Buy and develop novice needs help

[Philby]

Help, we are thinking of taking a BIG step.
We have just purchased our 2 IP and now the property behind it, is up for sale.
They are both on corner blocks facing different streets with a common street running down the side.
So here goes (Apologies in advance from a novice in these matters.)

What are the steps we need to take if we wanted to buy the adjoining block. (We would be borrowing the full amount.) We would then merge and develop both blocks by building townhouses.(I am only guessing here but you could have 4 townhouses)

If council plans allowed for such a development-
How do you time the develpoment?
How do you finance the major tasks of demolition, design and construction?
How do you run the finance side of it with no income(stupid Qs I know)

If council plans did not allow-
Would you buy anyway and hope for a change to the planning laws?
How would you structure the loan in this wait and see scenario?

Or am I biting off too much too quickly?
But I am excited with lots of Qs and little knowledge of financing a project like this.

So my grateful and humble thanks in advance.

 

[JumJones]

You could pick up the phone and talk to M.Yardney - Metropole Properties.

 

[geoffw]

You could pick up the phone and talk to M.Yardney - Metropole Properties.

Even better, you could go to Michael's course, which he runs in Melbourne every year.

And you're in luck- this year's course will be starting soon.

In just under three hours as I post this, according to my calculations

 

[JoannaK]

Hi Philby,

Your questions aren't stupid by any means.

Firstly, I'd suggest that you check with Council about zonings and what is allowable on the combined parcel of land.

Have a look at these threads to see if they help answer any of your questions:

http://www.somersoft.com/forums/showthread.php?t=12185&highlight=hubush
http://www.somersoft.com/forums/showthread.php?t=12182&highlight=development+loans
http://www.somersoft.com/forums/showthread.php?t=10576&highlight=project+finance
http://www.somersoft.com/forums/showthread.php?t=6608&highlight=marten

We have just purchased our 2 IP and now the property behind it, is up for sale.
They are both on corner blocks facing different streets with a common street running down the side.
So here goes (Apologies in advance from a novice in these matters.)

What are the steps we need to take if we wanted to buy the adjoining block. (We would be borrowing the full amount.) We would then merge and develop both blocks by building townhouses.(I am only guessing here but you could have 4 townhouses).

If council plans allowed for such a development-
How do you time the develpoment?

This would depend on several factors, such as how quickly your architect can work to how quickly council acts in assessing development applications.

If council says absolutely that you can put X townhouses on it, then by all means take the punt and buy the block outright...however, if you wish to be a little more cautious you'd do well to purchase Subject to Council Approval. This will give you the time you need to lodge plans with council and you only buy the block if Council approves the plans you've submitted.

How do you finance the major tasks of demolition, design and construction?
How do you run the finance side of it with no income(stupid Qs I know)

Finance isn't such a stumbling block if you have enough cash and/or equity behind you.

Construction funding is completely different to residential lending, so don't be too concerned about no income...they look at the deal as a whole, and the bottom line.

You'll need to be thorough when dealing with the banks, and I highly suggest that you seek out a finance broker who SPECIALISES in development funding. Your funding will ultimately be dependant upon the resales of the finished product, and the banks will bring in their own advisors (valuers and quantity surveyors) to assess this.

You will be required to submit your feasability studies to the bank, and they in turn will do their own feasabilities of the project. The banks will fund on a construction facility that has drawdowns (ie: you call the banks QS to come and assess how much you've spent and they give you the money back) and the interest is capitalised. There will be what's called an "All Monies" Clause in your finance agreement which basically says that the bank gets every cent from the settlements until the debt is paid back to them, and then you keep the rest.

You'll do well to have the end product pre-sold as quickly as possible. The more you presell the less risky the development is percieved to be from the Bank's perspective; which in turn means that they'll be a little more malliable when negotiating the finance.

Your finance will generally be assessed as a whole project prior to the development consent being granted, but you can draw it in separate stages; ie they'll give you one lot of money for the land, then they'll fund the construction by drawdowns. One thing that I've come across is that the bank prefers you to have your own equity in the land that is to be developed; rather than in the construction.

If council plans did not allow-
Would you buy anyway and hope for a change to the planning laws?
How would you structure the loan in this wait and see scenario?

I personally wouldn't buy unless I knew 100% what I could do with the land. No point in hoping for a change in planning laws that may never eventuate.

Or am I biting off too much too quickly?
But I am excited with lots of Qs and little knowledge of financing a project like this.

So my grateful and humble thanks in advance.

I would consider that 4 townhouses is a great start for someone who hasn't done a development before....just make sure you cross your I's and dot your T's.


Hope this helps a bit.

 

[always_learning]

I believe that adding value is a fantastic strategy. Buy, hold and hope, well certainly nothing wrong with it and will in the long term almost certainly work well.

However being active (eg development, renovation whatever), ie finding ways putting existing land/buildings to a higher value purpose, certainly when done intelligently, with knowledge of what could go wrong, with plan and purpose , with due diligence, using the skills of trusted specialist advisors, with careful control and all things that defines professionalism (which doesnt mean you need to be full time professional developer, but it means that you must control it as if you are), is to my thinking is the better way to create equity and value.

I have just finished a development, it was for me a big failure. Was I naive?: yes, did I lose control?:yes, did I act on wrong information or 1/2 truths?:yes, did I let people do less than there best?: yes, did I fail to kick butt when butt needed to be kicked?: yes ! Did I find great people I would work again with and recommend to others anytime?: yes! Did I find people who I wouldnt touch again: yes! Do I now know how to tell the difference between the two types before working with them?: no! Dont worry so much about being caught up with a fraud, worry more about people not being able to execute/deliver on what they say they can do!

Remember the outcome be it success or failure is yours and yours alone. Dont get out of the drivers seat! Beware of quicksand physically and metaphorically!

 

[asy]

Wow, Philby, Joanna's answer was fantastic! (As was AL's)

May I humbly suggest you also have a look at this: www.smartpropertydevelopment.com.au

Peter's a real down to earth guy, have a look around his site and see what you think.

I haven't done his course, but he spoke at BIG and was fantastic!

asy

 

[bicko]

lots of possibilities,
maybe buy and hold until the development would become more profitable
eg. research what similar townhouses are going for.

talk with the vendor, maybe a joint venture could work

I did Peter Combens course a couple of months ago?

His main plan of attack as an end result would be

eg: build four t/houses and keep one (positive cashflow)

but with his experience Im sure he could come up with a heap of
different ideas

I would enquire as to how much he charges for a phone consult,
I would guess $150 p/hr (thats if you cant get to a workshop)

Use fax and email too, that way he would have a better visual idea.

In short I would talk to peter.

 

[Philby]

Thank you thank you thank you, I am overwhwlmed by your replies and they have reinforced my thoughts about continuing down the road to develop.(if it all falls into place.)

I had a vague idea how to begin, but you have all chrystallised those ideas and I have taken the first step of approaching council about the zoning. The only catch is if the property is sold before my i's and t's are dotted and crossed! But I am extremely hopeful the property will still be there by the time I have done the DD.

What a wonderful and inspirational forum this is.
So one more thank you.