All Topics / General Property / selling off the plan
Hi Everyone
haven’t been to the site for ages but I’m about to sell and buy again. I would like to know about selling off the plan what i want to do is buy some land and build 2/2 bedroom unit and a 3 bedroom unit but before i build i want to sell them to the public is there any books that give an indepth detail of doing this or articles. would love to hear anyones views.
Thanks Rob[suave]
surely someone should have information on this topic
Thanks Rob[suave]
People like Meriton and Multiplex used to hire entire teams to flog their investments, beleive the commissions were pretty high, way beyond what a RE agent charges.
They did the full sale bit models printing direct mail, cold calls etc, not sure if you are too small for this. Would guess that the commission would be very steep for such a small scale.
Not too sure about yopur timing either..
“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 strategyOnce sales have been achieved:
9. prepare working drawings, etc
10. commence constructionNote: 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
Michael I was simply stating that the off the plan stategy is usually emplyed in large developments.
In my limited experience I have not seen such a small development employ that stategy, they usually just employ an agent.
I personally believe however that 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.
Also if you can find a team that charges “slightly more than a agent” please let us all know. I personally thought that Harry and Multiplex were more careful with their money than you infer.
I don’t think simply employing a agent will achieve significant (in this case a sale of 2 )
results in this case.“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
a lot of this discussion seems geared to bigger projects than a backyard devy, but with regards to:
“The land component often requires the most negotiation. For example, avoid committing financially until your sales target is reached and secured.”
….not sure if it eludes to the developer walking away from the whole deal if the targets aren’t met, but 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. I do not market projects that our developers have not received full DA for and are actually committed to (either outright ownership or unconditional contract to purchase at some point in time) – it just causes too many headaches and really lets the buyers down.
On the development side, don’t forget to consider the GST and income tax implications applicable to the profits on the two that you sell. When considering what to build, give some thought to why someone would want to buy yours OTP rather than just buy an exisiting one next door. Usually it comes down to a unique point of difference e.g ocean views, or a very attractive price point.
[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
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