Land Banking

[Peter Spann]

At my recent presentations to SIG and BIG I mentioned land banking as my favourite strategy going forward. A lot of people have asked me for a “live” example.

I thought I would follow up and show the picture of our latest acquisition...

http://www.somersoft.com/forums/gallery/showphoto.php?photo=1293



It's 116 acres in a suburb of Brisbane called Ansetad - 19 kms from the CBD.

It is currently zoned Rural but the photo shows how close development has come.

If it could be cut up into Res A you could fit 470 residential blocks on it.
Current "dry" block price in the area is about $75,000.
Current "riverfront" block price a couple of suburbs over is about $400,000 to $800,000.

It has 650 metres of riverfront so at 20m frontage for each block there could be about 32 blocks on the river.

You do the maths!

Recently a 12 acre parcel in Moggil (next suburb) with a quite nice renovated Queenslander on it sold for $2.85M.

Purchase price was $4,675,000.

It is currently 3 individual titles with a rezoning approval to be cut up into 9 blocks but that would be a waste of opportunity as far as I am concerned.

Our intent is to build 3 houses on there (to make it income producing), add some cows and go to sleep for about 7 years by which time the council (we hope – and there’s the risk) should be in the mood for a rezoning.

Worst case scenario it will probably double in the next 10 years like everybody else’s property.

Just in case you think it isn’t attainable for “mere mortals” we put it together in a syndicate with each person contributing $117,000 odd with about $15,000 a year each to cover holding costs (including projected interest costs). It will be financed on 50% LVR non-recourse. Any income will be split between the syndicate holders and because it is in a unit trust the income / tax benefits will flow through to the syndicate members.

I figure if we can’t make money out of this we should all pack up and take our bat and ball and go home.

Comments, questions, counter points?

 

[Mary]

Just in case you think it isn’t attainable for “mere mortals” we put it together in a syndicate with each person contributing $117,000 odd with about $15,000 a year each to cover holding costs (including projected interest costs). It will be financed on 50% LVR non-recourse. Any income will be split between the syndicate holders and because it is in a unit trust the income / tax benefits will flow through to the syndicate members.

Hi Peter, sounds like a great deal. These "mere mortals" you refer to, are they clients of your business or do you advertise for syndicate members?
Just curious how us other mere mortals can do business with you and join one of these syndicates in the future.

P.S. what does the non-recourse mean in regards to the 50% LVR?

Thanks

 

[NigelW]

At my recent presentations to SIG and BIG I mentioned land banking as my favourite strategy going forward. A lot of people have asked me for a “live” example.

I thought I would follow up and show the picture of our latest acquisition...

http://www.somersoft.com/forums/gallery/showphoto.php?photo=1293



It's 116 acres in a suburb of Brisbane called Ansetad - 19 kms from the CBD.

It is currently zoned Rural but the photo shows how close development has come.

If it could be cut up into Res A you could fit 470 residential blocks on it.
Current "dry" block price in the area is about $75,000.
Current "riverfront" block price a couple of suburbs over is about $400,000 to $800,000.

It has 650 metres of riverfront so at 20m frontage for each block there could be about 32 blocks on the river.

You do the maths!

Recently a 12 acre parcel in Moggil (next suburb) with a quite nice renovated Queenslander on it sold for $2.85M.

Purchase price was $4,675,000.

It is currently 3 individual titles with a rezoning approval to be cut up into 9 blocks but that would be a waste of opportunity as far as I am concerned.

Our intent is to build 3 houses on there (to make it income producing), add some cows and go to sleep for about 7 years by which time the council (we hope – and there’s the risk) should be in the mood for a rezoning.

Worst case scenario it will probably double in the next 10 years like everybody else’s property.

Just in case you think it isn’t attainable for “mere mortals” we put it together in a syndicate with each person contributing $117,000 odd with about $15,000 a year each to cover holding costs (including projected interest costs). It will be financed on 50% LVR non-recourse. Any income will be split between the syndicate holders and because it is in a unit trust the income / tax benefits will flow through to the syndicate members.

I figure if we can’t make money out of this we should all pack up and take our bat and ball and go home.

Comments, questions, counter points?

Sounds like a great deal! Thanks for posting.

Now for the minutiae:
1) How many syndicate members were there?
2) Do you maintain control? Is voting based on unitholding?
3) What rules/restrictions on exit are there for unitholders?
4) Is it a close end deal? Ie must you sell after 10 years?
5) The upside for tying up your capital for 7-10yrs depends on rezoning it seems. What investigations have been made and what will the cost be to get rezoning and necessary approvals? How is that cost met?
6) Are the units partly paid? What happens if someone doesn't stump up their $15k for the next 7 years?
7) Does the holding cost include land tax?
8) Do you have advice that the interest costs if the $120k is borrowed are deductible? What about the annual costs? Are they deductible? I guess that's why you're building some houses and buying some non-magic moo cows? Who's paying for the beef and the houses?
9) Apart from paying squillions for your courses how do you get onboard with these deals of yours??

Just some random q's.

Look forward to hearing from you.
Cheers
N.

 

[<KS>]

Damn nice purchase Peter - with good management and a dash of patience this should be a real money spinner.

I myself am torn between 3 strategies for next year and my next venture:

1) Do the land thing
2) Buy a managed business to increase cash flow and replace my current job
3) Buy another property - most likely a fixer upper

The land thing is about even with the business I dea atm with the fixer upper lagging behind a bit.

<KS>

 

[Bill.L]

Hi all,

Great deal Peter, I agree 100% on the landbanking, in fact doing similar myself with slightly more land and different longterm strategy. However the ownership in the land long term is what will pay off.

Nigel has asked some great questions.

 

[markpatric]

Hi Peter, I`m from the general area and never seen this one advertised, can I ask what you paid?.
Also if profitable there would be more chance of splitting the blocks into ten acre.
Dry block price $75,000???, can`t be correct?.
Moggill may well also have the western bypass running through it, good or bad?, but I would hazard a guess you paid a lot for it right now.
A house in Moggill on twelve acres sold for that price???, must be SOME house!, as I know of a flat five acre property with good house going for $500,000 right now!, average is $600-800,000, not over 2 mill.
Not much difference between five and twelve acres price wise.
Some of what you are saying does not stack up.

 

[Mary]

Hi Peter, I`m from the general area and never seen this one advertised, can I ask what you paid?.
Also if profitable there would be more chance of splitting the blocks into ten acre.
Dry block price $75,000???, can`t be correct?.
Moggill may well also have the western bypass running through it, good or bad?, but I would hazard a guess you paid a lot for it right now.
A house in Moggill on twelve acres sold for that price???, must be SOME house!, as I know of a flat five acre property with good house going for $500,000 right now!, average is $600-800,000, not over 2 mill.
Not much difference between five and twelve acres price wise.
Some of what you are saying does not stack up.

If you re-read the post i think you'll find your answer.
I also think the house on 12 acres sold for $2.85m because of it's land value and potential to land bank and develop - not because it had gold plated taps.

 

[House_Keeper]

Thanks for sharing that Peter.

It nicely illustrates the concept.

Cheers,

 

[willair]

Worst case scenario it will probably double in the next 10 years like everybody else’s property.


Peter,
all the questions i wanted to ask have been already asked,
but i think you will do well on this deal over time, even with
periods of slow or even negative growth of the next stages
of Brisbanes property cycles opportunities.....
good luck
willair..

 

[Peter Spann]

Answers to (some) questions

Some of the questions I can't / won't answer in detail but for the rest here goes...

1) How many syndicate members were there?

20

2) Do you maintain control? Is voting based on unit holding?

3) What rules/restrictions on exit are there for unit holders?

The unit trust has a trustee company. It has a board made up of me and 3 of the unit holders. The trustee has full management control of the trust and can only be dismissed under certain circumstances. The unit holders can exit but there si no ready market for the units and the existing trust has first right of refusal and approval on new unit holders.

4) Is it a close end deal? Ie must you sell after 10 years?

The trustee is to consider exit strategies up to 10 years but can extend for up to 15.

5) The upside for tying up your capital for 7-10yrs depends on rezoning it seems. What investigations have been made and what will the cost be to get rezoning and necessary approvals? How is that cost met?

We have had a discussion with the town planner responsible and they have indicated that they would be amenable in 5 to 7 years but a lot can happen in that time. Policy can change, town planners can change. Etc etc etc. So while we have satisfied ourselves that it is a possibility, that is where it remains at the moment - a possibility - there is all (well 90% anyway) the risk and all the opportunity.

7) Does the holding cost include land tax?

Yes

8) Do you have advice that the interest costs if the $120k is borrowed are deductible? What about the annual costs? Are they deductible? I guess that's why you're building some houses and buying some non-magic moo cows? Who's paying for the beef and the houses?

In order... No, there was no tax opinion given at all. No. I believe so but would not be prepared to stake my FSL on it. Yes. The syndicate.

9) Apart from paying squillions for your courses how do you get onboard with these deals of yours??

Err, pay squillions for my courses of course. back!
Actually we do have a different investment company, Property Fox #2, which we are launching a prospectus for with a different mandate to this but it may be of interest to you.
Returns have been under expectations up until now but we are launching a new mandate - we have acquired 6 river front blocks in Brisbane which we intend to subdivide and build prestige homes on. Existing shareholders get first dibs and we may fill the offering just with them alone based on past performance but there is room for over-subscriptions and we may make it available more widely. We have had a lot of interest from clients but then again they may be in a better position to judge the offering.

 

[Panic]

?

Worst case scenario it will probably double in the next 10 years like everybody else’s property.

Peter,

What if it doesn't double in 10 years?

Thx
V

 

[Peter Spann]

It's a miricle!

Great deal Peter, I agree 100% on the landbanking

Great to hear we agree on something Bill.
Good luck with your strategy - I have a lot of confidence in land in the long term.

 

[Peter Spann]

Answers to questions

Can I ask what you paid?.

$4,675,000

Also if profitable there would be more chance of splitting the blocks into ten acre.

My view is we could do that now but you would then lose the "opportunity" for the ability to cut up into residential forever - you could always "resort" to that later if all else failed.

Moggill may well also have the western bypass running through it, good or bad?

Good I believe - in fact it may even run right through the middle of this property!

Dry block price $75,000???

Why, what do you think? Collingwood Park seems to be selling for more then that and a random selection from RP Data shows 12 Arthur Tce, Moggill, settled on 16/07/04 sold for $180,000 for 700m2

average is $600-800,000, not over 2 mill.

12 flat acres on the river with development approval for $800K - where??? I'll pay CASH!

 

[Peter Spann]

?

What if it doesn't double in 10 years?

Then it will suck won't it?!?

 

[NigelW]

Some of the questions I can't / won't answer in detail but for the rest here goes...

Understood.

The unit trust has a trustee company. It has a board made up of me and 3 of the unit holders. The trustee has full management control of the trust and can only be dismissed under certain circumstances. The unit holders can exit but there si no ready market for the units and the existing trust has first right of refusal and approval on new unit holders.

Presumably there's a management fee? If so is that included in the annual costs?

Err, pay squillions for my courses of course. back!

Just kidding! I'm sure they're good value.

Actually we do have a different investment company, Property Fox #2, which we are launching a prospectus for with a different mandate to this but it may be of interest to you.

Presumably we can get the PDS from your website?

Returns have been under expectations up until now but we are launching a new mandate -

Why do you think that was? Has it been due to the property market cooling? Or was the previous mandate wrong in theory or in execution?

Thanks for your responses. Much appreciated.

Cheers
Nigel.

 

[Peter Spann]

?

Presumably there's a management fee? If so is that included in the annual costs?

Yes and yes

Presumably we can get the PDS from your website?

Yes, shortly, it was lodged with ASIC last week but unlike most providers we wait until we get the "all clear" before marketing it - usually 14 days.

Why do you think that was? Has it been due to the property market cooling? Or was the previous mandate wrong in theory or in execution?

I think the mandate was OK given when it was originally issued. The property market did cool almost imeadiately after we launched it so quite bad timing really. We still are producing profits but they fall short of what we were doing in the fore-runners which is what we benchmarked against in the launch of it.

Hope this helps

 

[markpatric]

I like the idea of buying land longterm as part of an overall stategy.
Good luck with it Peter but I must admit I was surprised to hear how much the land was purchased for, sounds like top dollar.

 

[Les]

G'day Markpatric,

but I must admit I was surprised to hear how much the land was purchased for, sounds like top dollar.

Huh??? $40,300 per ACRE??? Overpriced? I've a few 800m2 blocks (with houses on 'em) which I'd LOVE to have valued at $40,000 each (and they're 1/5th of an acre each) It would've saved me a lot on Land Tax !!!

Regards,

 

[Mary]

Can anyone here explain what does the non-recourse mean in regards to the 50% LVR?

Does this mean that security is limited to the value of the property within the syndicate (up to 50%)?

 

[markpatric]

Les the numbers don`t add up unless residential blocks can be cut, this is an acreage area, it may not happen, I live on ten acres in the next suburb and no longer can you subdivide a ten acre block, Anstead may be different, with regard to VPO`s etc, they did it with Bellbowrie down the road so who knows.
Anstead has always been my no 1 choice suburb in the whole western suburbs so I do not argue there....great area!, mostly nice and flat too.
Come to think of it there are a number of 2.5 ares blocks in Anstead it would probably be very profitable and acheivable to go that way.
40 blocks at $200-500,000 each , yer not bad!.