I will leave someone to place this tread as I’m not sure were to put it.
I am going to keep this thread a live for some time it is to explain how you take a soup,( a problem site) make it into your project and turn it into a profit.
lots of people have asked If I would explain what and how I do business well this post will give you the ins and outs of how and what I do and this will be real site and real figures and for those budding property developers you may wish to learn. Post any question you wish the site is secured and no you can’t buy into it and it will become self evident as the project evolves.
You will have to follow with me and may have to read a couple of times to understand,
This is not from any book this is my system and can work anywhere.
First you need a soup
This one was a broth
a site with a contract on it for 8 mil in 2003(remember 2003 as it is very important when looking at site as most that arenâ€™t built now are in trouble)
Mr A takes an option on the site and throws 1.3 mil in to the site and takes to the land and environment court and wins (or he thinks he does)
The correction happens and the banks close in the reins and know he has problems thatâ€™s when people like me get involved (we are not sharks but are looking for soups).
Mr A goes to lots of lenders to no avail 3 months later
I offer to buy the site for 8.5 mil Mr A refuses.
The owners of the site have a bust up and then one of my real estate people ask do I want to have ago again.
This time I low low ball 6.7 mil(remember this site has a valuation of 10 mil)
This is by know 8 months this site has been kicked around by everyone and a couple of dogs.
The owners wonâ€™t accept so I go to town on the owners individually until one cracks at 6.840mil now we have a deal.
So we set up and new company and trust structure.
We get the valuer from a lenders panel to value the site as a gross realisation lend of 80% across the board on a 43 mil resale value.
And the same valuer to give me as raw site.
Now for the pen work.
First the new company buys the two sites as individual sites 6,84 mil 80% 5.472 mil and I put up 1.368 mil short term money 2 months
then combineâ€™s the site straight away and the da is carried by the land owners (so got the da for free) and refinance at the new value that I have already got in advance 10mil valuation 80% lend 8 mil I repay the 5.472 part (itâ€™s the same lender so they give you 2.528 mil) I repay the 1.368 leaves 1.16 mil take out the short term interest 68k and you have 1.3 mil in the kitty to start the development.
I will explain the next chapter in this projectLuke TaylorParticipant@world-changerJoin Date: 2005Post Count: 415elkamMember@elkamJoin Date: 2006Post Count: 722
Firstly I want to tell you that I think it’s very generous of you to take the time to share your knowledge with us.
The probelm is that I for one have never developed anything and so my questions will be very basic.
Am I right to assume that the term gross realization means the value of the property after the develepment is completed? i.e site plus development.
What is a da
grossrealisation is a form of lending.
usually there area couple of type of lending
normal land lending raw
a property Ie a house or building.
and then there is gross realisation lending which is a portion usually between 66.79% to 80% of the end product value.
this include the building and the land.
It is relatively common in construction and there are lot of different types in between including equity lending.
you can google it and get a bit of info if need be.elkamMember@elkamJoin Date: 2006Post Count: 722
Thank you Gross.
And what is da
Want to learn [smiling]
ElkaoziMember@oziJoin Date: 2004Post Count: 262
DA = Development Approval.
OziDon NicolussiParticipant@donJoin Date: 2005Post Count: 1,086Kiwi-FullaMember@kiwi-fullaJoin Date: 2002Post Count: 371
you will have to be patient as I have a few things still to clear up with a couple of other projects and this one is a long project.
I will post a couple of pages of info on the project before going to the next stage will do that hopefully by the end of this week.LukeNealeMember@lukenealeJoin Date: 2005Post Count: 28
Looking forward to it.Thanks gross
In the break of the Italian game.
So putting my time to good use.
I haven’t had time to organise chapter two but hopefully it will be by this coming Friday.
I have a little bit of insight into my world this week and itâ€™s not with this project but with another project but has bearing on this project.
I have put in an offer on a property and have a done a lot of work on it so far, we are at the verge of acceptance.
And the vendor swears down the phone and tells you to get —- and don’t ring him again. I continue and get my ground work done and that gives me another few days,
With the real estates, both mine and there solicitors writing off the deal.
Then Friday comes and the vendor asks the real estate for my Mobil ( the real estate rings and tells me ) I get on the phone before he rings me and asks has he cooled off (he must have or he wouldn’t have been asking for my number) he is very apologetic about his bad language and that this project is taking its toll.
So I say this is a soup and you have been messed around but I am still running with this deal and am even further down the path to securing this property.
And told him that he is not the first and won’t he the last that has told me to get —- but thatâ€™s my job he had thought I had stopped and walked away.
The motto is
If you line ball a deal make sure that the price you give can stack up on your figures and then don’t give up until the contracts ink is dry.
If you are going to line ball make sure you can take the heat that will follow.
And take command of the project.
The reason this soup is similar is that this soup has been on my table three times. And each time it has gone passed the swearing stage
and each time the ball has been dropped my price has come down.
To explain a quick time line of how these soups work for me is as follows
This is another soup
Property comm valuation 1 mil
I neg a deal for 650 owners say no
Go to auction price reached 640 reserves 650
Owners are an assoc (food association of nsw) has to go to meeting.
By the time they get back to highest bidder, lost interest they come to me not interested
Offer 500 owners no again
Owners send to auction again reserve 500
Same people turn up
Highest bid 450 knocked down below reserve go again to assoc meeting again same merry go round highest bidder lost interest.
Ask me again.
Again me no
Next at the general meeting of the assoc call is to put it to auction again.
I go to meeting and get them to vote there and then that I buy the building for 400k and is accepted and hand over 40k in cash at the meeting and show then the money before I ask them to vote.
so you have a 1 mil val property with a 70% 700k lend with a purchase of 400k and got a tenant in within 7 days of owning it on 38k 6%cpi index increase on a 5 x 5 lease and revalued and take equity out in cash.
Soups are very profitable you have to understand how to unlock then and solve the problem and investor says these are not rocket science and as you can see from above 400k is the normal price for a unit or a cheap house in Sydney and this comm is in Marrickville so it is inner west Sydney.
Working on soups you donâ€™t need to do many each year to make it work.
I only have about a 25% strike rate and have a lot of costs and time that requires to be written off.
This post is more for people to understand soups.
And whether a soup is because of divorce, breakup, death, liquidation, money problems or in the case of the grand hotel internal fighting by lender (Australian bank), government officials and a construction company they all have a problem and they all have a key.
your job is to find that key.learnshareMember@learnshareJoin Date: 2003Post Count: 105
Very impresive soups stories Gross.
Thanks for sharing with us.
Cheers,craigsedParticipant@craigsedJoin Date: 2004Post Count: 37
I wanted to get some clarification from you on the deal you explained on a commercial property you picked up for $400k. On that deal if you are getting a $38k PA rental income then I guess you are approaching a 10% yield, but certainly nothing outstanding. Why was the property offered at $1m, and how is it that it has been valued at $1m when the return on it at $1m would be a lowly 4%?
Also, the higher valuation allows you to take out a mortgage for far more than you have paid for it, but what is going to pay for the mortgage?
I think I am missing something…..
The dulwich hill project is different to this one (and was an example that they are around)but I will answer your questions.
1. The 1 mil was a valuation done by a valuaer for the owners at the time as I always ask that any valuations and loans are disclosed from the start of my negotiations and assigned if and when I buy.
2.I could have got alot higher rent put I set the rent low and then cpi 6% each year or cpi which ever is the higher and the tennant looks after the building
and does all repairs they sign a 5 x 5 lease
I make sure they are happy
They are looking at the end another 5 x 5 at this stage.
Each 3 years I have an increase in rental return at 38k
3 years latter its 45.25k I then take out a loan to the value of this money and at 8% its 565k and the tennant pays the loan requirements so I have 165k cash flow that is put back into a split loan and sits there until I need it as short term money for caveat lending.
If then 3 years later I have 53.9k and refinance again the lend is 673 again the tennant pays loan repayments and I have another 110k into the split loan and as the loan payments is equal to the rent the property is neutral.
so after 6 years the loan still is not at the 1 mil valuation figure ( nor at 70% comm lend so lower interest rate) and the comm real value has been increasing .
by the time the tennant comes to the end of there current lease the repayments are at 68k which covers a 850k loan at 8% the lenders love you as you have been paying the loan off each month no vacancies and the tennant wants to carry on being the tennant so signs up for another 5 x 5 on the same terms.
motto if you get a bargain take it and find a good tennant that will be there for the long haul
My tennant is listed on the second share board and is a national company that wants to stay in this area.
and yes 38k is low on a 1mil val but not low on what I put in
as for this deal I don’t put anything in these are 100% lends on comm and cash flow out
not sure where you get those and you can draw out each 3 years.
If you think thats a bad deal maybe my calculator is faulty and I need to rethink my approach to business.
My view is pay as little as possible into a deal and if possible pay nothing and take money out.
This post is for education and I am open to learning just like everyone else.craigsedParticipant@craigsedJoin Date: 2004Post Count: 37
Thanks for the clarification. No, I think your calculator is working just fine! I just needed a few details for me to understand…..
I had figured you meant that you took out the 70% lend on the property immediately – and could not see how the deal would fund that – now you have explained that each year you take out a little more that is covered by the tenants increased rent – lovely! Only thing stopping that I guess is if interest rates climb?
I also did not understand where the $1m valuation comes from – and still I am a little lost? I thought commercial valuations were done primarily on the rental income possible on the property? Can you give me an idea of how a valuer would have arrived at the figure of $1m on the property?
I know this deal is not the main deal you are going into detail on, but as you have given out this much hope you don’t mind giving a little more…..
Craig.wealth4life.comMember@wealth4life.comJoin Date: 2003Post Count: 1,256
Yes i’m with Craig i feel i’m on a roller coaster ride with Gross not very motivational for me and very confusing in his explainations.
Gross are the deals real ones or just hypo’s
The valuation was done before I purchased
As I ask for access to the loan docs that are on the properties that I look at and assign any valuation that has been done.
The valuation was done for anz and yes it is done on rental and the food association of nsw had give the valuer what they were paying.
And the valuer came out with a value for the property
weather you can say that value was correct or not is of no worry to me as I put a value of a property that I consider it to be and run on that.
wealth4life not sure about hypo’s as I don’t do them,
I do alot of evaluation prior to purchase and check projects to see if they come within my guide lines and come within my profit margins and if they do then I give it a go to try to purchase,
Some come off some don’t if thats a hypo’s then yes we do hypo’s
are these deals real yes they are.
I use a brand new company/trust structure in each of the projects that I do.
You do require to be within my group of investors to get involved and you are right as for the roller coaster as you could be asked to if you wish to invest in a duplex (21% profit margin)one day and a 21mil 5 star hotel (102% return over 2 years) the next (both are closed).
some are long term projects (the hotel) and in areas that most people would think or feel safe investing in (china the hotel).
I don’t nor would I ask people to invest in anything I tell people what I am looking at investing in and leave people to make up there own mind.
If I was give the chance to go a roller coaster ride and told I can hop off any time I wanted and this was a investing ride with rene, harry trig or even one of the share trader (not into shares that much) roller coaster drivers then I would buy that ticket.
Thats not for everyone as we all have our own risk management.
and last but not least as for motivational (wealth4life).
I am not a motivator nor a book seller and this is post is to give people a different type of investment and how they work
If they are not motivational thats ok you may well know alot more then me and I look forward once this project has done its coarse that I maybe motivated by a post similar from wealth4life with welcombe to wealth4life world
and explain how one of your deals are put toghter and how they can be done.
I am here to learn
just a little side line I have organised with the assistance of jaffasoft to have a section that will have zipped mp3 files for people interested in this project.
I will put up a word doc part 2 here so people can read it or they can down load the zip and listen if thats better
This site will be doing all the pre sales also you do have to register and there is no cost
unfortunately you can’t store here the first zipped file is 7.5 meg. and the second is 1 meg.
this is not going to change organising part 2 but with these soups they have more turns then a snake
And for the last 4 weeks we have been organising the vendors with the assistance of 2 solicitors and 1 barrister very interesting and that will be about part 4.
I have deleted the money values at this stage and will fill them in at a later date they are in my copy put they donâ€™t need to be up at this stage.
This whole project is not going to be short and as I said in chapter 1 this is an evolving project.
First to understand to solve a soup your need to get to the core of it and to do this you have to understand a few things.
1. the players in this game ( and I look at it as a game of chess but this is not a normal game of chess I have a three way chess set and play that with the boys but this is a multi player chess set and you have to move to what you think the others are going to do).
2. The boundaries of the project I.e. a start time that you are going to look at and were it is at that point in time.
3. the outstanding costs on the project
4. the vunerabities of the other player
5. as much history you can gain on your opponents
6. players out side the game that will influence the game(banks, creditors etc)
7. Any stumbling blocks that at this stage havenâ€™t been move or canâ€™t be moved at this stage for what ever reason.
To answer the above question and for you to get an idea of this project this chapter will be on the history of the site and from there you can see who the players are and why it became a soap.
In or around 2003 two owner were approached by Mr. A(I am not going to put names to this project as it does not assist and they may not wish to be named) came to them and offered to option there properties and to put the da into Rockdale council.
The price offered was( ) and the option fee was ( ) (now the option fee was 10% but the didnâ€™t do the contract that way fault 1(I will put in the faults that is my interpretation and as this is my story I think I can))
Mr. A went and paid for the drawing and da cost around the ( ) mark and submitted them to council (councils can be real problems and if you are a council officer reading this then you can see it from my side of the fence).
Council knocked it back.
The drawings were done 5 times each time they were knocked back.
The clock was ticking and by about a year it was decided to take the project to the land and environment court (problem 2 fault 2 if you have not got the money or have not shored up your lend to construct which Mr. A didnâ€™t)
After about 350k project comes out of L&E and now has a da but Mr. A has no money on top of that the goals have moved we are now 2005 and a corrected market.
Mr. A has been paying to hold this option with Mr. B and Mr. C and they have given him 6 option renewals to get thru L& E and the cost of the renewals is a total of( ).
Wait but there more
Mr. B and Mr. C both have lends on the sites with two banks and they have been holding the site also and they have paid in my calcs ( ) in holding cost and have ( ) from Mr. A so they are short by ( ). and the market is falling (banks donâ€™t like this).
So Mr. A comes looking for finance and to get out of this deal so I put a syndicate together of investors to buy out the deal and run with it but Mr. A gets very greedy and whatâ€™s to large a share of the pie so the deal falls thru.
Mr. B starts to look for people to get him out of this deal not all just him.
Again it comes on my desk this is another 8 months latter.
But this time there is a couple of added players (in the form of two banks).
So to muddy the waters even more and to add heat.
I bring in a real estate to mediate the deal and his instructions are
That nobody knows who I am until I deposit the property.
I have all the history on the site and all the cost
by this stage Mr. A canâ€™t get finance and Mr. B and Mr. C are on the ropes with a two bank beating the sâ€”t out of them and about to liquidate.
I have a contract at ( ) I take the deposit out ( ) and take off 5% ( ) with an understanding to the real estate ( buyers agent if you wish ) that if they donâ€™t accept that it comes down 5% per time they say no and they bring it to my desk.
Now we have a game.
We have Mr. A, Mr. B, and Mr. C (and two banks that want the site sold) playing one side and me, the agent, my bankers, on the other
We have the AAA in our hand and they have a site.
This is were it gets tricky you need to get the vendor working with you not against you and you need to find a player on the other team to assist you Mr. B was our player, he hated me swore down the phone and the names werenâ€™t nice(the Italian used nicer words to the Frenchman) but he likes the agent so it good cop, bad cop I say this is what I want and I will tell the agent he goes back and changes a little with, I will accept this,
By this time it March 2006 three years latter from the start of this whole deal and Mr. B and Mr. C are at there wits end they want it sold so they agree to sell.
The next problem was the da as the da was held by the option holder this we need to get over but not let Mr B or mr C know that this is what we had in mind mr B an mr C brought in there own real estate mr D and he was the one that sold the site and set up the option for mr A this put a unknown quantity into the pot as he wanted to know who we were or nothing was going anywhere so we had stale mate if I told them who I was they would not have sold the site to me I had a hold deposit on the site with the buyer agent and had everything in place I had the lend organised so the next thing was the contracts.
Unless I told them who the buyers were (we had set up a new clean skin company and trust) not just the company.
So what do I do.
Simple let them stew for a while.
Then go and see mr D tell mr D that we have been told that we were buying this property and if the reason that you wonâ€™t sell this property is because you donâ€™t like the buyer then the two bank will be informed and the price goes to ( )and also that we reserve the right to take legal action from our barrister that if then we still donâ€™t buy the site we will take an action for break of a commercial contract as we had put a commercial deposit on the site with a view to purchase and this was all set out in a letter from form a barrister.
This brought all back to the negotiating table and know with the letter it told them who was buying the site.
This did not go down well and lots of calls later the contracts are with us I have posted the well after the contracts have arrived for security of the site reasons and that I wonâ€™t have time to do this size of word doc when I have this project at full steam so I have done this one and part three prior to full steam running ( like the chef with I made this one earlier).
Time frames and players
Labour content about 9 months of work 50hrs per week roughly
Four solicitor groups
Two valuation companies
Chapter three coming up