I have been approached by a property developer.
I have a house in the logan area of Brisbane with 1472m2 of land
i currently rent the property out but am negatively geared
The developers will demolish the present house and build 5 new 3 bed houses
I have been offered to clear my mortgage and own one new house on the land
The developers naturally will sell the other 4 houses
Is this a good deal or should I ask for more?
calculate the value of the house and the land that oyu will have at the end, and how much equity you currently have invested in the deal.
if the value of the new property is more then the equity you currently have invested… then work out how much better and go for it if its a good %.
if its not better, then i wouldn’t. i’d sell the property or something to get my money back.
As Illuminati said, if the new house and land is good value, and will meet your needs then go for it – a lot of developers wouldn't offer this. It gets you debt free with a house which is, all things being equal, a good position to have. Don't get greedy would be the only advice I'd offer, there's plenty of stock out there for developers to build on, if you make it less of a good deal for them (and ultimately the bank funding it) they'll walk and find something and someone else that will work out, and you'll still have a negatively geared property with a mortgage.
Not suggesting you let yourself be walked over, no way, but keep it realistic. Some people seem to get ridiculous ideas in their heads when someone says the word 'developer'..
Best of luck with the venture if you decided to go with it.
Thanks for your comments Illuminati and Matt007 – can you help me further?
I have been told to look at the build proposals and choose the best house!
If the house is worth $400,000 what is the equity from this.
The developer rekons the new house will be worth $350,000, but his is probably exaggerated since to get 5 houses to fit on 1472m2 is quite tight even as double stories – so if the new house would be worth $300,000
How does this look as a %?
I appreciate your help, thankyou
I meet the developer on Tuesday so I need to be armed with clarity!
equity is basically the money that would be yours if you sold the property.
So if you had a deposit of 100,000 and purchased the place for 300,000 with a 200,000 loan and it went up in value to 400,000.
then your deposit
100,000 plus the increase in value 100,000 is your equity.
or you can say the value of the house 400,000 minus your mortgage 200,000 is your equity.
if you pay down the mortgage = more equity etc
so… using the numbers i just made up…. your equity is 200,000. the equity of this new house and land, according to you is 300,000. as you will have no mortgage.. so that is an increase of 100,000!! or if the developer is correct 150,000!
BUT thats using the numbers i made up, so check with the real numbers.
300sm places near me atm are selling for 600,000 plus… so their value really depends on the area, type of building, demand etc.
and the shape of the 1400sm block determines how best he can subdivide that space. how much is street frontage etc.
Again, illuminati is correct. Your position will be dictated by if the offer is to give you the property unencumbered or not. If you want to know what it's worth, look at comparable sales/for sales in the area, speak to local real estate agents for an appraisal. That should give you an idea of how accurate the house and land value being presented to you may be. As with anything, it's subjective to a degree. At the end of the day, does it meet your needs. Does being mortage free with a brand new house and land in the same location as you're currently living, put you ahead of the game or behind it, based on your own and your family's goals. If so, great, congratulations and go for it. If not, be very clear on what you do want, and where you do want to go, and either communicate that to the developer to see if they can meet that, if not, be prepared for them to walk away and hold the same position you do right now, and have to go find your new position on your own. No one knows your goals better than you, so my advice would be do the research, think very clearly about your goals, in detail, and then weigh it up. Who's to say you can't do both – take the new house and land, debt free, sell it to leverage into something better.
We can only offer so much perspective, at the end of the day it has to be about you and your family.
Hope it works out well for you.learningpropertyMember@learningpropertyJoin Date: 2010Post Count: 1
Hey Denis, What about checking out CCorp’s Property Developer Course, that way you get an insights into how your property is valued in the eyes of a property developer.
Check out this one, I highly recommend it:
http://www.nicciandlee.com/blog/internet-marketing/propertydevelopercourse/nightelvesMember@nightelvesJoin Date: 2010Post Count: 48learningproperty wrote:Hey Denis, What about checking out CCorp’s Property Developer Course, that way you get an insights into how your property is valued in the eyes of a property developer.
Check out this one, I highly recommend it:
Is there a lot of marketing from these two day event? The reason I ask is often these conference give you very little information material but crap load of marketing BS.illuminati wrote:equity is basically the money that would be yours if you sold the property. So if you had a deposit of 100,000 and purchased the place for 300,000 with a 200,000 loan and it went up in value to 400,000. then your deposit 100,000 plus the increase in value 100,000 is your equity. or you can say the value of the house 400,000 minus your mortgage 200,000 is your equity. if you pay down the mortgage = more equity etc so… using the numbers i just made up…. your equity is 200,000. the equity of this new house and land, according to you is 300,000. as you will have no mortgage.. so that is an increase of 100,000!! or if the developer is correct 150,000! BUT thats using the numbers i made up, so check with the real numbers. 300sm places near me atm are selling for 600,000 plus… so their value really depends on the area, type of building, demand etc. and the shape of the 1400sm block determines how best he can subdivide that space. how much is street frontage etc.
Thanks Illuminati, Matt007 and others – I go to a meeting with the Property Developer tomorrow, Tuesday, much more prepared and more clear. I will listen and ask for clarity and if you are still interested in my little bubble I will let you know what transpires. I can see that my equity does increase with a new deal so I will have to tread as a pack leader so as not to be snared as the submissive one…
glad its a good deal for you, let us know how it goes over time.reddahaydnMember@reddahaydnJoin Date: 2009Post Count: 28
the way I would look at it is like this.
the new townhouse would probably rent similar to the house you own now yeah? so your going from losing money to making money. if you are looking for income this would be the go.
There fact the developer can give you a house lowers his cost base and makes the deal more likely to go ahead. if he were to buy your land, it may not be as profitable for him, and harder to get finance and the deal may not be worth it.
if you were to sell, how much money would you have? if you are looking for growth, maybe it is better to take this money and use it as a deposit to buy 2 houses which would be slightly positively geared i would think.
So it all depends. having a place fully owned would also allow you to service another loan, however if you still owe money on where you live, its not the best tax wise. but still, your getting 350 a week plus you can depreciate the new house….
Thanks for all of your comments since they have helped me prepare for the meeting I had with the property developer.
The PD didn't know about my mortgage ($240K) and has revised his offer to providing me with a new house with a mortgage of $100K which is positively geared to the tune of about $100 per week in my pocket – so this includes all costs from Rental Managers to Council Rates. They are still doing feasibility studies and fine tuning their offer and will be getting back to me this coming Monday 1st Nov.
So as I understand it from Illuminati : New House is worth $330K; Mortgage of $100K; Equity $230 – this is still better equity than what I have at present ( the house at present is not estimated at $400K but more like $380K) which makes the equity $140K…
The question I pose to Illuminate, Matt007 & Redd & anyone else is if the PD is paying off my mortgage of $240K – he is basically getting my house and land for that price which is damn cheap ( I bought it at $266K 5 years ago) – Ok he is doing the yards to get the permission and build but is this good for me to get a new house and still pay a mortgage on it while he goes ahead and sells the other 4 at what he estimates as $70K profit? We both have to be happy with the deal and we understand this – should I be happy? What do you guys reckon?
I would appreciate your thoughts on this matter before Nov 1st.
basically even though the situation has changed….. it really hasn’t.
you crunch the new numbers, and if you are in a better position by taking the development then do that, if you believe you can make more by selling your property or doing the development yourself then do that.
But it sounds like you have a good understanding on equity, and how to work out the numbers and calculate deals now. so seems you have learnt what you need to go ahead and decide.
and yes he would get your house and land for around 230k, but due to his ability to develop, you will be going up in equity of 90k
230k for new development – 140k for the old.
So if you think you can sell your property now and make an overall profit of more then 90k, then do that. but remember the new property can be depreciated etc at a full rate being a new property. so you will have that benefit over the place you have right now. so its really 90k plus some tax advantages.
will the new loan be with the developer? or is he just paying down the mortgage you have now? just curious. if you change who the loan is with, maybe you can also change your rate etc…. so think of that too.
there might also be some CGT issues, depending on how the deal is structured… are you selling him your land and building then buying back the new house at a reduced rate? or is the property going to be subdivided under your name then you sell him the extra titles? and he develops your new house on your land? or some other way? there will be CGT events if the properties are changing ownership.
What you have now is just normal fear of making a decision. just run the numbers, think of things in terms of numbers and business decisions. not property…. property is just a way to make money…. so its the money and tax you should really think about.
IT all comes down to you. Asking us if you think you should be happy or not isn't really the way forwards. Ask yourself if the situation is better for YOU or not. If you go from negative geared to positive, good. If you go from old house to new, with depreciation benefits etc, good. If you could sell for more with a new house rather than old, good. If it puts more money and equity in your pocket, then good. If it doesn't do those things, maybe not so good.
At the end of the day it all comes down to you and what you want.
Thanks for your thoughts and comments, Illum & Matt I really appreciate them – particularly the one on treating it all just as numbers and so not being emotionally attached. The good thing about the deal would be that I would by-pass estate agents and their % fees.
Once the PD has given me his figures for the deal and the contract I will get them checked out with a lawyer. I will keep you posted.
Illuminati or Matt007 or others do you know what the present Council charges are to vacant land? Is it around $25 – 30K?
I have been looking at property options and have been reconsidering getting the options to split the block myself, then sell the land and keep the original house or something like that… The figures look good even if I just sold 3 blocks of land at $50K each.
I had another proposal given to me by the PDeveloper which was not as interesting as I had hoped – saying the new house would have a mortgage of $190K and not the $100K – so the whole deal has got me thinking…
I will be meeting the PD tomorrow and this seems to be crunch time as far as he is concerned since other of his properties are waiting to be worked on – a tactic to get me to do irrational things maybe?!
Anyway if you do have some figures on Council charges to split land that would be useful and if you have any experience of splitting land and using property options as a means to create profit?
If you mean a DA to subdivide a lot or, in their terms, reconfigure a lot, it could be anywhere from 15-30K. there's no exact figure unless you rang one of the planning companies to get a quote on the DA for you, which will take a few days for them to do. If its a simple residentially zoned lot, and the council supports subdivision of the lot size etc, it should be fairly simple. I can't say for sure though without knowin the lot and zoning etc. Give a town planner a call and ask him for a quote to subdivide the lot.
As for the developer, it may be crunch time for him for a number of reasons, funding, other project deadlines, could be any number of things. It may well be as I described at one point earlier, if it gets to hard to get the deal over the line, he may just walk.
Good luck.dtbaleMember@dtbaleJoin Date: 2010Post Count: 3
Hi guys enjoy what you have to say about this topic.
If the developer can do this and make great profits then that to me says that this a perfect deal/opportunity for you to become a developer and do the 5 house development your self, sure its not as simple as that and takes a lot of planing and organising but if it takes you a year or two to plan and learn everything you need to do the development in that time who says you wont gain another 30k in equity.
You could sell two off the plan to cover costs of construction and go from there, but it all depends on your situation ie family, work and lifestyle, i think you should consider it because you have the property already and why should the developer take all your possible profits that you found first.
again this could be alot more complicated that just getting a 350k house, but if you can do it well you stand to make good money and it could be a life changing experience! you can do it!!!
good luck either way.
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