gross real and his system

[grossreal]

Hi All
I have been sitting on the fence and debating if to post the system that I organise and use so here it is and see who can pull it apart and see if I can make better.
land DA 20 units in real estate office at 3.2mil
build cost 3.7 mil
I organise a lender to lend on 6.9 mil
gross = $550,000.00 x 20
I go back to the real estate and organise a builder for the fixed price 3.7mil build.
I organise a company From victoria with two directors me and the builder and a trust underneithe with the same two directors.

The hurt money ($700,000.00)is separated between investors in the following way.
The hurt money assistor puts a put call option on a unit for $233,000.00 each (3) =$700,000.00 and the development gives a 15% for the use of the money for the time of the development and the 3 join the trust.
when the development is finished
The build cost per unit is $345,000.00
the sell price is $550,000.00
the expected profit is $205,000.00 / 2 =$102,500.00
add this to the $345,000.00 = $447,500.00
lend at 80% of $550,000.00 = $440,000.00
the difference between the $447,500.00 and $440,000.00 is given back as vendor finance.
The hurt money assistor gets his/her 233 back plus 15% and a unit with a lend and can negative gear or throw the 233 in and neutral gear.
I get the hurt money and develop and hold all properties over the build, land cost and split 50/50 with the builder.
If the hurt money assistor wants they hand the put call back at the end and get 233 plus 15%
As you can see it is complex
This is not to be taken as a investment structure nor investment advice and even thou I do use this system it is not aimed nor should it be as an indication to invest with my group of companies.
This is not an advertisment for any form of syndication as is not ment to be seen as such.

 

[see_change]

GR

You explained it more clearly to me at the Sig meeting.

Do you think you could spend a bit more time editing the above, clarifying it ?

See Change

 

[grossreal]

sea change

hi sea change
spread sheets and white boards are easier I have tried to simplify as much as possible.
tell me how to post a power point as I have it in power point but not sure if its any easier to understand.


found out can't upload ppt must put it into pdf and then post.
If any problems will do so lets see what others think.

 

[Coach B]

Gross Real,

It would certainly help if you could get those PPT slides posted.

Would you mind explaining;

1. Why you divide the expected profit of 205 by 2? Does this reflect your profit share arrangements with your builder?

2. I assume that you keep as many of the completed units as you can by refinancing at 80% LVR.

3. With the Hurt Money Assistor do you;
a.) Pay them 15% ie $34,950 on the $233,000 loan and a unit?
b.) If they want to buy a unit do you give them a further discount?

4. Seems to me that the drivers of success here are;
a.) Finding a reliable source of Hurt Money Assistors (GR where do you find them?)
b.) Finding a reliable fixed price builder.
c.) Making sure you get the completed value right so that you can get them sold in a timely manner (GR how many of the 20 do you sell and how many do you keep?)

Rgds


CB

 

[grossreal]

gross

hi coach b
1. yes as there is only 2 directors or trust holders in the first part with the lenders
2. yes and the hurt money assistors can be one of the lenders if they wish.
3. on the $233 only, if they wish to become unit end product holders then the difference between build cost and sell price is used and they get a unit with lending.
if they wish they can take there 233 + 35 and hand back the put call
4. finding the builder is relatively easy as there is abundance of them.
finding the hurt assistors are easy if they come on this forum or different forums and want to get involved.
and sell up to the cost of construction and hold the rest. and split between the builder and me.
current hurt money for a project here in liverpool $2,000,000.00 + 20% is what i'm investing in ( I must add this as I wouldn't want this to be seen as investing)

 

[JIT]

BUMP...trying to understand...

Grossreal,

Clearly you are someone who is able to go from A directly to D, skipping B and C!, but most of us mortals need to do things in order, ie, A then B then C then D, especially if we are to understand what you`re trying to communicate.

The first paragraph I understand completely, and the last paragraph too.

But you lose me completely in the second paragraph when you introduce the term `hurt money`. What is this? Where do you get this figure of 700K? Is the total `hurt money` for the whole $6.9 million project, that doesn`t sound like much relatively speaking? How many investors are there? Who is the ´hurt money assistor´?

It`s difficult to understand the rest of the post without getting this first. Happy to attempt decoding your system.

GSJ

 

[rj]

Gross - send me the PPT and I will host it for you.

RJ

 

[grossreal]

hi gsj
Clearly you are someone who is able to go from A directly to D, skipping B and C!, but most of us mortals need to do things in order, ie, A then B then C then D, especially if we are to understand what you`re trying to communicate.

The first paragraph I understand completely, and the last paragraph too.

But you lose me completely in the second paragraph when you introduce the term `hurt money`. What is this this is the same as the 20% that you have to put inwhen purchasing a property a lender asks a developer to put money into the deal commonly called hurt money because it hurts when you have to take out 2 mil etc? Where do you get this figure of 700K this figure is decided by the bank you are lending from and is not a set figure changes all the time? Is the total `hurt money yes usually it can fluctuate between 2 mil and 700k depending on alot of variable from presales thru to profit margins` for the whole $6.9 million project, that doesn`t sound like much relatively speaking thats right its not alot and less if its a duplex site? How many investors are there it depends the size of the project with a 10 unit four is a good number mine re down to two know with a duplex I would run with 2 there is no fixed rule? Who is the ´hurt money assistor people that wish just to invest money without signing for the debt´?

It`s difficult to understand the rest of the post without getting this first. Happy to attempt decoding your system.
no problem I can't post the powerpoint that I had done some time ago as its to big but email me and I can email it back and you may understand it better this system is very good for duplex, townhouse etc even small unit developments you need a builder to be one of the unit holders as you get more control and a better job.

 

[myla]

hello,

i would say people are looking for money

be careful, if you cant get from banks then there's an issue

lets see a clear explanation

have a friend who has lost 100k for 20mths now with a developer/financier in melbourne

thankyou
myla

 

[grossreal]

hi myla
not sure of your post.
this post is not looking for money this is a system of developing where people get involved to do a development this system is a system that I currently use and at no stage does it ask for money not sure why or how your friend lost money with a developer in melbourne, at 20 mths thats a far size development and unless you post the structure not sure I can help and tell you why
banks don't lend 100% of a development no one does, this structure is to how you can put people together that can fund that short fall.
via equity if they wish.
not sure what type of explanation you require, maybe post a question

 

[myla]

hello,

been reading this thread and the other thread today

myself and others are struggling with the terms and scenario

and i notice you are looking for people to join your developments

exactly about banks not lending 100%, so who are the suckers who cough up the other funds and carry the risk whether it be cash, equity etc

thankyou

myla

 

[grossreal]

hi my
not sure if you can class them as suckers but my harrington waters for instance is two sets of duplexs build cost is 1.4 mil resale is 2.4mil so we sell down to 1.4 mil and then hold one each at 650 k each and because we hold not taxed, if thats a sucker, well I will have to tell mario I am sure he would like to know.
using the equity a lone after holding that about 360k in 12 months.
if people wish to get involved thats for them to decide I don't mind.
the risk is carried by the comapany and trust and if they wish to get involved again thats for them to decide.
each project is different and the returns are different
if you are struggling with the concept thats ok ask any questions you wish.
I don't recommend any investment structure.
you need to work that out for yourself I can only tell you what works for me if you have a different way of investing or developing I am all ears.

 

[myla]

hello,

if I was to join your projects what position or role would I have?

and what is the requirement to join the project?

thankyou
myla

 

[grossreal]

hi myla
we don't have roles
the projects are stand a lone
they are set up as a new company and trust structure they have an accountant and a fixed price contract to construct if we required a funder for the short fall then the short fall is divided by the enterents to the project and then the profit at the end is divided by the people that put the equity or cash in at the front.
currently there is no projects that I can recommend for you as we have our current projects already full but if people wish to get involved by all means they can send me an email and then if and when the next one comes along we can send the information out.
these projects have different numbers of people and different amounts of equity or cash to go into them and this is not to be seen as any form of advertising or investment advice the return for mario may be very different for say charles, peter, nick or albert all that are in other projects.
the other thing as it just occured to me is that that sucker mario( not literally mario if you read this post) also is doing my 7 townhouses after he finishes the duplex site and the same terms and conditions and starts in feb next year loan already done.

 

[JIT]

Becoming clearer now....

Grossreal,

Ah, that makes much more sense now.

Is it correct that using hurt assistors for this type of development is not uncommon? Is an alternative source of finance here what people call ´mezzanine finance´, or is this itself a form of mezzanine financing?

So the hurt money for this project is 700K.

You find 3 hurt money assistors or investors to come up with this money.

They pay 233K each and join the trust structure.

This gives each of them a put call option on a unit.

Can you explain what a put call option is here?

Does it give the holder the option to buy the property at a predetermined price - 550K - by a certain date? What is that date - the date of completion of the development? Isn`t that a lot of money to pay for an `option`? If they don´t exercise the call option don`t they in theory forfeit the 233K - like in the sharemarket?? If so, why would you not exercise the call option?

Oops...just realised you called this a put call option, like a put AND call option!

With the put aspect, does it give them the right to sell the property at a certain price/by a certain date, what/when is this? I guess this would be useful if during the time period of the development the market is rising fast and the property is worth much more than the anticipated sale price of 550K, eg 600K or 700K?

I guess put AND call options work differently??? And, that it is possible, as you later describe, to just get the option fee - 233K - back, at the end of the development. And, the option holder is getting $34950 per annum during this period, at 15% p/a, not a bad return! Just curious, is that like the covered calls/writing options thing in the sharemarket???

Can you elaborate on the RISKS faced by the hurt money assistors (this could be me one day, when I have equity to spare - can the hurt assistor do an EQUITY LEND here, rather than use cash, and would this limit their risk in anyway?) by investing in this project? Could they lose all the 233K if the developer/builder goes bust or the project is not complete or ??something else happens? If the there is a problem, I guess the banks would be first in line to get their money back and the hurt money assistors would be last? What happens if the developer/builder runs out of money to pay them their 15% p/a? Can the banks come after the hurt money assistors in any crisis?

I follow the rest of your initial post except for this bit -

`the expected profit is $205,000.00 / 2 =$102,500.00
add this to the $345,000.00 = $447,500.00
lend at 80% of $550,000.00 = $440,000.00
the difference between the $447,500.00 and $440,000.00 is given back as vendor finance.`

You divide the profit by 2 as there is you and the builder? You don`t include hurt money assistors in this profit sharing right?

Why do you add your half of the profit to the cost price to get 447.5K? Does this represent how much money you individually get when you sell a unit?

The vendor finance part, I don`t get it?!

Please clarify? Will e-mail for that PPT file.

ADD:

Few more things, in a development such as this, I assume that you and the builder stand to make the greatest profit (then the hurt assistors or maybe the bank?), with a 50/50 split - how does that split work, the builder spends all his time and resources from his company (depending on how big it is I guess) building the thing, but you are mainly just making sure it is going smoothly to plan/schedule, hasn´t the builder drawn the short straw here?

What happens if the builder can´t complete the development at that fixed price agreed upon due to various cost blow-outs? What happens to him, and what are there implications for you and the hurt assistors?

The 50/50 split, is it because you are the one providing the structure and managing the financial/investment side of things, and I guess also found the land and got the DA or bought the land with the DA, that he is willing to give you half the profits, or, you are willing to give him half the profits?!

Could he not just do that himself and get 100% of the profits? Or is it more complicated than that? It would appear that you would on the whole spend less time on this project than he does, and as such may be able to take on other projects concurrently, and make more money, ie. leveraging your time, which is obviously good for you?!

Is it correct that in this project you are using none of your own money? Only your time?

What then are the risks you face in such a development and how do you protect yourself or limit that risk?

Who do you think faces the greatest overall risk in such a development - you, the builder, the bank, the hurt money assistors, or the general public/retail buyers at the end of the development?

GSJ

 

[willair]

hi my
not sure if you can class them as suckers but my harrington waters for instance is two sets of duplexs build cost is 1.4 mil resale is 2.4mil so we sell down to 1.4 mil and then hold one each at 650 k each and because we hold not taxed, if thats a sucker, well I will have to tell mario I am sure he would like to know.

Well done, i just wanted to ask what would have been the land value
prior to your company built the duplexs, and did you have any problems
with the builders..good luck willair........

 

[grossreal]

hi willair
with this one it was very interesting.
it was a soup and the problem was that the vendor bought into an area that would only allow them to build with a set group of builders
and the build cost was then a hyped up figure as they had strangle hold on the area.
so I brought in a builder from outside with a new product
got accepted from the developer for the land release
and the purchased from the vendor with vendor finance back and discounted and no money in to the project
100% to me vendor / bank finance
so the land had a value or sale price was 390k per block da approved
what we ended up paying is for harrington waters four and I don't give those little tit bits out
as each development is separate and not sure if mario would like that to be known (as the other party) but if you work on 390k that 1.4 includes the land

 

[myla]

hi coach b
1. yes as there is only 2 directors or trust holders in the first part with the lenders
2. yes and the hurt money assistors can be one of the lenders if they wish.
3. on the $233 only, if they wish to become unit end product holders then the difference between build cost and sell price is used and they get a unit with lending.
if they wish they can take there 233 + 35 and hand back the put call
4. finding the builder is relatively easy as there is abundance of them.
finding the hurt assistors are easy if they come on this forum or different forums and want to get involved.
and sell up to the cost of construction and hold the rest. and split between the builder and me.
current hurt money for a project here in liverpool $2,000,000.00 + 20% is what i'm investing in ( I must add this as I wouldn't want this to be seen as investing)

good work GR,

and you will get 15% on your hurt money, yeah right

hurt money because people never get it back

my friend was offered these types of interest rate returns and its hurting alright

100k outstanding for 20mths, all linked to the building of nine units in Melbourne

ASIC has repeating warned people that interest rates well over the current bank rate carry huge risk, I hope people take notice of this


thankyou
myla

 

[see_change]

I'd be curious to know how Harrington Waters is going. Havn't been there since last October. I thought it was an interesting development.

Picture the town in the Truman Show. I thought the places with the most opportunity were the upcoming ones with marina berths simply because there was only going to be a limited number of those available.

I decided against it , because the returns were low , and I wasn't convinced there was going to be a market for the higher places rentals that the marina associated places would require . I was also concerned that some of the blocks they had up for sale had previously been sold , but the purchases had defaulted loosing their deposit because prices had dropped .

Also Taree isn't the best considered costal centre on the NSW cost ( some would consider it one of the worst ) , so I wondered about the longer term potential for above average growth.

See Change

 

[grossreal]

hi sea change
what price did you have for the waterfronts the marina's is not selling berths anylonger because demand out stripped supply they have just sol 7 townhouses each with a berth ( they added 18 berths for this development)
the lowest was 750k and the highest was 930k thru c2c developments.
the reason why they had a few default on the land owners was because of the closed shop
I think
its a retirement area and is targeted to that market and I think it has a bit more growth in it yet they are about 1/3 of the way thru the set up stage
so just like hunter valley gardens( it was the same land developer) it does take time to setup and get running.
in there there is the following
2 restaurants
golf club
irish pub
2 hair dressers
bottleshop
iga
to come two 300 room each resort complexs
two marina's
newsagent
so it is a self contained village
start price is around 550k now and going up
our duplex site are 600 each in size and are the last for that size.
know the new dcp requires 750 min land size not sure of the value you were looking at and if it was finished product if not I would be very careful as there build pricing is a bit high up there.
we built ourself and still high compared to sydney.
once the resorts and the iga and the golf get into full swing I think that you will find that this area will be the hunter valley garden by the sea.
retiree do and will have alot of disposable income when they retire and thats what this area is aimed at and looking at current sales it seems to be on track