Thanks for your replies. It does seem as though I may be labouring under a misapprehension!
The opportunity is presenting itself is as follows. 3000m in a line, opposite a shopping centre, next door to a medical centre, and townhouses and units popping up everywhere around. Asking price 1.3 mill. Couple of crappy houses (minimal rent, eyesore, etc) standing on the blocks
A multiunit SEPP5 plan has been drawn up (but I havent seen it yet), and there is an option on 1000m next door at about 450K.
Getting all 4 properties would give me 4000m, which is over the 3500 required for a cluster development, ie townhouses.
Delayed settlement may be possible.
In a delayed settlement, if the DA is approved (dont see any reason why not), then equity would have magically appeared, making things much easier.
Probable numbers- value 1.8 mill, owe 1.0. ie some equity, but not a huge amount
If I exclude trying to raise public funding, and there was say 16 units, how many would have to be sold off the plan in order to raise finance? I am led to believe that about 40-60% would have to be sold. I would try to sell them myself at investors clubs, etc, before I got stitched up with a REA
Another idea of mine is to scrap the units (esp courtesy of the HK saga soon to unravel), and subdivide into townhouses, then just sewer, power, and road the place, landscape it, then sell the lots off to local builders. This seems to be my preferred option at the moment.
A development across the road from me was done with solid financial backing, as none of the houses was sold prior to lock up stage or a month or two later. This to me sounded like pure brilliance. Have the cash (or the bank) so well funded, as to then sell to owner occupiers. Even after lockup stage of over half the units, they hadnt priced any, and had over two fullscap pages of phone numbers to ring- Who would need an agent?
One last question (last labour under the misapprehension)- my dad is an accountant, some of his clients regularly are into syndicates. If (and the discussion has not been really discussed (its the old story isnt it? gotta do the DD, but where to start? Where to learn? thats why you guys are so great[^][^][^] ’cause I can iron out my wrinkly arguments so that my direction is better known!)) he were to raise the possibility of a syndicate in 6-12 months with some clients and had some idea of numbers and figures, would it be then be worthwhile just getting an ASIC registered prospectus? That way, I would have minimal costs, and would be legally able to raise finance. Would I need a fin service licence for this? Or could the company act under one? ie seperate account only accessible by the licence holder?
Many thanks once again.
Wrappack, I thought that if you had under 20 investors, and under $2Mil to raise, that you didn’t need to get an ASIC propectus? If you could stick under these figures, you could save yourself a lot of hassle and grief.
Also, if you can secure the site, and get DA approval, why not sell to a developer and pocket the profit? Or form a joint venture with a developer and split the profits?
Cheers
MelMel, thanks for your input. Re ASIC, they have a ‘minimalist’ approach to small property syndicates. It sounded like what you were saying, just what I was after- till I read the fine print. There is a maximum of 15 investors, and each must have at least 5% of the funds invested. In trying to raise a couple of mill, that makes their investment in the 100-200k range, and I dont know anyone that has this sort of cash lying around to invest in an (unproven first time) developer.
Regarding the other options, they are ones which I will be seriously considering. Problem will be if the DA isnt approved- then would be up the creek with no paddle.
As for a JV with a developer- I suppose its the loss of control thing. If I could raise the cash (or debt), could get the thing done, and congratulate (or commiserate) myself. Still, as they say, everyman has his price[^]. (Bit sexist I know mel, but do tell, I assume every (property investing) woman also have her price?)
Just had a brainwave (happens every year or so). I could investigate how to have a NON- public offer- ie friends, relies (yes, yes, even I have said never to invest with them) and perhaps a couple of the old fella’s clients. Even if i could raise 1-200k it would make things very doable.
Michael (and others), any thoughts on setting up a company, raising 1-200k via a non-public offer. I think that there would be many, many pitfalls to carefully tread through. Any comments.
>>In trying to raise a couple of mill, that makes their investment in the 100-200k range, and I dont know anyone that has this sort of cash lying around to invest in an (unproven first time) developer.<<
However, if there were TWO companies each having 15-20 shareholders X say $ 50K then these two companies together could each have a 50% share in the deal and YOU will have achieved your aim of raising the $ 2M whilst adhering to the ASIC requirements of the number of shareholders and the 5% rule thus you won’t be breaking the rules !?
>>Problem will be if the DA isnt approved- then would be up the creek with no paddle.<<
That is the risk any developer runs at anyone time. To lessen that risk it pays to be both selective in picking the project and allowing sufficient time to get the DA approved.
>>As for a JV with a developer- I suppose its the loss of control thing.<<
You cannot have everything (unless you have got deep pockets filled with plenty of money in which case you
don’t need anyone else and you won’t have to please anyone but yourself.I would think that bringing a developer in (and as long as you don’t crowd him) it would be a good learning experience and exercise ?
I would think that without being able to show past performances it will be difficult in any event to
raise funds because you are an unknown quantity so how could people possibly have confidence in you ?Even apart from the learning experience, there are so many pitfalls that can occur that having someone experienced alongside you will be of immense benefit.
It would help if your father also was a shareholder as that would help towards establishing creditability.
Pisces
Finally talked to the old fella about it.
He suggested – form a company, then add some cash to it.
Forget about a public offer- simply too much time, effort, money, possibly no end result.
Think about taking an investor or two along at initial stages, their input could fund design and development fees etc.
Bettter in a way to have a ‘private’ offering, and getting a few smaller investors (whom may also be involved in the process), as opposed to one large one- always the possibility of being leveraged out
Fairly cheap (change from a grand), quick (5 minutes after I pick a name) and easy to form the company. Also mentioned (without me even asking) one of his clients who may be interested. Apparently she is into multiple property syndicates and is continually asking him how she can make more money! Also, one can approach others one knows and ask if they are interested in investing. Also mentioned that the line between public offering (ie needing ASIC approved prospectus) and private offering in a company is relatively blurred.
My thoughts are now to form a company, add some cash, make unconditional offer with delayed settlement, some % of VF, then try to ram through council a SEPP5 DA yesterday.
Any further comments/ suggestions?
>>Any further comments/ suggestions?<<
Yes Wrappack. There is a saying that goes like : ‘Too many cooks spoil the broth.’
Or , ‘Too many chiefs and not enough Indians’ if you prefer.
Pisces
and getting a few smaller investors (whom may also be involved in the process),
I wanted to add that the following statement is incorrect in terms of the point of discussion – unless you intend becoming an investment broker or a similar position which requires licensing.
“you are required to have an Australian financial services licence which allows you to deal in these particular financial products”
— Michael
Hi Wrappack
Just an idea.
What about using an option on this site you have located? Set the expiry at 6 or 12 months, long enough to arrange plans and secure your DA then sell with DA approval.
I have never used an option before but I am sure others on the forum have so they would know how they are structured etc.Regards
SMTMWrappack, no offense, you appear to be very ambitious (which is fine) but my question is ‘Have you been involved in any development at all sofar ?’
Starting at the top is probably only a good idea if your father’s name is Kerry.
There are so many pitfalls, so many things to watch out for which one cannot really all learn by asking questions on a forum.
Pisces
Couple of answers- show me the money- unfortunately, the owners want a contract, not an option, or they will let the properties rot till they get their price.
Pieces (no offence taken)- but I have no experience in developing. However, I have an intellegent brain, a willingness to learn, and an old man who can hopefully steer me away from trouble.
I have ditched the prospectus idea, and will form a company, and throw in some cash to get the ball rolling.
I am currently leaning towards melbears idea. If I tie up the deal, and get a da through for subdivision, my options instantly expand. I can sell a couple of blocks (retiring some debt), do a JV with a builder or two, or try to do the whole lot myself (but only with a very successful raising of funds by selling company shares). As a bad movie once said, If you build it they will come. If I come up with a good deal, I should profit handsomely, if not, then I wont!
>>Couple of answers- show me the money- unfortunately, the owners want a contract, not an option, or they will let the properties rot till they get their price.<<
That is fine of course. The thing to do is to move onto the next prospect.
There is a lot of truth in the saying : A winner never quits and a quiter never wins.
This is a numbers game.
However, have you shown these owners what similar properties in the area have sold for ?
Have you explained to them that you are going to spend prhaps as much as $ 30,000 on plans and an application to council ? (which implies that you ARE committed).
Have you explained that the very reason you are willing to pay more for the property than it it worth as a normal house is because of you looking at it from a development point of view ?
Have you mentioned to them casually that there wouldn’t be a builder or developer in the world who can afford to pay top price unless he is assured that he can do what he thinks he can do there ?
If all that fails wish them a nice day and move on.
(The only time to buy unconditional is if it is a steal AND you are absolutely convinced you will get
approval from council)Remember, the quickest way to go broke is to buy a property at an inflated price and being stuck with it because council either refuses to approve the plan or because they take too long to deal with the development application.
>>but I have no experience in developing. However, I have an intelligent brain, a willingness to learn, and an old man who can hopefully steer me away from trouble.<<
All of that are necessary items but it isn’t going to establish confidence in people’s minds unless you have some successes under your belt already.
If that were the case they will be asking you whether then can possibly participate rather than the other way around.
You mention that you have a willingness to learn.
If one is learning one is bound to make mistakes during the process.Is it fair and reasonable to learn and make mistakes at other people’s expense ?
Normally people hand over money because (they think that) the other person knows what to do.
Once you have acquired the necessary skills all one needs to do is make them keen, make them hungry, make them desire, to be your partner.
Without previous success to help you create a successful image you will be like a beggar, asking, pleading, others to please put some money in your kitty, in your project.
>>I have ditched the prospectus idea, and will form a company, and throw in some cash to get the ball rolling.<<
Just about the only good chance you’ve got to get someone to contribute moneys is your mother. [
]>>I am currently leaning towards Melbears idea. If I tie up the deal, and get a da through for subdivision, my options instantly expand.
I can sell a couple of blocks (retiring some debt), do a JV with a builder or two, or try to do the whole lot myself (but only with a very successful raising of funds by selling company shares). As a bad movie once said, If you build it they will come. If I come up with a good deal, I should profit handsomely, if not, then I wont!<<Some people think that if they build the best mousetrap in the world people will beat a path to their door.
I doubt it.
Start off small, Get involved in a couple of Dual Occupancy houses and move on from there.
With a Dual Occupancy house project at least your friends will be more easily be able to see (and be less fearful) that it is quite simple (though of course it isn’t).
But ……….., with such a small project it will be a lot easier for your friends to have some confidence.
Out of all the people on this site Michael R. is probably the only one whom I would feel confident (skillwise) with to entrust some money to in a deal.
Cheers,
Pisces
Many thanks for your comments pisces.
In tweaking the formulae a bit, how does the following action plan sound?
Tie up all 4 properties (owner has three, and an option on a fourth) with, say a 12 month option. BTW, what is the going rate % wise on an option. ie if the blocks are going for 2 mill cash, how much down and what strike price would be reasonable? (assuming 12 month option)
Put da through council.
If council passes da- then land should conceivebly be worth ?2.8Mill. Then finance will not be a problem, and I could continue as before -ie sell a couple of blocks, retire some debt, then develop a few at a time, or just sell the whole lot.
If council fails da- then go to court (under sepp5), or try a different da?
BTW, just found out from a third party (unrelated) that a unit dev. was knocked back by council, but I plan on buying the block next door and doing townhouses. Should the previously knocked back da concern me?
Have set up a meeting on tuesday with a lady who should be able to help me plan the potential for development ie lottage, roads, ball park costs, etc.
With regards to the negotiating techniques you have outlined, currently I am only dropping various hints at what I would need, and quietly gathering info, while I do my homework on what is and is not possible with the blocks in question.
I have considered the dual occ idea. The ideal block for me would be a crappy house on a v. large block that could be subdivided into 2 blocks, each large enough for a dual occ. Must admit, I have been too busy with my homework on this big deal to be trawling through multiple REA and spending all my time on these. Still, if something comes along at the right price, I would certainly do it, as the risks involved would be minimal compared to what I am contemplating.
Hey Wrappack
I thought an option wasn’t an option, so to speak.
Yours is a very bold plan. I hate to dampen your obvious enthusiasm but it is a big project for your first development. My advice would be to try something smaller to begin with like a triplex or similar. You will be surprised at what can go wrong and how the costs can get away from you, rapidly eating your margin away.
If you start on something smaller then you will learn about dealing with council, designers, builders, how much things cost and the whole process and when you make mistakes, which you will, they will not break you financially. You will then be better prepared for a project of the scale you are now contemplating.
I have been trying to get three townhouses built in Mandurah now for over 2 years. This seemingly simple project has hit all kinds of potholes.
I thought that I had finally attained building approval last week when suddenly the council want a Geotechnical report on the land. $3000 and 3 weeks delay thankyou. All the while the interest payments keep coming and building costs go up.
The bottom line is that I have survived and learnt a whole lot in the process. I may yet make a small profit (big would have been better!) but if worst comes to worst, I have 3 beautiful IPs in a good area.
Anyway I hope this isn’t too negative and if you do decide to carry on I wish you all the best.Regards
SMTMAn option wasnt an option, but after reading some of your replies, (espec. the one about walking away, and the numbers game), I got to thinking, what if it was the only offer that I made.
But then,
Met with an intelligent lady who consults regarding IPs, developments, etc, and was very pleased with her knowledge and intelligence. She was aware of the property in question, and showed me why the sepp5 got knocked back by council.
Although I could conceivably do a townhouse dev, have decided against- I could be nine months down, close to 60grand down and in court- safer to :-
Threw around a number of ideas with her, and will probably wind up-
i) buying a house on a big block, and subdividing off a battleaxe
ii) buy a house, rent it out for a while, then put a duplex through council. Found out in my council, cant strata title them, but drive 20 min north and I can! This alone has saved me a heap of time, and will prob. be the way to go.But if a few of these work out, will then try a project of the scale mentioned previously.
It would appear you have made the right decision.
Take one step at a time. Once you gain further experience, and establish a trusted network, the larger projects will fall into place.
Although keep in mind, just because a project is considered “larger”, does not necessarily mean it will be more profitable.
— Michael
Melbear is right… you only need all the PDS (Product Disclosure Statement) side of things if your marketing to (I think) more than 15 or 20 people.
You definitely dont want to be setting up PDS and waving red flags at ASIC for one deal. Its just not worth the headache. Although there are companies around that provide this service (I know of one in Sydney).
Fund Managers set these up in the expectation of billions of dollars in their managed investments.
You also mentioned that this is your first deal. Steve has told the MAP students recently that “money follows management” meaning that (as I think you suspect) you need a couple of winning deals under your belt before all this would work. Not sure that you have that yet, but I admire your thinking and the level of research you’ve done. You’re certainly asking the right questions! Maybe one day in the near future? Good luck.
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