Hi I’m new here and was wondering, is buying property with approved plans and permits a good idea?
I am aware that they have an expiry date. One of my main queries is why the person selling doesn’t just go ahead
With the project themselves? I have found what seems to be a couple good deals but I most probably overlooked certain things
Any thoughts and opinions would be much appreciated…Often comes down to the fact that the original cannot finance such a development deal so happy to take something and leave the rest for someone else.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
One explanation as to why they've not developed is……
If the property has been bought in a SMSF (self managed superannuation fund) you're not allowed to change the purpose of the property (eg subdivide, build, develop) while there is a debt in place. So at best, all a SMSF could do is get "permission" to do such things, and onsell with the "permission". I've seen a property recently that looked very much like this had been the situation. Permission and instructions on how to strata a block of units all in place. It would have cost them a max of $10k to do it, and they'd have made $150k out of the deal. Fools not to do it themselves. Probably was the case they couldn't, by law.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi Robtan777,
I've bought a couple of properties in the past with DA's / plans already in place. In both those scenarios the vendor needed out due to their own circumstances changing and I was fortunate to have done nicely out of them as I didn't have any lengthy holding costs waiting for approvals to come thru (we started building on the same day as settlement in both instances).
There could be any number of reasons; they might not be financial enough to do the development themselves, may not want to, could (as in one of above responses) simply be making their money out of the improved value on the property thru having the approvals in place or it could be change in circumstances such as the ones I've picked up (one was due to a marriage separation the other a mortgagee sale).Simply comes back to the fundamentals of any investment / development: what is your expected end value against your expected costs.
If its a good deal then go for it.
Meg
Never like to correct JacM but there is nothing to stop a SMSF undertaking a construction, doing a subdivision, rezoning etc as long as the SMSF is not seen as running a business or trading in property.
I have purchased many development deal in my SMSF.
Last 1 was a block of 4 units in rural victoria which we strata titled and sold off individually.Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks for the replies.
My plan was to buy a property with these plans approved, Im not in a position to finance the construction so my thoughts were, if the right property came up for the right price then I could still make a profit by simply working with a builder and getting the right advertising to sell them individually as a house and land package. Obviously the better price I can negotiate with the builder the more profit I will see, has anyone had experience in this? Am I overlooking something?
Thanks…I'm not sure that I'm seeing the benefit to you or the builder in your proposed strategy… By the time you buy the property, pay stamp duty and acquisition costs, holding costs and selling costs – too risky in my view.
You might like to consider instead taking the step back which the current vendor has already done and find a property without the approvals/plans in place that meets local council requirements to be approved and make your margin there either by purchasing under contract subject to approval being made or better still under option agreement which you can then sell onto a third party such as a developer or investor without paying stamp duty (at your end). You will wear the costs of DA and plans but this is factored into your total feasibility versus risk.
It's often my advice that the TPP adds the first layer of value (achieved by taking the first risk) and that this should be the time assess ones position and consider realising that value (for whatever reason) and letting someone else take up the next layer of risk and reward.
The second layer is the development itself, which I believe is more capital intensive but also better understood, so more suited to those with the capital but perhaps not the desire to sit on a property without a pre-determined outcome.
Once the property is developed, then the third layer – that of investment – needs to be considered. Sell now and take the cash, or keep what you can for later?
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