I'm wondering if anyone has any experience with the following Strategy:
Find Raw Land Site or Land Site with old house/dwelling/factory etc…
Offer around 10%-20% above market if the owner will give you 12-18 months to apply for a DA through council.
Once Approved, Sell the option and DA to a developer for Profit. Obviously the idea behind it is that a Site with a DA is worth alot more to a developer than just a Raw Site alone.
House and 1000sqm Land for Sale $500K
You offer 600k on an 18 month option.
vendor Accepts, you give 5K as option Fee.
You apply for DA to get 6 Townhouses built
Consultancy costs – 40K (Achitects, Engineers, Geotech, Accoustics etc..)
Approved through Council 6 months later.
You Sell the Option to purchase the property for 400k to a Developer
Your Profit 355K (400K – 40K consultants – 5K Option Fee)
Builder purchases property for 600k from Original Owner by exercising his option to buy
Builder constructs Townhouses for 200K each
Total Cost to builder: 400K option Fee + 600K Purchase Land (With DA) + 1.2Mil Construction Costs (6x200K)
Builders total Costs 2.2 Mill
Retail Sale of each Townhouse $500K Each
Builders Profit 800K (Sales of 3Mil *6x500K Townhouses* -2.2 Mil Costs)
so the seller of the original Property gets 100K more than they were asking so they're happy
you get 355K profit for going through the 6 Month DA Process and dealing with Council for Approval so you're happy
The Builder gets 800K for actually constructing the properties so they're happy
And First Time Home Buyers get a ready made solution by purchasing a brand new townhouse so they're happy
Everyone wins! :o)
and the best thing is that you haven't actually had to arrange finance or actually buy the property at all, you've just put up 6 months of your time and around 45K in fees to make 355K
obviously this is a loose scenario but you get the idea… I'm wondering if anyone has any advice or experience with this in practice?
Nathan Hosking :o)
0421 88 22 68
[email protected]Richard TaylorParticipant@qlds007Join Date: 2003Post Count: 12,024
What you are describing is a standard Put & Call Option and been done 000's of times in the development world.
I must admit all of the deals we do we never offer 10-20% above market value especially in todays climate.
Also remember if you cant sell the Option to a developer you have 2 options:
1) to settle when of course you may not be able to finance the deal.
2) walk away and loose the costs to date. By the way i think you will find your DA costs will be a little higher than you have indicated.Matt007Member@matt007Join Date: 2008Post Count: 259
Corporate Monkey: sounds like the Massland model, which i have some experience in, and I can tell you first hand what they tout and what Rolton speaks of is NOT how it really is. You realistically need a 24 month option, especialy in this current market, you need a list of buyers who want the product, you need some good consultants on board who can get your DA within the specified time frame, and you need a lot of time to make it work. and you also need to find someone who doesn't really know what they've got. Very few people out there will accept $1K or even $5K as an option fee, most want non refundable of at least 1% of the strike price. You can do it but its nowhere near as easy as Massland et al purport it to be.
My lessons learnt from my experience so far is:
a) I'm never going near Massland again. Ever.
b) Establish your network of buyers, consultants, agents etc first otherwise you'll be left holding an option that no one wants
c) make sure what you're proposing for the site has an established, current and very real demand, or you'll end up with the same scenario as b)
d) Make sure you get accurate and more importantly realistic (not inflated or plain untrue) figures for your feasibility, both for the civils/development costs and the marketing/sales costs/value of the end product.
e) Make sure your JV partner (if you're going to use one) is well connected and respected in the market place. No point in JV'ing with someone no one will buy from.
Good luck with your project.
Great Advice Guys, really appreciate the input :o)
Matt007, you're right this is the Massland model and I have seen the Videos by Mark Rolton – that has sparked my interest. I first saw idea at a Princeton Development seminar here in Sydney and have heard about a number of other developers doing it also.. I think the idea behind Optioning a Raw Site and Applying for a DA to onsell to a developer is fairly common knowlege, it appeared that Mark Specialised in it however..
I understand what you're saying and when watching the Intro DVD, my BS meter was registered off the charts in some parts :o) I like the overall concept and I think it's important not to get caught up in the marketing hype, I'm in Marketing myself :o)
I absolutely agree with the points you mentioned. I do believe it's necessary to focus on the following things:
1) Look for areas with massive population increases like the Gold Coast, Adelaide and to a lesser extent Melbourne, especially areas where huge infrastructure is being put in place by Large Companies and the State/Federal Government
2) Do the feasiblity study and overcompensate with the figures, minimum 20+ profit +3-5% contingency
3) Establish a very high historical demand for the type of development you are trying to get a DA for
4) Don't enter into anything that you wouldn't happily build yourself if you have the time/money resources
I think all of these are very important to get right, I believe the biggest risk is spending 40-50K on a DA then having the option expire worthless because nobody wants to buy it.
Ultimately it's like anything in life, if you do your homework, over-calculate your risk, under calculate your profit and look at historical evidence you can mitigate your risk to a point where more than 50% of what you try will work
Again I really appreciate all the great advice guys, especially with your first hand Experience Matt007
Nathan Hosking :o)
0421 88 22 68
[email protected]Jon ChownMember@jon-chownJoin Date: 2007Post Count: 254
In 1995 we could get a DA in 90 days the same DA now takes almost 2 years. We used to be able to offer a premium for the site, but unfortunately now that the GFA % has been reduced to 50% on LMR blocks the House is usually worth more as a house than a developer is prepared to pay. It has also taken away the greed factor of the Home owner (get more for doing nothing and no risk or expense).
Thanks Jon, Totally agreed.. your comments echoe my research also.. thanks again :o)
Matt007, it appears that you have alot of experience with Seminars, including Massland (which I'm thinking about doing) and I would love to chat with you if you have the time, maybe I can offer some advice on various property investing strategies.. I'm 27 and Own 10 Properties in NZ and one i London so I think we could swap Ideas…
If you have a Mob I'll give you a call :o)