Hello All,
I am wondering if there is anyone who would buy untitled land, sell it once the land it titled and keep the profit. What are the pros and cons of this strategy? What to look out for? Here I am making the assumption that the land price will increase once its titled.
Any thoughts and input on this would be appreciated?
Thanks,
SamAre you talking about buying off the plan for land that another developer is developing and you hold until completion – or developing the land yourself?
Generally the end value is going to be priced in if the former, if the latter then it’s just a standard division scenario which depending on the market you’re in can be profitable, but easy divisions are in many cases selling for a premium eroding the profit margin.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Thanks Corey. Yes I am talking about buying a land off the plan from a developer.
Scenario: I buy an off the plan land which is not titled at a price of 180K on Jun 2015. I pay 10% i.e. 18K and sign the contract between the developer and the myself.
It could get titled after one year or in some cases after 2 years. Few months before its gets titled, generally the land sells at a higher value, say in this case it could be 240K.
If I get another buyer, can I transfer the contract to this buyer and get the buyer to settle the land with the developer keeping a profit of 60K with me? Is this strategy good for people who are new in investing and need to save some cash/deposit to get into other conventional forms of property investing?
Thanks,
SamYes you can onsell – but consider what could happen if the land goes down in value. Also take into account the GST and stamp duty costs too as well as the income tax costs.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi,
I have also considered this.
Firstly, don’t pay 10%…negotiate 5%.Secondly, if there is still a lot of land to release over the next 2-5 years in the neighbourhood, the value of your block may not go up at all(or very little) meaning you will have to eventually settle on the land and then be paying the loan until you can find a buyer.
Thirdly, review the contract carefully to be sure you can onsell/assign the land to someone else. Many contracts will have a hardship clause(or similar) where you can get your conveyancer to request approval from the developer to onsell.(I am sure no developer would ever say no as they want the land to settle.
I have seen many people make some(little) money this way($5-10k a deal….sometimes much more).
The margins can be thin but there is money there.I even sold(in my agent days) a block for a bloke doing this stratgey and although it took ages to find a buyer and although we had to ask the developer for extended settlements whilst we signed up a buyer, we got the deal done, he paid my commission and he made $5k or for his effort.
Like anything there is risk, but I do like the idea.
Regards,Hi,
Many contracts will have a hardship clause(or similar) where you can get your conveyancer to request approval from the developer to onsell.(I am sure no developer would ever say no as they want the land to settle.That is a very good point. Personally, I wouldn’t rely on the developer’s approval. If s/he knows that the value is now $240k and there’s a strong demand, why would s/he extend an option to buy at $180k? The smartest move (financially speaking) would be to pocket the deposit from buyer #1, let the option expire and sell at a higher price to buyer #2.
Ethan Timor | Aligned Finance Pty Ltd
http://www.alignedfinance.com.au/
Email Me | Phone MeActive Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)
Thanks Robert. Thats valuable information. I will try and go ahead with it to see if I can negotiate 5% deposit and get an agreement to onsell.
Thanks,
SamHi Ethan,
Sorry, I didn’t quite understand this strategy. Can you please elaborate?
Thanks,
SamHi Ethan,
Sorry, I didn’t quite understand this strategy. Can you please elaborate?
Thanks,SamHey mate, my comment wasn’t so much a strategy but more of a warning. If the contract you have with the developer says that you need their approval to on sell, then the developer may not agree, especially if they know that you are not in a position to settle and that the market value at that time is higher than the agreed price.
I guess my bottom line is this: if you plan to on sell, I suggest you make sure you can do it (written in the contract) without relying on the developer to agree to do it.
Hope this helps? 👍😎
Cheers,
EthanEthan Timor | Aligned Finance Pty Ltd
http://www.alignedfinance.com.au/
Email Me | Phone MeActive Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)
Thanks mate, I get it now. This word of caution that you and Robert have put forward is of great help. I need to ensure the contract has provision to be able to onsell.
Thanks,
SamHi Sam,
Thanks for posting your idea.
Would you mind sharing how your experience was?
I recently spoke to a friend who talked of doing the same and said that it had worked well for him.
Cheers,
Steve
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