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Hi,
Contact Guy Hewartson, partner of Balmain Commercial. Very good with bank and non bank development finance. Ph 30238700 / 0434073217.
Hi Namz,
Tony Hoffman from Hoffman Kelly (Ph 3394 2311) does all my structures, some of which can be quite complicated. He has many investors / developers as clients and is an investor / developer in his own right.
Hi Matt,
Maybe my spam eater devoured you. Try [email protected]
Hi Matt,
I haven't run a live workshop since November 2007. I got a bit busy getting $100M of projects sorted out. I've got a new education + mentoring package I'll be rolling out soon but keep it to yourself. You can email me off my website initially if you have something you want to discuss.
Hi Matt,
I haven't run a live workshop since November 2007. I got a bit busy getting $100M of projects sorted out. I've got a new education + mentoring package I'll be rolling out soon but keep it to yourself. You can email me off my website initially if you have something you want to discuss.
Roebuck wrote:Bob Andersen wrote:Hi Jerome,Have a look at http://www.pingroup.com.au (Property Investors Networking Group).
Hi Bob,
Just tried this link, but I get a hosting error message – is the link correct?
ThanksHi Jerome,
I spoke to Terry Playle who is the convenor of PING and he has spoken to the website host had the site is back up:
http://www.pingroup.com.au .Hi Jerome,
Have a look at http://www.pingroup.com.au (Property Investors Networking Group).
Hi RL,
These 'pensioner units" or 'senior rental units' complexes are not technically retirement villages under the various state's Retirement Village Acts. They are rented under a standard residential tenancy agreement and rented to over 55's.
Some were developed under a managed investment scheme where you buy units in the trust that owns the whole complex. Others, like the type you are referring to, were built and titled (one ot two units per title) by community or strata title.
Typically the net yield, after all outgoings, on new product is around 6%. Units in older complexes might show higher yields.
Outgoings include such things as manager's fees, body corporate, rates, unit cleaning etc and also includes the managers supplying 3 meals a day to the occupants. The quality of the on site managers plays a big part in the success or otherwise of the complex (investment units).
On the plus side the net yield is reasonably high and there are good depreciation benefits on new complexes because as well as the normal depreciable items including the furniture in the units, the furnished community complex depreciation is passed back to the unit owners (investors). Also the rent increases twice yearly as the pension increases (20 March, 20 September).
On the negative side they are hard to finance as they are classed by lenders as 'specialised security'. As a result the funding tends to be at a low LVR (50% – 60%) as the mortgage insurers avoid specialised securities. Because of their specialised nature they are also harder to sell as the target market is greatly reduced. Management is critical. Any potential buyers should check on the experience of the managers and the occupancy level over time for established complexes.
Many complexes are owned in one line by superannuation and investment funds who like the high net yield, regular income increases twice a year and a strong management group.
They are really for a fairly passive investor willing to put in extra equity and chasing cashflow rather than growth. Not everybody's cup of tea.
Hi Carpe,
This is the short answer. In capital cities the land component in a unit development typically represents 25% – 35% of total development costs. In other words if the land was unencumbered you would have equity towards project costs of 25% – 35%.
Development finance is a bit 'over the shop' at present depending on the financier. I'm still getting 85% of total development costs including capitalised interest from my main bank but I have a long successful track record with them. Lets say you can get 75%. If you can rejig your loans to produce an unencumbered site it should be able to be financed on the TDCR (total development cost ratio).
Of course there are other issues such as presale requirement, your overall asset position and not the least of your problems – inexperience. An experienced project manager or advisor could offset that issue.
There are very few books on property development in Australia. Ron Forlee has one and so do I. If you go to my website below you will find some helpful resources.
Hi Sydneyboy (and others),
Firstly, nothing I say here should be taken as advice.
Tim (Mortgage Plus) is right about the stamp duty – at least in Qld and I assume in other states. The CGT can be a future issue when selling later if done at cost price but there are ways of doing it at valuation without triggering a CGT event. Since the investors are retaining the completed product for investment, even though it will be transferred to the individual investors, you will most likely find you cannot claim the GST input tax credits from the development costs.
But wait, there's a much bigger problem and it has to do with the Corporations Act 2001 as covered by the Managed Investments Act 1998 and the Financial Services Reform Act 2001. See http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/ This might seem like a long winded post but the penalties for being in contravention are severe. In the earlier part of my property development career (1980's – early 1990's), in the pre Managed Investments Act era, I used to use an almost identical scheme .
What you are proposing is by definition a MIS (Managed Investment Scheme)under S9 of the "Corps Act".
managed investment scheme means:
(a) a scheme that has the following features:
(i) people contribute money or money’s worth as consideration to acquire rights (interests) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not);
(ii) any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property, for the people (the members) who hold interests in the scheme (whether as contributors to the scheme or as people who have acquired interests from holders);
(iii) the members do not have day?to?day control over the operation of the scheme (whether or not they have the right to be consulted or to give directions)
Your proposal has all three features and point (iii) is always the most damning. Jointly signed cheques, powers of attorney, management agreements won't beat it. You will be the promoter and manager of a MIS. Yes, it's also an incorporated joint venture and syndicated development but it is a MIS.Registering a MIS with ASIC is a nightmare and very expensive. Product Disclosure Statement, responsible entity, compliance committee, compliance plan, constitution, pulic company etc. etc.
Section 601ED (2) in (part) gives some relief for having to register a MIS.
(2) A managed investment scheme does not have to be registered if all the issues of interests in the scheme that have been made would not have required the giving of a Product Disclosure Statement under Division 2 of Part 7.9 if the scheme had been registered when the issues were made.
Certain Excluded Offers such as certain Small Scale Offerings are exempt from requiring a PDS and therefore, as described above, don't need to be registered. At the very least a comprehensive information memorandum would be advised.One such exemption under Section 1012E(2) covers what is commonly known as the 20/12/2 rule.
1012E Small scale offerings of managed investment and other prescribed financial products (20 issues or sales in 12 months)
(1) This section applies only to financial products that are:
(a) managed investment products; or
(b) financial products of a kind prescribed by regulations made for the purposes of this paragraph.
(2) Personal offers of financial products do not need a Product Disclosure Statement under this Part if:
(a) all of the financial products are issued by the same person (the issuer); and
(b) none of the offers results in a breach of the 20 purchasers ceiling (see subsections (6) and (7)); and (c) none of the offers results in a breach of the $2 million ceiling (see subsections (6) and (7)).Note what constitutes a personal offer (Section 1012E(5). It precludes public offerings, advertising etc.
(5) For the purposes of subsections (2) and (4), a personal offer is one that:
(a) may only be accepted by the person to whom it is made; and
(b) is made to a person who is likely to be interested in the offer, having regard to:
(i) previous contact between the person making the offer and that person; or
(ii) some professional or other connection between the person making the offer and that person; or (iii) statements or actions by that person that indicate that they are interested in offers of that kind.The fact still remains that you would be dealing with a MIS. Section 764A (1)(b)(i) and (ba)(i) defines a MIS as a Financial Product.
764A Specific things that are financial products (subject to Subdivision D)
(1) Subject to Subdivision D, the following are financial products for the purposes of this Chapter:
(a) a security;
(b) any of the following in relation to a registered scheme:
(i) an interest in the scheme;
(ii) a legal or equitable right or interest in an interest covered by subparagraph (i);
(iii) an option to acquire, by way of issue, an interest or right covered by subparagraph (i) or (ii);
(ba) any of the following in relation to a managed investment scheme that is not a registered scheme, other than a scheme (whether or not operated in this jurisdiction) in relation to which none of paragraphs 601ED(1)(a), (b) and (c) are satisfied:
(i) an interest in the scheme;
(ii) a legal or equitable right or interest in an interest covered by subparagraph (i);
(iii) an option to acquire, by way of issue, an interest or right covered by subparagraph (i) or (ii);
Under Section 911A a person who carries on a financial services business must hold an AFSL (Australian Financial Services Licence). Among other things financial services include dealing or providing advice in a financial product (e.g. an unregistered MIS) where the scheme among other things "is promoted by a person (or associate of a person) who is in the business of promoting managed investment schemes". My discussions with a former ASIC lawyer suggest "in the business of" includes your first scheme and thereafter. It is possible to outsource the licencing but the MIS would need to become an approved product of the licencee. Not an easy process for a syndicated property development .In summary what you are proposing is fraught with danger. Ignorance of the law is never a strong ground to argue. Some people still unwittingly or brazenly conduct similar MIS's. But if ASIC gets hold of you watch out. They will immediately shut down the scheme (development), fine the promoter and put the investors funds at risk. I know some people who still play Russian roulette and don't get caught and I know several who have beem smashed.
Before proceeding with any such scheme seek legal advice – not from your average lawyer but from someone who specialises in corporate law, property syndicates, capital raising etc. I have no financial affiliation with them but I would recommend McMahon Clarke Legal in Brisbane as being at the forefront of this specialised area of law.
Hi Mrs Palmer,
I'm not sure if the November issue of Australian Property Investor magazine has hit the news stands yet but your question and others is answered by Julia Hartman (BAN TACS Accountants Pty Ltd) on page 64 in an article titled "Building or Renovating for Profit".
Queensland
Hi Za,
I'm in your backyard and should be able to set you on the right path with development advice and what your options are. I suggest you have a browse of my website and make contact.
Tracey's right. In fact you can have a legally binding contract with no deposit. I've been involved in dozens of no deposit contracts over the years.
Hi Alistair,
It appears what you are looking for is a mixture of debt and equity funding. The debt funding could be arranged from conventional sources such as banks etc on an LVR basis as a % of hard costs, total project costs (tpc) or gross realisation value (grv). This is what you would normally use as well as the required equity that you would put in up front.
Most of the equity you don't have could be injected by private funds. These are sometimes raised through solicitors and accountants who have clients willing to place funds in this matter and who usually secure their position by way of registered second mortgage. These funds will cost more – often 15% – 20% p.a. In reality these funds are more a form of mezzanine finance as the lenders still like a bit of 'hurt money' from the borrower – maybe 10%. Some individuals lend direct, for instance from their self managed superannuation fund (smsf). Sometimes you can get your financier to raise their lending level for a success fee and a slight rise in interest rate. I recently raised my LVR from my financier from 80% of tpc to 90% of tpc on a 20 townhouse project without using mezzanine finance. This was achieved with a 0.25% rise in interest and a success fee on completion of $15,000.
Some commercial finance brokers who specialise in high end lending based on grv have access to private and institutional equity funding. Your senior debt funder would need to be comfortable with the second mortgage behind them – some are a bit funny about it. Some equity and debt funders work hand in hand and some are the same organisation. When the equity funder supplies all equity above the senior debt level supplied by the financier (no equity from you at all) they usually look for a quite high return from the interest rate on the equity or a lower interest rate in line with the mezzanine rate plus a profit share.
You're not in that league yet but merchant banks such as Macquarie, some fund managers and property finance groups such as Ashe Morgan Winthrop can supply top shelf equity funding.
I see your biggest problem to overcome is your inexperience. This plays a big part in borrowing development finance, particularly in regards to subordinate debt where the suppliers will be ranked behind the senior debt source and they would be highly exposed should things go pear shaped. An experienced developer is one way of a financier mitigating risk. In cases of an inexperienced developer they would decline to lend or insist on an experienced development manager to manage the project on behalf of the developer.
It depends to a great extent on the strength of the market and the product being developed. I'm involved in a 20 x 650 sq.m. lot subdivision on the northern outskirts of Brisbane. DA is about a month away and we already have a one line buyer for all 20 blocks to do house and land packages. The sale price is 10% above valuation. This is because land in this price bracket is in great demand and the buyer was prepared to pay over the odds to secure the parcel. It will be about 11 months before the 20 lots are constructed and seperate titles issued. By then the market is expected to have absorbed the 10% premium and maybe more. A case of a strong market, a product in demand and no discount for bulk buying.
I am also involved in a 22 unit project close to the CBD in Brisbane and opposite a hospital. DA is about 3 months away and we already have expressions of interest for 40% of the project. Prices are adjusted up as the market rises during DA. No discounts there for bulk buying either. Same reason.
Hi Andy,
I'm a developer not a plumber but perhaps the quote included the fees Council charge for connection to a live sewer. This fee can vary greatly from council to council but in my part of the world is about $3,500 per unit. With sewer being about $100 per linear metre that would equate roughly to your quote.
Hi AO,
Semi-detached, duplex and sometimes dual occupancy are terms used to describe two homes, usually on seperate titles, connected by a common party wall.
Hi,
Thanks for asking. I have included below what is included. there is plenty of info on the website http://www.propertystrategies.net
The workshop is aimed at investors making the step up to developing their own investments thereby acquiring them at absolute developers cost and to either sell them at a cash profit or hold them as a long term investment. This way you can build a large investment portfolio far more quickly than by paying retail price like most investors.
In regards to your specific question we will be targeting small subdivision / townhouse projects. Included will be a very comprehensive 8 page checklist to guide you through any development.
Some of the topics covered include:
The strategy – Formulating and personalising a strategy using property development as a catalyst for turbo charging the rate at which you can acquire your investment properties.
Developer mindset – Analysing the required mindset and charactistics of a successful property developer. There are no 'born developers' so you will need to train yourself to think and act like a successful developer.
Your first step – Taking your first step on your way to successful property development. What you need to know, who you need to know, what you need to have in place and where to go for help.
Your roadmap – You wouldn't set off on an adventurous trip without planning your itinerary or consulting a roadmap. Learn the complete development process, how the separate processes link and overlap and how to brainstorm your project from concept to completion.
Building your team – Learn which projects require which professionals, who they are and what they do. Learn how to find them, how to select them, how to appoint them and how to manage them. Also learn how to appoint yourself as a paid professional.
Locating a site – Learn how to claim your territory, who to approach, who not to approach, and how to locate the best deals.
Forming a concept – Learn how to examine the highest and best use of your site. Also learn how to form a concept for the project including target marketing your project.
Design – Learn how to marry the design and standard of finish of your project to the requirements of your target market.
Financial feasibility analysis – Perhaps the most critical element of successful property development and where most beginners come unstuck. Learn how to perform manual and computerised financial feasibilities and cashflows.
Purchasing a site – Learn how to perform a comprehensive due diligence analysis. Also learn negotiation techniques with real estate agents and land owners and how to use options and contract special conditions to your advantage.
Financing the project– Learn the various sources of development finance and when certain sources are better than others. Also learn how to create a top shelf finance application and how to negotiate and deal with your financier. Also learn how to obtain the right valuation as well as certain advanced finance strategies.
Obtaining local authority permits – Learn which permits are necessary for which projects as well as how much they can cost and how long they can take. Also learn about how to deal with local authorities and neighbouring property owners as well as what to do if you do not obtain your permit.
Construction – Learn how to find a builder, select a builder, appoint a builder, and manage the builder. Also learn the various types of construction contracts and what to do if your builder goes bust or falls under a bus.
Marketing – Learn what marketing a property development project involves including how to target market your project, how to select the right sales team and how to manage your sales team to bring out the best result.
Post construction – Learn how to successfully manage all of the steps from taking possession of the site through to banking the money including final inspections, arranging the survey plan, plan sealing, lodging titles, arranging settlements etc.
Case study – We'll go through a case study (a different one from the book) of one of our recent projects from the day the site was presented to us to the day the last settlement was banked. Watch as all the pieces of the puzzle come together.
And all your questions answered:
- Should I use a different structure if I am developing and holding as opossed to developing and selling?
- Are off the market deals better than on the market deals?
- Should I buy and sell through the same real estate agent?
- What questions should I ask about the seller?
- What is more important – price or conditions?
- What is a Deed of variation?
- How should I structure a joint venture with a land owner?
- What is a call option and how do I convince a land owner to sign one?
- Does maximising my site's development potential always result in the best financial outcome?
- What should I do if my consultants make a mistake?
- How can I avoid getting into a dispute with the builder on the final inspection?
- And undoubtedly many many more…
