This idea was suggested to me by a friend. Has anybody done this type of thing?
I am new to this concept so excuse my ignorance. Are there any issues that could arise
that I would need to consider?Hi Theresa,
I haven’t done this – but, going by the tile, it sounds like you are effectively gifting the land to a builder in return for having them build two properties. There may be negotiated “give and take” $$-wise, but is that roughly what you are thinking of?If so, the thought that struck me would be that YOUR house should be completed before the builder builds HIS. The last thing you would want is to have him go bust (or lose interest, or prioritise other work, etc) with your house un-built. I think it would be necessary to work with a Solicitor with this one.
A good thought, but don’t take half-measures with it…..
Benny
Thanks for your reply Benny. Yes gifting is the new word for me and what I am doing.
I will definitely work with a Solicitor if I go ahead with this item.
I have mentioned it to my previous builder’s representative of ten years ago and she is looking into
this proposal with her managers etc. I need to wait a bit longer as the land is part of my father’s estate
and I am looking to buy out my brother and sister’s share of everything. I still have to see if
it will satisfy my sister who is the Executor of the estate. Probate is in progress at the moment.
I am currently looking at all my options. This one is still on my bucket list.Hi Theresa.
If it’s a reasonable return or better there’s no reason why a builder wouldn’t go for it.
Cover all parties for all eventualities through your solicitor and lots of homework and DD.
Hope it’s lucrative for you or creates some passive income.
Good luck
Cheers
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Hi Theresa,
I haven’t done this – but, going by the tile, it sounds like you are effectively gifting the land to a builder in return for having them build two properties. There may be negotiated “give and take” $$-wise, but is that roughly what you are thinking of?If so, the thought that struck me would be that YOUR house should be completed before the builder builds HIS. The last thing you would want is to have him go bust (or lose interest, or prioritise other work, etc) with your house un-built. I think it would be necessary to work with a Solicitor with this one.
A good thought, but don’t take half-measures with it…..
Benny
If both houses are similar in value, couldn’t he create a contract where the gifted house is chosen only after both houses have been built in order to avoid the builder to funnel most resources to his own property?
Hi Theresa
I tried to do similar in NZ in 2000. I was putting up the land, the builder was building the house and we were to sell and split the profits. Perfect … as long as all the ducks are in a row solicitors, agreeements etc before you do ANYTHING. I got caught as I confirmed the extension of the land to proceed (I already had a deposit on the land to hold it before I met him), then while we were doing the agreement phase the builder pulled out and I heard later went bust. At the time he had a good business going so you can never tell. I couldn’t raise the $ at the time for the build alone so ended up selling the land and losing money.
Moral of my story is…(which I have learnt as a costly lesson)..MAKE SURE all is in place BEFORE you start, and you are well covered in an event of unforeseen circumstances. I have matured since this exercise and learnt lessons :) Is like any other business deal really. Due Diligence so important as mentioned by others here.
SandySandy is correct. You have an issue if the builder goes broke, who will finish the development off? It always costs more for another builder to finish off someone elses job, so it could be quite costly. If you pay for houses under a building contract, depending on what state you are in the Builder will have a Home Indemnity Insurance which makes sure the client isn’t out of pocket if the builder become insolvent, dies or disappears.
Is there a way of you raising the money to pay for both houses?
If both houses are similar in value, couldn’t he create a contract where the gifted house is chosen only after both houses have been built in order to avoid the builder to funnel most resources to his own property?
I like that thought, David – it prevents the builder from building “his” better than yours. Basically, YOU (Theresa) choose which one you’ll have after he builds both.
Of course, the Builder must then have the capacity to carry the costs of building two homes (offset by negotiated pay-backs from the buyer i.e. stage payments). But then, the builder would only receive stage payments for ONE property – he would have to be able to carry the second one himself, AND build both to completion – then allow Theresa to choose which one they want. The Builder then gets the other.
As so many have already said, it must all be water-tight….
Benny
Hey All,
Thought I could offer some feedback in regards to this. Around 10 years ago a builder approached my mates parents who were both close to retirement. They had a block of land in Airport West around 650m and had made no indication to sell or downsize but none the less this builder who they had not met, was simply door knocking!His offer was basically he would build them a brand new home in exchange for half of their land which he would be building another unit for himself. All they had to do was sign the relevant paperwork and move our for the duration of the build.
Since they were close to retirement, it was a perfect fit for them. The large block just had a massive yard that was a hassle to maintain and the 1950s home was rundown and in need of a fair investment to bring up to speed.
They accepted the deal and it was totally hassle free. The builder built them a great unit that was perfect for them, it was low maintenance with a great design. They have now happily been in the property for 10 years and still say it was a great decision.
My mate actually recently told me that this same builder had done this for many houses in the area. As Airport West is an aging demographic there were loads of elderly couples in the same situation who were more than willing to give up half the land for a brand new low maintenance home.
I cannot comment on how the developer faired from these transactions but given he did a large number of them I am sure very well. I am also not sure of his strategy but if it were to hold, given the areas worth now I imagine he is a very wealthy man.
I entered into a similar deal in a corner block 2 townhouses, in Mckinnon, VIC a few years back. It was a good option for me at the time, where 2 projects came to a point where I required funding for construction loans at the same time. I financed one myself, the other was done as a joint venture with the builder.
I owned the land, and was paying a mortgage on it. The builder built the houses.
– Specification list specified what fixtures and fitting, and materials went in my house. What he had in his, what was up to him, so long as the exterior matched the town planning permit, and endorsed plans.
– My original strategy was to buy /demolish / develop / sell. The numbers wouldn’t have worked for me unless the builder paid me a “balancing figure”. This took into account the expected end selling price of “my” house, and all my costs up to that point, including holding costs until build end, legal, and selling costs. From memory, the figure ended up being around the 120K mark. He was happy to do this, as the deal was stil worth it for him. Win / Win.
– As I owned the land, the builder was effectively pouring money into building on land he didn’t own. Of course, he put a caveat on the land.
– When completed, a contract of sale was drawn up for the transfer or ownership for his house. A theoretical fair dollar value was put on the house, the builder would have had to pay stamp duty on it. The actual figure was the “balancing figure” I mentioned earlier.An agreement was drawn outlining all the above to cover the plan. Overall, the project was successful, build completed in quick time (5 months for 2 double storey 25 sq townhouses) as it was in his interest to finish to enable transfer of ownership. Build quality was top notch, and my townhouse sold for 80K over my expected price. He have since built other projects for me.
In this case, my builder was cashed up and financed the build himself. You need to make sure your builder has strong cashflow, or can secure lending on it. I believe it is possible with some banks for builders to lend based on this type of deal. Check it out.
Good luck.
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