Approaching the landlord, to make an offer for his property.

Hi,

First thing here is to confirm with council (maybe a phone call to the town planning department) about the allowed site coverage/density etc. This should satisfy your initial due-diligence to a certain extent i would assume. If you are then happy to go further then yes you will have to fork out money that you may never see (welcome to property development).

You could put any offers forward to the owner, however if the agent or the agents marketing has introduced you to the property then it may be an ethical issue (up to you i guess). also the agent will most likely have the property listed exclusively especially post auction for a number of weeks.

its great the tenants are there to pay rent which will help your bottom dollar whilst getting approvals etc. Also try private town planners (depending on your state)

Best of luck
Josh

I assume you have not made contact with the selling agent?
As regards the agent getting his fees, that would also depend on when his contracct ceases (usually no more than 3 months).
A corner block 'usually' gets an additional 5% space allowance in regards to block size: ie: an 1,160 sm site with a min 400sm building size (just 2 x blocks) could get an additional 5% (+58sm) = 1,218 = (3 x 400+sm) allowing you to build the 3 you need.
Visit the town planning department and put your plan to them….they are usually forthright.
As for submitting a DA, the planning department does not 'usually' require detailed plans: you can do your best effort yourself; with detailed plans to follow.  All they need are a representation of the block and the boundaries plus the suggested building locations.
Do a title search yourself, estimated cost is about $70…this will have the address of the owner if its different to the street address.
Send a confidential letter to either the stree address and the discovered owners home address, seeking a private meeting with a view to buying.
You could also look at going into partneship with him to build the 3 units. It works like this;
1. You get an option to purchase at a set price (say $800K [as it will take several months-12+ to complete so an extra $50K/6.6%
and no 20% deposit required on your side plus no transfer taxes as its not 'yet' been sold/transfered.
2. You get a licence to occupy the land with authority to build.
3. Get a valuation set at the date of completion on all 3 units.
4. You fund the building of the units via a bank loan. NOTE: If you pre-sell just 2 of the units, the banks will usually fund the entire project.
5. Sell all 3 units by transfering the option to purchase to the end buyer; they pay the state stamp duty, not you.
6. You then slpit the profits (after deducting the $800K for the land and building costs, including interest, fees etc) or you take one unit [to hold, rent etc] as your profit.
By using an option, you will save yourself ~$40K in stamp duty/lost income/lost profits and not have to tie up at least $160K in a deposit~you can use that same money as your building fund/deposit with the banks covering the remainder [up to 100% if you manage to pre-sell at least 2 units during the months it will take to get council final approvals, find a builder etc.
As a base line, with a land content of $800K/3 = $266K each (1/3rd of the land+building valuation) plus 2/3rds in building valuation ($533K) = a selling price of ~$800K each x 3 = $2.4mil. Does $800K each for house and land seem right for this type of area on a ~400sm block?

While you may be able to finance it 100%, its not the best use of your cash.  Cash is king and can be used in other areas while the building is going on to generate additional funds to add to your kitty.
Selling off the plan is the best way to get finance from the banks to save your cash. The deposit from the end buyers also adds to your cash flow to pay your builders/sub-contractors.
You MUST get a project manager to deal with the day to day planning to co-ord the workers on site.

Have you visited the local town council yet?
Do you have a copy of the Title with the owners details on it?
Have you arranged a sit-down with the seller to see if he is prepared to offer you an option to purchase (to save your cash and the need to pay transfer tax/stamp duty)? At ~$40K thats a nice chunk of change/cash of better use in your pocket = $40K profit; PLUS you will keep the ~$40K/3 = $13K+ off the selling price, creating a better deal for the end buyer = easier to sell = cash in your pocket earlier. At leasst see if he is willing to go for a long settlement, the longer the better while you get your plans approved with the local council (at least make your contract "subject to an approved Development Application [DA] with ABC Council, no later than XYZ date with '3 x monthly extensions' with conditions (if any) which are acceptable to the buyer". Failing that, go for a quick transfer with a large discount (say $50K = $750K) payable [without terms/conditions] within 14 days. Even if you are refused building permission for 3 units and can only build 2, at $750 plus costs [~$50K) plus 2 x $250K = a total of 2 x $650K = $1.3mil. With a selling price of $700K to $750K, it still gives you $100K to $200K profit. A lot of work for this return.

You will be incuring 'holding costs' in the form of 'lost opportunities'. ie: at least interest earned on the cash you pay to the seller. ~$800K x 5% x 12 months = $40K.
You will only incure bank costs (interest) as you draw down the building loan as and when needed, say as each stage is completed; est at ~$100K per month.
This will be a big project (especially for your first one) so get some help.
As for the est building costs of $250K per unit, that sounds high to me…speak to a builder ASAP to get an 'estimate' ASAP.
Do you have a building plan on hand?

Yould you not be better positioned to use your cash to buy smaller houses, renovate them ASAP (say max of 6 weeks each) with a modest profit of 15% to 30% on a purchase price of $400K = $60K to $120K per deal. If you only do one every 3 months, thats still a nice chunk of change ($240K to $480K) per year AND you reduce your risk/exposure by a HUGH %. You do NOT want to end up with a hole in the ground, with the builder unable to complete the project with the clock ticking.
If you do manage to get the property at a discount or on good terms (with a partnership is the best) you can use the cash your retain to do the reno on the side, gaining additional cash.