Hi, I'm new to this forum.
I am after advice for the following:
I own a block of 4 units and am looking at strata developing, improving the units and selling them off.
I own $172k on the block
Development costs would be approximately $70k all up
Sale of properties would be around $500k
I will manage the development from beginning to end.My parents have offered to fund the development. How much profit would you recommend they receive?
What would be a fair %?Any advice or help would be greatly appreciated.
No rule of thumb here.. its whatever you can negotiate with your folks. work out your profit margins after expenses, holding costs, marketing costs, interest and so on, and then see what you're prepared to give up.
IMHO – as a minimum you should be paying at least a few more percentage points than the banks are offering, anything above 10% return would be suitable for a quick deal in the current market. It also depends on the relationship you have with ur JV partner, the amount of money involved, the risks, etc…case by case basis. Some money partners may want 20%+ before considering the deal, especially if they’re financing the whole project.
Given it’s family, there may be some additional flexibility. Start by asking them what they would like out of the deal, at the end of the day, it sounds like they’re going to be the ones that give you the green light to proceed.
Another option is to look at what the figures tell you:
how much do you have in the deal, how much will ur folks be in for, is it a case of approx 50% each in the deal, and 50% slipt of the profits ??A wise man once told me “it’s sometimes better to take a little of a lot, than take nothing at all”….here’s hoping it leads to another profitable deal with your folks.
Cheers
Darren
Thanks for the advice.
Darren, yours was particularly helpful and I will always remember that quote (its great).
I've done some figures.
They will have $85,000 in the deal
I will have $260,000
Plus I'm the one pulling it offTwo ways I can put this to them:
1- Offer them % of the profits, I'm thinking 18% (this would equate to about 40% return for them)
2 – 30% ROIWhat do you all think?
Also, does anyone have a good development costing spreadsheet? I'm pretty sure I've covered off all my cost s but you can never be too sure. Would prefer to over estimate and get a bonus at the end than underestimate and be in a sticky situation.
Mrs Property,
Search the forums for some costing spreadsheets ideas, I haven't done this but i'm sure there will be something floating around.
I think that both of the options you've put forward sound great, at the end of the day you want to aim for a win-win for both parties involved. Also consider a contingency plan, what happens if you only get half the profit you expected, only break even, or worse, loose money in the deal.
It may sound harsh, but it's best to be prepared, i'd highly recommend having the discussion with your folks regarding the 'worse case scenario'…this is not to scare them out of the deal, it's to show them that you're considering every possible outcome (and that you have a plan should the worse eventuate).
Please also use any information provided on these forums to reflect against your own thoughts, at the end of the day, make the decision based on your own due diligence – no one but you has a clear understanding of the deal you're working on.
Good Luck – I hope its a great experience for you.
Cheers,
Darren
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