Hi guys!:
Im doing a case study just to practice my feaso.
First of all, i would like to verify the term quity contribution. We all know that, we did feaso before the project starts, however can i put the property that i will develop and own as quity contribution in feaso calculation? Because the answer for that case study is so confuse me, and i dont know how to get that number.case study (short version):
A site with existing DA to build 6 townhouses.But you have to money to buy it. listed price is $980k. compareable sales price for house will be $600k per house. Joint venture is formed by you, vendor & builder. Vendor is willing to receive $500k at settlement and 1 townhouse on completion of the project as payment for the property. For the construction fee, the builder willing to cover all the building costs if you give him 2 townhouses when they completed and $240k when all townhouses are sold. It will take 12 months to build.
On the feso sheet, the answer for equity contrubition is $2,040,000.00
As the case study mentioned, i do not have money hand hence any equity to put into this project as contribution, but why the answer is that?>.< If that must be the answer, i think the way to work it out will only be the 3 houses that im going to own after completion (3*600k)+ the 240k=$2,040,000.00
But why? I still confused….Please help~ thx guys~^^ooxx
Hi jelovea2003,
At the risk of being called a fool, I will attempt to answer the question, the equity contribution is the three townhouses you will lose to the vendor and the builder and the $240,000 payment after completion. Why? Because it is what you contributed to make the project happen. I think,
Sweetheart, I assume that the $500K is to be paid to the vendor at the end of the construction of the townhouses. I arrived at this because you said you have no money out-right. Please correct me if I'm wrong.
If this is the case, I have to assume the property is currently unencumbered, meaning there is no mortgage on it. The reason for the assumption is simple: once the house is knocked down, the vendor loses his/her residence. If there is still a mortgage, the vendors will have to rent for 12 months and pay their mortgage too, while they wait for their townhouse to be constructed. I don't think anyone in their right mind will agree to this.
I am assuming the builder is happy to pay for all the costs of DA as well, not just the construction costs.
I am assuming that your only real contribution is bringing everyone to the table and getting everyone to sign.
If any of these assumption is wrong, then you are walking into a landmine.
If all is good on paper, and everyone signs and understand what risks they are undertaking, then you have stumbled upon the gold mine of the century. For your young age, you are to be commended.
If any of you guys think I'm wrong, I'm happy to be corrected.
Take care.
Angel
Angel you are braver than me.
I couldnt understand a word of the post and gave up after the first para.
If jelovea would like to repost it in a format most of us could understand i think she would get some additional responses.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Oh Richard,
I struggled, too. But I couldn't bear the thought no one has answered her. But it sure does seem like too brave a thing to do for a newbie. They breed them tough these days.
Take care.
Angel
Just to throw a spanner into the works:
TDC: 6x$600/1.1 = $3,272,000 ex gst
Developer has ‘paid’: 3x$600k/1.1 + $500k + $240k = $2,736,000 ex gst
Net equity: $3,272k – $2,736k = $536k
If there is $500k to be made for zero outlay, why wouldn’t the vendor just proceed without a non-contributing 3rd party?
Amen to that Scott.
Something doesn't add up… seemingly. The premise appears too good to be true. However, I don't discount the fact that some people do get lucky. At my age, I do believe in luck (with hard work, of course).
Angel
Hi all,
I've just met her in person and found out that the original post is far from the actual feasibility study. Not even close.
Firstly, the feasibility study was part of a "homework" from a seminar giver. Second, the premise of the exercise was that "she does not the money" so she zeroed in on this one and assumed nothing will come out of her pocket at all.
The exercise actually said, the property was valued at $980K. The owner wants $480K now, so she actually needs to borrow the money from the bank. And then the vendor will vendor finance the remaining $500K at a 2% establishment fee plus 11% interest. It was not clear whether the 11% interest was payable on arrears or on-going. My personal take on this is it had to be monthly interest as the vendor has now lost his home and has had to rent. No one in their right mind will pay rent out of their pocket.
What she also didn't understand was how much she actually must borrow from the bank. It was not $480K but closer to $700K to pay for the following: according to the exercise book: stamp duty ($40,400), architect fee ($18K), consultant's fee ($25K), capitalised interest in advance on $700K (depending on interest rate), marketing materials to pre-sale the three townhouses ($5,500), and various other fees.
So I asked her, where will you find the money to pay the bank loan of $700K and the vendor finance amount of $500K (mind you, 11%)? She said she didn't realised that she must have servicing capability to pay on-going interest. I supposed she can minimise on-going costs if she capitalises the 11% interest on the 2nd mortgage and paid this as a lump-sum. But then the bank loan will also balloon.
Richard, I can imagine you scratching your head.
When I went through the other aspects of the process with her, eventually she realised it really doesn't hold water.
The end product was supposed to be 6 townhouses. Of which, the original vendor wants one for him and the original loan of $500K; the builder 2 plus $240K. For the purpose of the exercise, she will sell two and she has to pay 2.2% agent's fee.
Not only that but how to find this fictitious vendor. For this scenario to even materialise, she has to hit the jackpot on the following:
1. She needs to find a vendor with an unencumbered who is willing to do this deal (not bad).
2. The land has to be with the right zoning and size to allow 6 townhouses.In other words, she could be waiting forever as supply of land with the right zoning comes in few and far between and anyone willing to do this deal will likely do it with a developer who has track record.
She is a lovely girl, full of life and ambition and I have no doubt that she will go far with the right advice.
I hope it now makes sense.
Angelina
And how much did she pay for this great seminar & tutorial?
to scott:
thats from carly’s property course…. cost me 6k from my own savings. i promised angel i will never do these seminars again. thx for ur respond^^.
Guys,
This gorgeous girl is only 21, she's been working part-time and saved this money over two years. It makes me very determined to stand guard over youngies… when I can.
Angel
Dear angel~
Thx for your time and advises for today~ ^^ Sooo nice of u~~~~~
I will keep looking for a full time job in real estate..
+ I hope i meet u when i was 21..lol .. i just turn 23 last month. T.T
I will c u again soon..
take care ange~ooxx
At any any rate, you looked 16.
This is the kind of deal that Carly typically does, although it would never come with the DA already. That is normally what you are contributing to the deal…. find a property where the owner doesn’t realise its potential and create a deal that cuts you in on the action at no risk.
What the exercise didn’t seem to include, was Carly’s 80% cut of the profit in the deal you found for assisting you to pull it together.
OMG!
haha… I thought the same too Angel
And Jelovea2003…
I understand you worked quite hard and took quite some time to save up that money, but you shouldn't let one seminar ruin everything for you. Not all seminars and courses are the same. If you close yourself up now, you could miss out on many great opportunities in the future.
Just finished reading that thread and it was fabulous – like a little novella.
And don't worry about dropping $6,000 to learn a lesson, they're often far more expensive than that.
Keep at it Jelovea, and wonderful advice dispensed as well.christianb wrote:Just finished reading that thread and it was fabulous – like a little novella.
And don't worry about dropping $6,000 to learn a lesson, they're often far more expensive than that.
Keep at it Jelovea, and wonderful advice dispensed as well.Thanks christinanb~~^^ I will~
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