Forum Replies Created
To expand on my earlier comments, the advertised area typically does not include the space within the wall cavities and/or service shafts.
The area should be calculated as length x width – from wall to wall within the liveable space – plus garage and other space under the certificate of title.
The buyer must be made aware if the advertised area includes, i.e. the balconies and garage [or service shafts, other common areas, etc.]
Whether a sales person is correct or simply pushing the sale, Central Equity is liable for any information that is incorrectly provided or misleading.
— Michael
We sell a number of apartments OTP, but unlike most RE development companies we advertise the “finished” floor area first and foremost.
Finished area is the interior living space – includes closet space; excludes balconies, garage/parking.
Many developers include balconies and parking, etc, in the advertised apartment size [i.e., 100 sqm] which can – and often does, mislead buyers.
It is very important to clarify this aspect prior to signing a purchase agreement due to the impact it can have on re-sale and market valuation.
If you have been advised that “service shafts” and “wall cavities” comprise the advertised apartment area, then I would ask where this is clearly defined in the purchase contract and related sales information.
You can take this to the governing authority which oversees consumer rights/fair trading if not provided with a satisfactory answer.
Furthermore, if anyone is building apartments that represent high-risk and oversupply, it is Central Equity.
Caveat Emptor.
— Michael
Your local council and/or city/regional planning authority.
— Michael
From a profession standpoint, the following definitions are more common.
Developer: builds on land thereby increasing its value. The developer may be an individual, but is often a partnership or corporation.
Development: improving land for use by adding or replacing buildings.
— Michael
Your question is open to a variety of cost estimates/feedback which could be more confusing [inaccurate] than beneficial.
My recommendation is to work out approximately how large the townhouses will be [square meters – finished area], how many bedrooms, bathrooms and other features, i.e. garage, they will offer [subject to zoning and planning approval] and the standard of materials and fittings.
Then contact a local [reputable] builder to discuss and get a general estimate. The builder may give an indicative price per square meter at no cost – or a more detailed cost of construction for a relatively small fee.
— Michael
“I dont know enough about ING and Citibank”
ING is one of the largest financial/insurance institutions in the world – Citibank is the largest banking group in the world, with ~US23 billion in revenues last quarter.
Although I personally do not have any affiliation with the two, I consider both more stable and less resistant to economic and market pressures than the major banks in Australia and New Zealand.
— Michael
If your sole intention is to find land for “subdivision” then personally I do not put this in the same category as “development” – unless you intend adding improvements [beyond basic utilities].
If however your intention is to locate land for building SFH’s, apartments, multi-use, etc, then the fact that desireable locations are already subdivided should not be an issue if the numbers stack up, i.e. secure options on adjoining lots to meet your objective.
This is something we do on a regular basis in order to secure sufficient land area, maintain views, or take potentially obstructive adjoining developments/buildings out of the equation.
If the numbers do not stack up, then the focus should be on securing a land option
in locations on the perimeter where demand is starting to catch up with supply.This land may not be as desireable in terms of coastal views, etc, but unless the marketing strategy is reliant upon specific sites, the objective of most real estate developers is to limit risk and maximize return on investment – which can be achieved in locations considered less desireable today.
— Michael
“unsure as to the difference between a promissory note and a second mortgage.”
They are more or less one in the same.
However, a “second mortgage” is more often defined as a mortgage obtained by way of a financial institution.
A “promissory note” is typically a formal loan agreement/contract between the borrower and a private lender – or facilitator that does not specialize in mortgage products.
In both cases the debt is subordinate to a primary institutional lender and is therefore at a higher risk to the lender. As a result, secondary loans generally demand a higher rate of interest [and fees] and/or equity participation.
— Michael
“many developers have what the business community describes as ‘land banks'”
Correct. Real estate development/investment is all about “leverage”. The objective is to establish as much equity in land or other holdings as possible, for as few dollars [capital investment] as possible.
This in turn compounds borrowing power expedientially.
“Large tracts of land are what the major developers are looking for”
Disagree. The land area is generally inconsequential. Whether the land is acquired outright or with an option in place, the decision is primarily based on maximum return and limiting risk + supply and demand, and other market influencers.
“This means you have to have 2 things, in my opinion, knowledge and information.”
The keys to success.
— Michael
Even as a “dual citizen” it is likely the factors I have highlighted will come into play – unless you permanently reside in the country where the property is being acquired.
— Michael
In general,
unless you have sufficient assets [security] in Australia to finance an offshore property via an Australian lender – subject to foreign regulatory approval and filing requirements;
are a permanent resident of the country of interest with sufficient assets [security] in that country;
or have a registered corporate entity with sufficient assets [security] in the country of interest,
it can be very difficult acquiring property in a foreign country.
The fact that the properties offer “VERY positive cashflow” is of little or no benefit.
— Michael
“With an option you do not have to state any conditions.”
Correct. However, an option is nothing more than a “contract” between two or more parties. On most occasions this contract will include some form of condition
. An example being, if the option is not exercised in x days/months, the contract [option] expires.“The 1-2% is your fee for having the right to buy that property in 6 months.”
There is no pre-defined fee or expiration period.
An option can be negotiated for no money down or considerably more than 1-2 percent – and if a fee is imposed, it is not necessarily non-refundable.
The expiration date is typically representative of supply and demand [market conditions] and/or the agreed price.
“you could put an option a a property that you thought was about to suddenly increase in value.”
In a nutshell, this is the basis of securing an option.
” I disagree with Michaels break down of option vs subject to.”
My comments can be somewhat broad because I do not generally have much time to elaborate – my intention is for people/readers to further research and gain an understanding which conforms with their specific circumstances.
In terms of my experience with option contracts, let’s just say this methodology has been the foundation of at least 90 percent of the transactions [small/large scale development/investment] I have conducted over the past 15 or more years.
— Michael
“If I buy a house for say 1M, and the vendor will lend me 100k, would he get a 2nd mortgage/caveat/joint venture/etc?”
— a “promissory note” is recommended as confirmation of the loan arrangement between you and the vendor.
If the vendors debt is subordinate only to a primary lender [i.e. bank] – there are no other institutional lenders involved, then a provision can be included in the promissory note whereby the vendor is second to the primary lender in terms of repayment.
— Caveat: Latin for “let him beware.” in real estate transactions, it is a formal warning against the performance of specified acts.
For example, a caveat is usually lodged by the purchaser to protect his/her interest soon after an option to purchase a property is exercised or a sale/purchase agreement is signed.
— Michael
Unfortunately the current Reserve Bank Governor [Bollard] is being dictated too by the Government [Cullen] – my understanding, based on discussions with closely associated representatives – and Bollard himself, is Bollard was chosen for this role because he is willing to let the government set the rules.
Traditionally the RB maintains more of an independent role to ensure political agendas do not come into play.
It would now appear that the OCR [official cash rate] will rise another 50 basis points before the end of this year – starting with 25 points in October, possibly sooner.
I agree with both arguments on this post, the RB does have to maintain a somewhat conservative approach to ensuring the inflation rate is controled.
However, house prices being at historical highs does not mean the market has peaked. There are a number of economic and awareness factors in play at this time, which have not been present in the past.
The issue the New Zealand economy is facing which can quickly result in downward trends on a wider economic scale than the real estate market, is the government is stubbornly ignoring New Zealand’s “competitiveness” in terms of world rankings, interest rates being one example as highlighted. Other examples being telecommunications and corporate tax policy.
Combined with the rising dollar [NZD] which has an adverse affect on much needed exports, and foreign investment, these factors can contribute to greater problems for the economy than a rate of inflation that breaches 3 percent.
From a foreign investors perspective, we are keeping a close eye on the Reserve Banks and governments fiscal decisions over the coming months. If higher interest rates combined with an appreciating NZD continue, we may direct investment elsewhere. Although in the medium to long term, New Zealand is still considered a very lucrative location.
— Michael
It appears that you’re seeking a cost [budget] analysis rather than a feasibility study – which is conducted prior to starting a development to demonstrate if the project is feasible.
There is no specific format because costs associated with your project may not apply to other developments, and vice versa.
If you are concerned about the budget, or overlooking costs, then I highly recommend locating a qualified quantity surveyor – or experienced builder who comes recommended, and paying several hundred dollars to ensure all financial considerations have been taken into account.
— Michael
For those in New Zealand [or Australia] interested in a quality property related course
, I recently reviewed information from Massey University.They appear to offer very good programs for those wishing to learn the fundamentals of real estate development, management and/or investment.
I understand these programs can be conducted by way of correspondence – although contact Massey University to confirm this.
http://property-group.massey.ac.nz/paper_listing.asp
For those interested in learning about property development, keep in mind the fundamentals can not be learned by way of a brief seminar or book.
Property development is a specialized and often high-risk profession [whether the project is large or small] and successful property developers generally utilize the skills of others with many years experience [the “development team”] in order to limit risk and achieve a profitable result.
— Michael
Feasibility studies are subjective and vary according to the type of development, finance considerations, market conditions, and many other factors. Therefore another developers study is not likely to assist you.
If you are seeking a “format”, or guideline, this information can be found on the Internet.
— Michael
Have a non-disclosure agreement [NDA] drafted which restricts potential investment partners, or otherwise, from copying the idea.
Use a qualified lawyer – do not try to cut corners if this is a viable concept.
Registering the name will not protect the individual if someone wishes to copy the business model/concept, and IP [intellectual property] rights often mean very little in the real world – and will be costly if the relationship results in litigation, with no guaranteed outcome.
— Michael
Every development is different and subject to many variables – speak with a qualified lawyer and accountant.
— Michael
Securing “options” on land or other property – controling for no/minimal money down, is the foundation of real estate development/investment.
First rule, restrict the use of real estate agents to locating the property. If possible, source the property yourself. Always submit the offer directly.
If you don’t understand the process, or the market, then you should not be attempting to develop the property.
Second rule, always use a qualified and experienced lawyer to prepare the contract. Do not do this yourself, no matter how successful or experienced.
Third rule, unless your intention is to on-sell the contract, always have access to sufficient capital to conduct the preliminary phase of the development, i.e. research, feasibility, planning, design, professional fees – which is generally incurred prior to calling on institutional loans.
“1 or 2% for options” is not clear?
An option is simply a “contract” – subject to are “conditions of contract”.
If the developer has a proven and successful track record, often an option can be secured for no money down. However, such an option/contract will typically expire in 30-90 days.
Otherwise, on most occasions a deposit [5-10 percent] will be due and payable within 7-30 days, i.e. if the option extends for 90 days to 6 months. The deposit is held by the sellers lawyer in an interest bearing trust/escrow account. If the contract is not exercised, the full deposit plus interest is returned – if all conditions are satisfied.
Typically an option is “subject to” financing, planning approval and an engineering report. These three considerations are the foundation of any development.
Alternatively, the transaction may be subject to/include regulatory factors, i.e. zoning, or assurances made by the seller, i.e. install utilities.
From an investment perspective, if the land/property offers a clear and viable opportunity, i.e. favorable zoning change planned, an option can be secured with the intention of on-selling prior to the expiration date.
The holder of the option simply on-sells the land/property [contract] to a third party for a higher price than the original agreement [with seller], if there is no provision preventing such a transaction.
This response pertains to securing an option for the purpose of development, rather than an option to acquire and retain an established building – although many of the same principles can apply.
— Michael
