be worth considering.
Real estate investment is not only about buying, maintaining or developing property. In fact, a reasonable portion of my portfolio is simply “investment” focused – at times we do not visit properties, but rather analyze market data and financials in determining whether to proceed or not – as with stocks and bonds, for example.
Because you have an understanding of the share market/trading, and apparently do not want to become involved in the ground work associated with maintaining a property/tenants, etc, then I recommend looking at real estate from an investment only perspective.
In saying this, you will need to know the market, sales trends, supply/demand etc intimately – as with stocks, but you don’t necessarily have to deal with the day-to-day issues associated with your investment.
The best way to approach this is find like-minded people that offer diverse experience and are willing to commit other skills, i.e. negotiating land, planning, building, management, etc – your role is to participate as an investor.
Aside from experience and skills, this team would provide far more leverage in terms of investment/finance, than you can accomplish individually.
If you do your homework and take one step at a time [and gain “knowledge”], then your ultimate goal [profit from capital growth] will be achieved.
— Michael
