Explain how one can keep accumulating property

[MichaelW]

I wouldnt be borrowing the entire amount.

See Change - would you have a link to this thread?

RJ

RJ,

I think See Change is referring to this old thread:

http://www.somersoft.com/forums/showthread.php?t=7959

The hint was in the description "learning" experience... You'll see what I mean.

By the way, See Change is right that I have a fair bit of equity behind me too. Kay and I are just about to sell our acreage in Bundaberg so that we can pay off our PPOR completely. I'm doing up a budget for the development year and we'll be chewing into our cash reserves through that year but will still have plenty in reserve. If we sell the acreage and just hold the cash in the offset account linked to our PPOR then we'll have about $130K in cash as a fallback. We should be able to fund most of the interest charges out of income but its good to have a reserve.

I might spell out my financing in a bit more detail on my thread once I get past the settlement hurdle in the next week or so. Just hit a few small roadbumps that I'm negotiating at present. Nothing serious, will post again soon...

Cheers,
Michael.

 

[rj]

RJ,

I think See Change is referring to this old thread:

http://www.somersoft.com/forums/showthread.php?t=7959

The hint was in the description "learning" experience... You'll see what I mean.

By the way, See Change is right that I have a fair bit of equity behind me too. Kay and I are just about to sell our acreage in Bundaberg so that we can pay off our PPOR completely. I'm doing up a budget for the development year and we'll be chewing into our cash reserves through that year but will still have plenty in reserve. If we sell the acreage and just hold the cash in the offset account linked to our PPOR then we'll have about $130K in cash as a fallback. We should be able to fund most of the interest charges out of income but its good to have a reserve.

I might spell out my financing in a bit more detail on my thread once I get past the settlement hurdle in the next week or so. Just hit a few small roadbumps that I'm negotiating at present. Nothing serious, will post again soon...

Cheers,
Michael.

Oh man, this thread reaks of trouble! No wonder it got closed.

RJ

 

[FrankGrimes]

Oh man, this thread reaks of trouble! No wonder it got closed.

RJ

Yep. But there are other people who have used Metropoles services and I'm sure are very happy with their services. Patosan has used them.

I would also be interested in anyone who has used Sailesh Channon from Developers edge (feel free to PM me) as the entry level prices in Brisbane are alot less.

RJ, I think the best approach like you said is start simple by building houses and then move onto something like a duplex perhaps. Sue78 has had very positive results with buying land and building.

There is an article in the latest API about duplexes which you might be interested in. Let me know if you'd like it scanned and emailed.

Grimey

 

[see_change]

RJ,

I think See Change is referring to this old thread:

The hint was in the description "learning" experience... You'll see what I mean.

Michael.

, Actually it was n't . Nothing to do with AL ( purely coincidence ... seriously ) .

Wasn't something that's been talked about in the forum . Has been talked about in the Chat room in the past .

Was a bigger development , and there was threats of , or litigation at the end so got quite messy.

See Change

 

[Pete]

My observations are that property development can be very lucrative. There are many examples of wealthy people who have made their money from developing property.

It is also apparent that there are high risks. Though, as the gurus write, the risk is in the investor not the investment.

Development attracts many property investors keen to accelerate their wealth building and tackle the challenges. Some see it as a natural progression though IMO it is one of the many ways.

regards,

 

[kph]

RJ,
Are you including selling some of the development and triggering gst, cgt, etc, during the sales process, or do you have a 'secret' way of deferring / eliminating these taxes ?

I have heard from two sources that it can be done via a 'loophole' in the tax laws, but still can't figure it out myself.
Maybe your 'mentor' mat be aware of this ??

As a matter of interest my total portfolio is curently 'under construction' and as much as it looks good on paper, you can't eat equity or pay the bills from it either.
Not sure how servicability fails not to be an issue....
You can't get nothing from nothing ....

Kevin

 

[MichaelW]

, Actually it was n't . Nothing to do with AL ( purely coincidence ... seriously )

Hehehe...

That will teach me to be too clever and read between the lines. Ah well, that link I posted is still a relevant balancing argument for anyone interested in development to consider.

There is always the risk that your conservative estimations on cost and final valuation weren't quite conservative enough. Add to this a minimal initial projected margin and you've got very little room to move and still turn a profit.

No matter how conservative I consider my current estimates to be, I know that anything can happen. I've done everything I can to mitigate these uncertainties and risks so now have to just get on with it and trust that I've been conservative enough. I've mitigated my risks as follows:

Final valuation: Conservatively valued at $650K each, which is below current market for these properties and doesn't allow for any market appreciation until the mid-2008 completion date.

Cost: I've set a strict budget on total cost and individual components. If I can't get the design done and quoted within my cost limitations I stop.

Margin: My feasibility study projects a 30% buffer, above the 20% suggested minimum development buffer.

Cashflow: I have done a detailed personal budget and am constraining all discretionary spending. I am divesting my Bundaberg acreage to payoff my PPOR completely and help with cashflow. I will also be holding a $180K cash reserve before I turn the first clod of dirt.

There's probably more I could do but that probably isn't a bad start. So long as I constantly remind myself that conservatism wins in this game then I should be OK.

Time will tell...

I won't derail this thread any further and will post more in this regard on my thread when I get settlement across the line.

Cheers,
Michael.

 

[kph]

Kay and I are just about to sell our acreage in Bundaberg so that we can pay off our PPOR completely. I'm doing up a budget for the development year and we'll be chewing into our cash reserves through that year but will still have plenty in reserve. If we sell the acreage and just hold the cash in the offset account linked to our PPOR then we'll have about $130K in cash as a fallback.
I might spell out my financing in a bit more detail on my thread once I get past the settlement hurdle in the next week or so. Just hit a few small roadbumps that I'm negotiating at present. Nothing serious, will post again soon...

Cheers,
Michael.

Michael,
We may be interested in yr Bundaberg acerage if its not already listed with an agent....

Pls advise

Kevin

PS...Impressive numbers you've posted
30% is good for a small resi development, and going in with $130k cash buffer sure helps the sanf ...

 

[yadreamin]

Yes Pete is so right.Too many think its easy to build and flog off.I am watching 2 people atm in a joint venture.Neither of them have ever built a garden shed let alone a multi mill project they are trying to do.They hit hurdles at every turn.They have no idea what to do.They have 3 yrs to build on their site.1 year has passed and not a clod of dirt has been turned they have been told that it will take 18months to complete their building.If they have not completed in the 3 yr time frame they risk loosing control of their site.They are both well off and both in their 50s all l can say is they seem to have got a bit greedy and thought that development was so very easy.Unfortunatley l can see them loosing big time.They have put their homes up as security and thats not a good idea imho.From day one this project has looked shakey.Oh they have done no DD they have no idea of %profits at the end they just say oh we should make a squillion.They also squabble over the designs. Its quite a learning curve from where l am sitting l can tell you.
cheers yadreamin

 

[kph]

Yadreamin,
Can you post more details ( without disclosing who and where?)
ie...is it a resi development, how big, what sort of numbers, etc ??

Just interested to compare it to other developments.

KEvin

 

[Pete]

Neither of them have ever built a garden shed let alone a multi mill project ... They hit hurdles at every turn. They have no idea what to do. ... They have put their homes up as security and thats not a good idea imho. ... they have done no DD ...

From that description, it sounds like they are making fundamental and inexcusable blunders; their venture is foolish, and failure looms.

 

[lowb]

property development seems like an entirely different game...

as a rough guide, for the property investor to enter into this:
1. approx how much net assets would he/she normally have?
2. approx how much cashflow is needed to start such a project?

keen to read more, cheers

 

[NigelW]

Cashflow: I have done a detailed personal budget and am constraining all discretionary spending. I am divesting my Bundaberg acreage to payoff my PPOR completely and help with cashflow. I will also be holding a $130K cash reserve before I turn the first clod of dirt.

Michael, is $130k enough? Or is that just the figure you've got because that's the spare cash that's floating around.

Don't mean to put a dampener on your enthusiasm...just a genuinue question as to how you've arrived at that figure in the context of your development.

Cheers
N.

 

[Pete]

property development seems like an entirely different game...

as a rough guide, for the property investor to enter into this:
1. approx how much net assets would he/she normally have?
2. approx how much cashflow is needed to start such a project?

keen to read more, cheers

Yes, a different game. My thoughts are
1. depends on the investor. There is no 'normal' value. It could even be zero.
2. "how much cashflow"? Not sure I understand what that means, but could be zero from the investor's "pocket".

And, one doesn't need to be a property investor to be a property developer. If that makes sense?

 

[rj]

Some very interesting comments and I wish I could comment and contribute more - however input comes with both experience and knowledge of which, well I aint got none!

I do know how to install a flatpax kitchen though!

But seriously, regardless of investment strategies or personal opinions at the end of the day there will most likely ALWAYS be some level of risk involved.

You can hide under the bed wrapped in bubble wrap or you can run across the highway during peak hour traffic blindfolded.

I know which I prefer.

RJ

 

[kph]

Well, if you ain't got no experience, how about sharing some of the ideas your mentor has put forward..?

Since we can't pick you to pieces, maybe we can pick them to pieces.

KEvin

 

[Pete]

You can hide under the bed wrapped in bubble wrap or you can run across the highway during peak hour traffic blindfolded.

I know which I prefer.

I hope there are other options. I don't like either of those.

 

[yadreamin]

Yadreamin,
Can you post more details ( without disclosing who and where?)
ie...is it a resi development, how big, what sort of numbers, etc ??

Just interested to compare it to other developments.

KEvin

Lets see. They bought 2 blocks of land and hoped they would be able to join as 1 title.B1. 525k B2 575k. south of perth
they got aproval for that.Blocks got revaled at nearly 2mill.after more blocks in the area went to market.
They are building 4 penthouses with 1 level parking.
they are holding 1 penthouse each to live in.
hope to sell off others hope to get over 1 mill each.
12 months ago they were quoted 3 mill to build.before any plans were done.plans in now with many many extras and all bells and whistles to match plus building prices have skyrocketed in wa.
they have not budgeted for anything at all actually l dont think there is a budget.they cannot sell the land before it has been built on so there is no outs in the deal either.
Maybe l should keep notes and sell off as a book" how to stuff up a development" just with the design issues it challenged the friendship so l cant see many positives in the whole sarga.
cheers yadreamin

 

[kph]

I agree....
One will get you no where and the other is plain reckless....

(in reply to Pete's comments.)

 

[kph]

yadreamin..
Thats a book that will sell !!!

Probably have more stories to add to it over the next few months/yrs as the cycle turns in WA too.....
Reserve a copy for me pls ?

KEvin