I’ve been negotiating off-market for a great development opportunity in a prime Melbourne residential suburb in Melbourne, but the deal looks like going south now because I can’t fund the entire purchase myself. My own equity is tied up in other projects at the moment, and unfortunately it’ll be a few months yet before I’m able to release it (although I’d be happy to contribute it to this project then if necessary).
The site is a large corner block, so there are several ways to generate a profit from it. It could simply be sub-divided and sold as 2 parcels, just like Steve’s example project at the RRR talk on Sunday. Alternatively, it could quite easily accommodate anywhere between 3 townhouses to 8 units as a development. Each of these strategies is profitable, and depending on the JV partners I found I was planning to pick the strategy most suited to our combined capabilities, risk profile, personal preferences, etc.
The problem, though, has been securing the deal in the first place. The vendors have been unwilling to accept *any* kind of flexible arrangement which would allow me to put the JV together after putting my foot on the deal. I’ve tried using an option, an extended due diligence period, or even an offer subject to finance for slightly longer than usual. In return for these more flexible terms, I’ve offered valuable consideration in the form of a premium price or a non-refundable $5000 fee. However, none of these offers have been accepted, and at this point they’re only prepared to accept an unconditional offer made in the next couple of days
Steve advised me on the weekend to try offering a deposit bond with a long settlement period (provided I actually *was* prepared to settle at that point … which I am), but my research today seems to indicate that I can only get a deposit bond once I’ve got finance approval … which of course I don’t have, since that’s the very problem I’m trying to solve. I haven’t used deposit bonds before, so it could be that I’m missing something.
I felt I had to have the deal secured in some way before taking it to potential JV partners, but perhaps that’s the wrong way to approach this situation? In retrospect, I guess I should have approached my backers with a *potential* deal, which I could then have used their funds to secure. I was reluctant to do this at the time, however, because although have some investment/development experience, my proven track record probably isn’t sufficiently compelling in and of itself to convince people to finance a deal with me. Hence, I wanted to have actual cost projections and accurate profit targets backed by completed due diligence on hand instead.
Anyway, if anyone has any last-minute thoughts or ideas for me on how to save this particular deal at the 11th hour, they would certainly be appreciated! Likewise, any suggestions on how I could do this better next time so that the next deal doesn’t got the same way as this one would also be well received
Cheers,
Mike
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