Fliping grouped properties to developers

Im not sure how many of you read an article recently about a group of people in melbourne who sold their grouped properties to a devloper and killed the pig?

I believe they all lived adjacent and was in an area which had gone through a recent zoning / policy change, they got together and said they would sell their propertys as a package to a developer and they ended up walking away with a huge profit.. i think it was like 15-20%+ more than market value.

Using this strategy, do you think it would work to activly go out there and find properties where people would sell for say x% above market value assuming you could group mulitple blocks and sell as a high density devie, and for doing this you take a decent cut.

I'm always thinking of business ideas, the way i see this idea is you dont really have to front up too much money for a return... your simply a middle man doing the deal, and taking esentially the RE cut plus more.

I think the 3 biggest hurdles of this idea are;
- How would you entice the people to sell, what are they getting to commit into the deal other than the above market vals..
- what format would you use, eg options / contract to buy w/ clauses..
- and the most important one - having a buyer (i'm thinking market it to asian websites / investors)

Pros of this idea-
-dont need track record (history)
-dont need much capital costs - they would only come once you enter the deal (lawyers etc)
-you can work at your own leasuire
-while doing this, you can assess the deals your looking at and possibly find devies for yourself
- increase negotiating skills


Would love any feedback!
 
Using this strategy, do you think it would work to activly go out there and find properties where people would sell for say x% above market value assuming you could group mulitple blocks and sell as a high density devie, and for doing this you take a decent cut.
!

First question is why would the owners pay you? They can simply get together take the properties to a joint auction themselves.

This happened in Brisbane also, 4 houses side by side went to a joint auction, bought by a developer, and each owner received a price well above the individual value.
Marg
 
The strategy of options, I don't know anyone who uses this strategy and certainly not on this forum??, sounds simple but I suspect if it was that simple to make money using this strategy everyone would be doing it.

Also, I think we have lots of information at our disposal today and people are becoming more savvy and if there is a potential to make more money they possibly would do it themselves as Marg mentioned.

Recently, a very sort after area in Perth where zoning is changing I know of people in the area actually buying their neighbours properties, they are well aware of what is happening and how they can maximise their profits, in other words you have competition and lots of it.
 
First question is why would the owners pay you? They can simply get together take the properties to a joint auction themselves.

This happened in Brisbane also, 4 houses side by side went to a joint auction, bought by a developer, and each owner received a price well above the individual value.
Marg

Valid point, i make my money on the markup.. Do you know many people who have pooled their propertys and sold to developers?, most people dont think outside the box.. and if they do think about it, a large percentage will never action it..

MTR - I'm not really aiming for areas where there is a lot of investor activity, because that would simply be the hardest area to do deals. I was thinking more along the lines of R20/r40 areas.. corner blocks.. near transport hubs.. etc.

Even looking into areas where say aged care living would work, maybe go down the path of trying to get zoning admendments, ive never travelled that road so not entirely sure whats involved (i'd say a bit of work).

The core idea is flipping property without actually purcahsing it, where i come into it is adding valve by grouping / re-zoning.
 
If you can make it work then that's great. I just think people are much more switched on with this sort of thing and will cut you out and do it themselves once the idea is presented to them.

Valid point, they dont pay me, i make my money on the markup which the buyer wears... there is no payment made by the sellers as is in the case of traditional resi selling. Do you know many people who have pooled their propertys and sold to developers?, most people dont think outside the box.. and if they do think about it, a large percentage will never action it..

MTR - I'm not really aiming for areas where there is a lot of investor activity, because that would simply be the hardest area to do deals. I was thinking more along the lines of R20/r40 areas.. corner blocks.. near transport hubs.. etc.

Even looking into areas where say aged care living would work, maybe go down the path of trying to get zoning admendments, ive never travelled that road so not entirely sure whats involved (i'd say a bit of work).

The core idea is flipping property without actually purcahsing it, where i come into it is adding valve by grouping / re-zoning.
 
MTR - I'm not really aiming for areas where there is a lot of investor activity, because that would simply be the hardest area to do deals. I was thinking more along the lines of R20/r40 areas.. corner blocks.. near transport hubs.. etc.


But Jessa, this is where the investor activity is really Hot hot hot, try securing something with this zoning, its very very tough, I know have been working this market for the last 2 years.

By all means give it your best shot but I think it wont be easy, happy to be proven wrong.

Also I have tried approaching owners myself and as soon as they know you want their property they turn into monsters, suddenly they want unrealistic expectations/over the top prices, or they just want you out the door, they become very suspicious.
 
Very difficult to do..

If you can manage it you would probably do it with options to prevent the sellers changing their minds or byppassing you.
 
If you can make it work then that's great. I just think people are much more switched on with this sort of thing and will cut you out and do it themselves once the idea is presented to them.

Do you really have to disclose your plans for their propertys? once they are locked into a option, thats it...the point of it is to negotiate the deals, they either want the 10-15% above market value or you find someone else who does.
 
Do you really have to disclose your plans for their propertys? once they are locked into a option, thats it...the point of it is to negotiate the deals, they either want the 10-15% above market value or you find someone else who does.

By all means give it a go. Just saying there will be a lot of resistance. Neighbours do talk. Plus, how much do you have as an option fee?
 
That's why I don't normally bother with mail outs, door knocking, approaching neighbours etc

Expectations become unreasonable, one word to a over zealous agent and they think you are ripping them off
 
Good points guys... its all just ideas at the moment, ill have a new idea next week!! haha. Thanks for the discussions!

Truly Exotic - in your experience, what would you say is the key to making a deal work?
 
By all means give it a go. Just saying there will be a lot of resistance. Neighbours do talk. Plus, how much do you have as an option fee?

I think this is the gist of it?:

  • Find a group of properties in a suburb that you think has more value to a developer as a group
  • Do DD and calculate market price of each property sold individually or as a group to a developer
  • Say there is a 20% premium as a group
  • Approach each individual house and offer an option contract for 10-15% above market value
  • Once you have an option over all the properties at X price you put the group out to devlopers
  • The money is made on the margin between the values of the individual properties and as a group

Is my thinking correct?
 
I think this is the gist of it?:

  • Find a group of properties in a suburb that you think has more value to a developer as a group
  • Do DD and calculate market price of each property sold individually or as a group to a developer
  • Say there is a 20% premium as a group
  • Approach each individual house and offer an option contract for 10-15% above market value
  • Once you have an option over all the properties at X price you put the group out to devlopers
  • The money is made on the margin between the values of the individual properties and as a group

Is my thinking correct?

Seems like it.

Its a sound enough strategy I suppose. I just think its nearly impossible to find a situation where you can reliably pull it off.

It seems to need everything to line up at once where in reality things like the figures and compliant neighbours et al will nearly never line up neatly for you.
 
Do you really have to disclose your plans for their propertys? once they are locked into a option, thats it...the point of it is to negotiate the deals, they either want the 10-15% above market value or you find someone else who does.

Better check your state leglislation. In some areas you may need a real estate agent licence to go down this path.
Marg
 
I have multiple clients who are doing this at present. BUT what you need to do is get in an area where the new zonings haven't flowed through to the agents as yet. I do it personally when the market is right to do so, now happens to be the right time in Brisbane. I think this financial year this will hold true with the change in the city plan, next financial year possibly Logan or Moreton bay with their new plans but am not so confident on that.

I put a near $200k deposit related to an assignment of an option in my trust account yesterday. After costs this guy will bank a $235k profit for ~2months work and an actual cash outlay of less than $20k. But he has been doing it for a while and he knocks on a lot of doors. He sold the site in 2 phone calls on the day the option deeds were finally fully executed because of the outgoing price.

I don't think it works with little stuff. You need to tie up multiple sites that make the whole worth more than the parts. So if 3 sites allows you to go 5 storeys as opposed to the 3 you could get on 1 or 2 then it works. You can pay $50k extra a site if when you group them it adds hundreds of thousands to the site value. When you are talking a land price of $60-$70k a box raw in the middle rings of Brisbane an additional 2 storeys is worthwhile. OR you need to tie up a large site and sometimes you need to go through DA (not preferred but sometimes unavoidable). One I did last financial year (long contract not option) on a large site doubled it, but there is 10 months in Council DA for that one and more than $100k in planning, engineering and consultant costs. If your DA went bad you could do your whole $100k.

BUT you need to have the time and the personality to hear a whole heap of no's before you get a yes. If you are too young it's a problem, if you dress too nice and drive too nice a car can also be a problem. The guys I know that do the best look like builders.

Best one I have seen was single housing to 12 storeys.

You can do it with options (preferred because of duty only paid on the option fee and 1 purchase) but, where there is enough money it and the seller's won't do an option because they don't understand it, a long conditional contract with settlement by directions (double stamp duty).

Edit
Ps -People who went to an "Option Course" normally make me run away. Most times they are trying to do options because they don't have the cash. They are told it is easy and here is my proforma option deed and go out and make a million for $1. It is hard, time consuming and takes a lot of knowledge beforehand. You need to know an area inside an out so that you can pay over the odds on the buy in (seller gets to share in the extra money) but through aggregation or DA you can sell on at such a cheap price (as in cheap on the per box price) and you can still afford to pay over the odds.
 
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Good points guys... its all just ideas at the moment, ill have a new idea next week!! haha. Thanks for the discussions!

Truly Exotic - in your experience, what would you say is the key to making a deal work?

A good way to get over this problem is to profit share, ie give them a cut, eg if there property is going to be worth $200k more, then offer them $50k,
or bring something to the table that they dont have, eg time, resources, expertise, contacts etc. etc.

if all it requires for them to knock on next door and say "hey lets sell for $200k more" then chances are they will do that

RPI's points are excellent

ive never done options nor intend to, not my cup of tea, too much risk and work for too unlikely reward
 
A good way to get over this problem is to profit share, ie give them a cut, eg if there property is going to be worth $200k more, then offer them $50k,
or bring something to the table that they dont have, eg time, resources, expertise, contacts etc. etc.

Spot on. You need to find something that has enough in it to share with the seller but also leaves enough in it for the next guy.
 
I am involved in a vaguely similar type of deal - I have an interest in a crap, vandalised, vacant commercial property, next door is an owner occupier dentist who is ready to retire. He will find it tough to sell or lease out with my property adjacent.

My brother is putting together a deal where he buys an option over a narrow & useless vacant block at the rear of both, and does a deal with the dentist. If sold separately all 3 properties would go for well below the suburb average. However, the best use is to sell as a dev site with a strong likelihood of 4 stories of 2 & 3 bedders. The profit split is based on land area - so the dentist will do well out of it.

It's a slow process - council planners, architect, developer & all 4 parties (& their lawyers) need to be pointing towards the same goal. My brother has experience & contacts with all the above & also an attitude of mutual gain.
 
I have seen people make money at this in places where there are TPS clauses which prevent development due to certain land size thresholds, frontage requirements or where the topography allows for an additional group dwelling block of land to be carved around existing dwellings.

In Perth due to Multiple Dwellings being where the money is at I haven't seen much need to purchase additional blocks. As MDs are based on plot ratio (with the exception of requirements above in some councils) the only saving made is the economies of scale due to the greater number of apartments being built. This may only be 1% - 3% over the total project so the saving isn't significant.
 
I am involved in a vaguely similar type of deal - I have an interest in a crap, vandalised, vacant commercial property, next door is an owner occupier dentist who is ready to retire. He will find it tough to sell or lease out with my property adjacent.

My brother is putting together a deal where he buys an option over a narrow & useless vacant block at the rear of both, and does a deal with the dentist. If sold separately all 3 properties would go for well below the suburb average. However, the best use is to sell as a dev site with a strong likelihood of 4 stories of 2 & 3 bedders. The profit split is based on land area - so the dentist will do well out of it.

It's a slow process - council planners, architect, developer & all 4 parties (& their lawyers) need to be pointing towards the same goal. My brother has experience & contacts with all the above & also an attitude of mutual gain.

Would be good to know the outcome of that project keith!

I've seen this done before very successfully, my idea was actually formed from the same thing happening to my father around 10 years ago, he owned a ~1000sqm block in rivervale with a dingey ~1950's house on it ( geez i wish he had of kept it $$$ )... a developer approached him one day and had brought the homeswest house next door... he offered a price he couldnt refuse, sold it... 2 years later we drove past it and noticed he had actually also brought the the 2 rear blocks and had built a complex of villas with a common driveway up the middle.

I agree though you would need a high level of understanding and a book of contacts to venture down this path...
 
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