Builder wants in on our project

[Cruskits]

Hey guys,

We are doing our DD on a triplex build in Scarborough, Perth, WA.

We have narrowed it down to 2 builders and one of the builders has come back to us and asked if they could purchase one of the blocks off us.

Took me a little bit by surprise. I asked them to put together an offer just out of curiosity. I am a little worried that they will come back with a totally absurd price which would kinda sour the whole building negotiations, and put us off using them.

I have been crunching the numbers based on what I would see as reasonable block value and after selling costs, holding costs, CGT, GST differences it would seem that we would only be about $30,000 out of pocket, yet significantly reducing our risk. This is based on building 3 v building two and selling one block.

Note: We would like to take on the whole project but yeah just thought I would throw it out there and see anyones thoughts on the matter. Pros/Cons etc.

Westminster, MTR, anyone else, has this happened to you before and what did you do about it??

Cheers

 

[Scott No Mates]

A pre sale will reduce finance risk though you won't be able to get your hands on the money until after the title is registered.

 

[Cruskits]

cheers Scotty,

Yeah these are things we need to take into account....

 

[MTR]

Interesting, if you have worked the numbers and there is only $30,000 then it may be wise to sell and reduce the risk, however as I don't know your financial/personal strategy and long term end goals its difficult for me to answer this question.

A couple of factors that I would consider as part of my homework and perhaps you have already looked at is -

What's the market doing in this area at the moment, is it a rising market. If the market has plenty of steam in it I possibly would not sell because that $30K profit may end up substantially greater at completion of build.

Do the villas (triplex) all have their own frontage? If not, you have no control on what the builder will build, how will this impact on your 2 villas, hope this makes sense.

Cash flow/rent from villa if you built and became a hold vs selling land. Include depreciation of around $7K per villa.

End goal with all the villas?? Look at every scenario, which is the best moving forward

hold all
sell 1
sell 2
sell all

As I said don't have all the info so not sure how helpful this is

MTR

 

[HD_ACE]

This could work out well for you. If you play your cards right the builder might be a bit kinder to you on their pricing and margins for your builds.

Just make sure you weigh up all the options and outcomes to insure it will fit well with your circumstances.

 

[Cruskits]

Scarborough market. Soooo many units coming on the market so do not see them rising anytime soon. Bit of money being thrown into the waterfront as the MRA implements their vision for the Scarborough coast.

Full size development blocks have slowly risen over last 2 years, however brand new units pretty much parked at 800,000 at the moment. With the constant stream of new stock over the next 5 years of very comparable stock ie. 3x2x2 I see no pressure on prices.

2 have street frontage and one off the lane at the back. They want one of the street front ones of course so it will be adjoining walls. They will be building the same product mirror image etc. Or they get the back one and build same style but off the back with no adjoining wall. They will build at the same time and use it as a semi display for 6-12 months.

End goal.... changes as we go of course.

Hold all 3 would be ideal and rents, depreciation etc. would cover the IO payments up to around 6.5% interest rates, we would then we would be diving into our own pockets.

However it would be nice to tap into some gains and play again.... so maybe sell one, hold two.

Yeah it is hard to get all info across in a post or ten.

I suppose I am just seeing if anyone is like NO NO NO definitely do not do that.... before exploring it any further.

If they offer an amount were they see some gains and we reduce the risk a little could be a good thing.

Cheers

 

[Scott No Mates]

$30k isn't much profit considering the cost to build etc.

Take the cgt out of the calculations and the gst (have you calculated it correctly? )

 

[westminster]

No screaming no from me.

A couple of options
1. sell
2. don't sell but offer to let them rent it from you for xx mths as their display
3. don't sell, hope it doesn't get weird. It shouldn't

Would selling them a block mean you go survey strata so that you can get the money upfront and then the 3 get built at the same time?

 

[MTR]

ooooooh, it gets even more interesting.

From what you have posted, I will vote "play again".... why....??? because you get cashed up, and you repeat the process, you learn more/another skill and then you go from 1 project to 2 from 2 to 3 .so you increase profits......