Land Banking
- Thread starter Peter Spann
- Start date
Ebbie said:I wondered that too.
I'll have a shot at it
.... I think your confusion will be eased a bit had the first post said "every" instead of "next" Anyone investing in property in the eastern seaboard capital cities today, goes in with the expectation that there will be some capital gains over time - that will be somewhere in the range of doubling every 10 years (going by historic data).
However, the next 10 years may be very slow or flat growth for the "average" property.
Cheers,
the Y-man
G'day Pete,
We are attempting the same thing as you, except on a slightly smaller scale....although we don't have 20 partners tagging along for the ride.
We've found having some sort of infrastructure on the paddock is preferably to just straight land.....to lessen the impact of the holding costs.
100% land content get's you the biggest parcel of land for your $, but the holding costs due to no rent and no tax deduction on the interest make it pretty painful.
We've taken the tactic of backing off the land content percentage down to high 80's and low 90's. The infrastructure we've acquired with that percentage has managed to be turned around and pay for itself.....that is, no holding cost impost.
Cashflow positive landbanking is our main strategy, and it has paid off handsomely.
I notice you are planning on putting some infrastructure on there to gain some minimal rent, and more importantly the tax deductibility of your holding interest. Sounds like a sound plan to me.
We are attempting the same thing as you, except on a slightly smaller scale....although we don't have 20 partners tagging along for the ride.
We've found having some sort of infrastructure on the paddock is preferably to just straight land.....to lessen the impact of the holding costs.
100% land content get's you the biggest parcel of land for your $, but the holding costs due to no rent and no tax deduction on the interest make it pretty painful.
We've taken the tactic of backing off the land content percentage down to high 80's and low 90's. The infrastructure we've acquired with that percentage has managed to be turned around and pay for itself.....that is, no holding cost impost.
Cashflow positive landbanking is our main strategy, and it has paid off handsomely.
I notice you are planning on putting some infrastructure on there to gain some minimal rent, and more importantly the tax deductibility of your holding interest. Sounds like a sound plan to me.
would also be interested in how this project is going.
When rezoning happens and you decide to subdivide how would you fund the costs for development on top of the negative holding costs - don't know exact costs but to me building roads, sewage, electricity, water, etc to some 400 odd house lots would be pretty high.
When rezoning happens and you decide to subdivide how would you fund the costs for development on top of the negative holding costs - don't know exact costs but to me building roads, sewage, electricity, water, etc to some 400 odd house lots would be pretty high.
Nothing happening yet...
Although Mirvac have built what seems like a whole suburb just 500m down the road and the new Goodna bypass goes about 1km away so they're both good signs.
Although Mirvac have built what seems like a whole suburb just 500m down the road and the new Goodna bypass goes about 1km away so they're both good signs.
good thread but for reasons other that whats discussed
Peter,
I must confess that I treat most persons involved in the seminar circuit with contempt however this has more to do with recent times (HK etc) and the fact I feel that most people "know" what needs to be done they just dont do it much like diet books, heres a surpise eat less and excerice but people dont.
However this post is not a swipe but just an honest opinion, for example it would be more fruitfull to attend a dry cut course on investing that a seminar however if persons seak inspiration they wont get it from such a course and this is where i beleive you come in.
Again please dont read this as a swipe but it was needed to highlight my curiousity to the line of questioning in past posts. EVERYONE seems to be hung up on the shocking surprise that buying land, developing is profitable? WE ALL KNEW THIS but for some reason when we are told we act shocked and surprised and in awe?
Price will double in 10 years? Amount per block? the block next to me is cheaper? blah blah blah who cares? as an investment forum we should be at the stage that we know there is difference on opinion and not get hung up on particulars and be more interested in process and make a decision on whether this particular process, approach is correct, Peter would have probably been better off using a hypothetical so people could read the post for its intention a view on a particular strategy not a feasibility assesment on a project.
But incase for those who were genuinly in shock that investing in land makes money--
Buying a house is least risky and hence the smallest return, building is next with slightly more risky and slightly better return, then it developing in already appropriately zoned land, riskier and hence higher return, then its going for a re-zone in an "appropriately" located area again higher risk and higher return then the ultimate, buy land which is worthless today (figuratively speaking), the wrong zoning and hoping one day for the planets to aline, and subdivide, highest risk and hence the highest return.
Now that we have covered the incredible difficult principals of property investing why is it so hard? MONEY!!!!!!! give me 100 million and i will gaurantee i can turn it into ATLEAST 30% higher within 2 years providing a return of 30 million not bad, but turn that into 100k and get 30k its not so exciting.
So here is where i beleive this post is most interesting. As a developer i am very interested in particular;
1. How did you get your AFS, all ventures I have entered into have been mutually agreed to i.e. fellow developers and not advertised hence not requiring any managed investment requirements etc. Is the appropriate AFS requirements a large undertaking, I have not investigated past beyond the point that I will require it in the future as its not appropriate for me at this point in time. (i have also asumed in the future I could associate with a financial advisory firm with such a licence and avoid the process).
I fully understand that compared to your company employing 40 as opposed to my own 5 is like comparing apples with oranges but the principal should be the same.
All said I am impressed with your acheivements but like the post title not for finding a good sized block this is easy (you know what i mean) but rather setting up structures in place to raise the capital and the stragedy to continue expanding.
My other question is (strategy side);
How do you decide the mix of long term and short term developments. For instance it can be argued that if I develop non-stop for 10 years in short term developments (2yr under) with a return of 20% per project that I could match a land dev deal that spans 10 years the benefit being not all my egs are in the one basket but the downfall is the time\dedication required for doing 100 projects.
My current mix has a level of arbitrary decision making i.e. x% for current, y% for longer term projects.
Ideally we would all like to find projects were we JV with the land owner on an option fee for 5 years and simply DA approve in the mean time but this is rare given most people selling such parcels are 70+ years old, selling the farm and want to blow it on the high life at the lawn bowls last thing they want is a pesky developer trying to sell them the promise land of a 5-10 year deal.
I enjoy your response regarding how much you are prepared to spend i.e. whatever it takes to make the deal still worthwhile (i agree) but how do you FIRST decide the investment mix.
e.g. I have been involved in a 900 lot sub division (4m purchase on a 400k option) which i got DA approved for stage 1, 50 lots, average sell price $170k, 50k services, with retail section and other tad bits.
This is ideal, but they dont come along oftern and I get crushed by the big banks like macquarie which I am sure you have faced i.e. you walk in with a great deal and they say WE AGREE, well buy it..umm no thanks so then they introduce you to the box... the one you will live in until you sell the development
Anyways what I am trying to say is do you have an investment strategy relating to IRR and then get ANYTHING you find that fits? this is hard because if i want to find another land deal i need to hit the pavement a long and time consuming ordeal compared to simply developing on ready zoned land which involves calling agents and hitting the sites.
Therefore there MUST be a mix but whats its basis? case by case? or am i reading to much into it and attempting to mechanise the whole process to the last detail?
Anyways sorry for my long winded post and apologise if you take offence to any of my statements, writing and speaking are different and I am no english master so again sorry if i have come across insulting.
Enjoy your day.
Peter,
I must confess that I treat most persons involved in the seminar circuit with contempt however this has more to do with recent times (HK etc) and the fact I feel that most people "know" what needs to be done they just dont do it much like diet books, heres a surpise eat less and excerice but people dont.
However this post is not a swipe but just an honest opinion, for example it would be more fruitfull to attend a dry cut course on investing that a seminar however if persons seak inspiration they wont get it from such a course and this is where i beleive you come in.
Again please dont read this as a swipe but it was needed to highlight my curiousity to the line of questioning in past posts. EVERYONE seems to be hung up on the shocking surprise that buying land, developing is profitable? WE ALL KNEW THIS but for some reason when we are told we act shocked and surprised and in awe?
Price will double in 10 years? Amount per block? the block next to me is cheaper? blah blah blah who cares? as an investment forum we should be at the stage that we know there is difference on opinion and not get hung up on particulars and be more interested in process and make a decision on whether this particular process, approach is correct, Peter would have probably been better off using a hypothetical so people could read the post for its intention a view on a particular strategy not a feasibility assesment on a project.
But incase for those who were genuinly in shock that investing in land makes money--
Buying a house is least risky and hence the smallest return, building is next with slightly more risky and slightly better return, then it developing in already appropriately zoned land, riskier and hence higher return, then its going for a re-zone in an "appropriately" located area again higher risk and higher return then the ultimate, buy land which is worthless today (figuratively speaking), the wrong zoning and hoping one day for the planets to aline, and subdivide, highest risk and hence the highest return.
Now that we have covered the incredible difficult principals of property investing why is it so hard? MONEY!!!!!!! give me 100 million and i will gaurantee i can turn it into ATLEAST 30% higher within 2 years providing a return of 30 million not bad, but turn that into 100k and get 30k its not so exciting.
So here is where i beleive this post is most interesting. As a developer i am very interested in particular;
1. How did you get your AFS, all ventures I have entered into have been mutually agreed to i.e. fellow developers and not advertised hence not requiring any managed investment requirements etc. Is the appropriate AFS requirements a large undertaking, I have not investigated past beyond the point that I will require it in the future as its not appropriate for me at this point in time. (i have also asumed in the future I could associate with a financial advisory firm with such a licence and avoid the process).
I fully understand that compared to your company employing 40 as opposed to my own 5 is like comparing apples with oranges but the principal should be the same.
All said I am impressed with your acheivements but like the post title not for finding a good sized block this is easy (you know what i mean) but rather setting up structures in place to raise the capital and the stragedy to continue expanding.
My other question is (strategy side);
How do you decide the mix of long term and short term developments. For instance it can be argued that if I develop non-stop for 10 years in short term developments (2yr under) with a return of 20% per project that I could match a land dev deal that spans 10 years the benefit being not all my egs are in the one basket but the downfall is the time\dedication required for doing 100 projects.
My current mix has a level of arbitrary decision making i.e. x% for current, y% for longer term projects.
Ideally we would all like to find projects were we JV with the land owner on an option fee for 5 years and simply DA approve in the mean time but this is rare given most people selling such parcels are 70+ years old, selling the farm and want to blow it on the high life at the lawn bowls last thing they want is a pesky developer trying to sell them the promise land of a 5-10 year deal.
I enjoy your response regarding how much you are prepared to spend i.e. whatever it takes to make the deal still worthwhile (i agree) but how do you FIRST decide the investment mix.
e.g. I have been involved in a 900 lot sub division (4m purchase on a 400k option) which i got DA approved for stage 1, 50 lots, average sell price $170k, 50k services, with retail section and other tad bits.
This is ideal, but they dont come along oftern and I get crushed by the big banks like macquarie which I am sure you have faced i.e. you walk in with a great deal and they say WE AGREE, well buy it..umm no thanks so then they introduce you to the box... the one you will live in until you sell the development
Anyways what I am trying to say is do you have an investment strategy relating to IRR and then get ANYTHING you find that fits? this is hard because if i want to find another land deal i need to hit the pavement a long and time consuming ordeal compared to simply developing on ready zoned land which involves calling agents and hitting the sites.
Therefore there MUST be a mix but whats its basis? case by case? or am i reading to much into it and attempting to mechanise the whole process to the last detail?
Anyways sorry for my long winded post and apologise if you take offence to any of my statements, writing and speaking are different and I am no english master so again sorry if i have come across insulting.
Enjoy your day.
Firstly, I think you might have misinterpreted what we do.
Freeman Fox is a 20 year old company which is the holder of an AFSL.
98% of our revenue comes from Financial Planning and Stockbroking (an issue that causes me no end of grief from the D-I-Y folk in here).
We also have now over 100 staff Australia wide.
While we do run seminars they are for our clients and we do not charge over $498 for a weekend program (and if you think an organisation of our size makes money out of that then you need your head read!). I don’t promote property, sell it or spruik it.
End of our resume.
In the end the viability of this project will be at its completion but people are entitled to their opinion – that’s what the forum is all about.
I am always happy with robust debate – my only issue is if somebody makes things personal (which unfortunately often happens).
Property for me is a hobby these days, so, as I am not a professional developer I can’t really answer your questions as there is no robust process that determines what I invest in, what mix it is (sort and long term etc). If I see an opportunity that I like and I have the funds available I will make it happen.
If I don’t have the funds I have the capacity amongst our “Elite” (all genuine sophisticated investors – HNW individuals) clients to put together deals at very short notice covered by full IM’s.
So maybe you are “reading to much into it and attempting to mechanise the whole process to the last detail”.
And as for funding sounds like you are dealing with the wrong people – my best suggestion is to deal with people who are genuine development funders and have no interest in the deals them selves.
Hope this helps and answers your questions.
Freeman Fox is a 20 year old company which is the holder of an AFSL.
98% of our revenue comes from Financial Planning and Stockbroking (an issue that causes me no end of grief from the D-I-Y folk in here).
We also have now over 100 staff Australia wide.
While we do run seminars they are for our clients and we do not charge over $498 for a weekend program (and if you think an organisation of our size makes money out of that then you need your head read!). I don’t promote property, sell it or spruik it.
End of our resume.
In the end the viability of this project will be at its completion but people are entitled to their opinion – that’s what the forum is all about.
I am always happy with robust debate – my only issue is if somebody makes things personal (which unfortunately often happens).
Property for me is a hobby these days, so, as I am not a professional developer I can’t really answer your questions as there is no robust process that determines what I invest in, what mix it is (sort and long term etc). If I see an opportunity that I like and I have the funds available I will make it happen.
If I don’t have the funds I have the capacity amongst our “Elite” (all genuine sophisticated investors – HNW individuals) clients to put together deals at very short notice covered by full IM’s.
So maybe you are “reading to much into it and attempting to mechanise the whole process to the last detail”.
And as for funding sounds like you are dealing with the wrong people – my best suggestion is to deal with people who are genuine development funders and have no interest in the deals them selves.
Hope this helps and answers your questions.
thanks for the response
Peter,
Thanks for the response.
Hope you didnt find my post as making an acusation of any kind.
I am a full time developer and simply wanted to see it from the stand point of a syndicator as I had done this in the past and it was not a pleasurable experience. Most developers I know buy the land out right get all the DA in place and then sell a % of the units in the trust to move onto the next project earlier but NOT from day one because everyone starts putting their 2 cents in and nothing gets done.
However, you probably avoid this saga in that you are AFS and hence the investors are NOT in the most part full time developers with VERY strong opinions on how and what should be done and hence are more likely to rely on your own advice (your probably thinking well make it so in writing but the developers i deal with woudl have none of that.)
regardless thanks for your post and i probably take back my comments regarding its pointless providing an example rather than process, i guess its always good for people to see the "theory" in "practice".
Question of curiosity do you JV with developers seeking finance (direct) e.g. 30-50% e.g. the project you have but much larger say 40+ million - hate asking this pie in the sky questions but want to know if indeed this is a hobby or if your company is approachable to such requests.
again, thanks.
Peter,
Thanks for the response.
Hope you didnt find my post as making an acusation of any kind.
I am a full time developer and simply wanted to see it from the stand point of a syndicator as I had done this in the past and it was not a pleasurable experience. Most developers I know buy the land out right get all the DA in place and then sell a % of the units in the trust to move onto the next project earlier but NOT from day one because everyone starts putting their 2 cents in and nothing gets done.
However, you probably avoid this saga in that you are AFS and hence the investors are NOT in the most part full time developers with VERY strong opinions on how and what should be done and hence are more likely to rely on your own advice (your probably thinking well make it so in writing but the developers i deal with woudl have none of that.)
regardless thanks for your post and i probably take back my comments regarding its pointless providing an example rather than process, i guess its always good for people to see the "theory" in "practice".
Question of curiosity do you JV with developers seeking finance (direct) e.g. 30-50% e.g. the project you have but much larger say 40+ million - hate asking this pie in the sky questions but want to know if indeed this is a hobby or if your company is approachable to such requests.
again, thanks.
Really good post Tcoraro.
I shortened it to save space here, and this bit was my focus for the reply.
One of the really good things with hearing about a real life project such as the one Peter described is it brings realism and a sense that it can be done and is being done.
Hypothetical situations are good for mindset training etc, but they fall short in our belief system because they are simply that; hypothetical, and ultimately the lack of belief stops people from acting.
Having the nuts and bolts gives people a much clearer set of factors to work with, and I think most people can adjust the numbers as they apply to their area, land size etc.
For example; as you say, we all know you can make bucket loads from developing, but what do you pay? How much per acre for your landbank, how many other investors etc.
Having these actuals helps the first timer to quantify it all, and if they can see a positive at the end of all of that, they are already a long way into the correct mindset to proceed.
Another example is like the person who needs to lose weight. They know it takes exercise and diet (sorry guys - the fad machines, pills and creams on Danoz Direct won't do it), but at this point it is a concept; a hypothetical.
But, give them numbers - tell them to power-walk for 40 mins per day, 5 days per week, and only consume 1000 calories per day at the same time, drink lots of water etc and do this for at least 6 months - this is actuals, and now they have a target.
Now they have belief and will act.
Not much that is in the public domain. What I CAN tell you is the land has grown in value considerably.
Sales estimates put its value at up to $8.4 million - bank valuation lower. And this is still without any DA in place or even on the horizon.
And the cows on it seem quite content with their river front home.
Never noticed this one, brilliant thread Peter, thanks!!
This is the attitude I have toward my land investments (much smaller scale than you Peter!). I don't need to find a bargain, market price is fine by me - I know it'll be worth a lot more in 10yrs.
Don't remember you mentioning this before, do you still hold this land Michael?
So true, and a great deal of people can't get past this. Never had this problem with property, though did have it with shares - am finally getting over it.
This is the attitude I have toward my land investments (much smaller scale than you Peter!
). I don't need to find a bargain, market price is fine by me - I know it'll be worth a lot more in 10yrs.Don't remember you mentioning this before, do you still hold this land Michael?
So true, and a great deal of people can't get past this. Never had this problem with property, though did have it with shares - am finally getting over it.
It is a great thread. I especially like this bit.
And I remember my old man saying 30 years ago how we shoulda bought that bit of scrub 10 years ago for bugger all on the Gold Coast, thinking there was no more growth left and it would be too late now though..
See ya's.
And I remember my old man saying 30 years ago how we shoulda bought that bit of scrub 10 years ago for bugger all on the Gold Coast, thinking there was no more growth left and it would be too late now though..
See ya's.
Hi Steve,
Yeah we do. She paid $40K for it I think some 15-20 years back and its now worth $250K. Not a bad little return hey. We're thinking of selling it to tip into Mona Vale. Its agisted to cattle and the income from the agistment just covers the annual ragweed clean-up and council rates. We own it outright...
Although not in the same league as Peter, we try and apply the "potential" rule whenever buying. With Mona Vale we're in the process of releasing that potential by taking it to its highest use by developing the unit block. From what Peter's said above, he's still land banking but they might well release that value through subdivision (higher use) at some point in time.
Credit where credit's due: It was Peter's book ($10M in 10 years) which opened my eyes to the importance of higher use in accelerating wealth creation plans. Thanks Peter!!
Cheers,
Michael
thanks for the update peter. congrats on the doubling in value in a few short years. Just another quick Q. In this syndicate is there a process for the members to access the increased equity or is it pretty much locked in until development.
well, i'll let this thread go and dig it back up in another couple of years if you don't mind
well, i'll let this thread go and dig it back up in another couple of years if you don't mind
It's a very simple structure so it's pretty much locked in.
I just checked out Peters block to see how the floods effected it.
http://www.nearmap.com/?ll=-27.554224,152.854521&z=16&t=k&nmd=20110114
Not too bad, just a gully up the middle got a bit wet. Spose you could zone that as parkland
See ya's.
http://www.nearmap.com/?ll=-27.554224,152.854521&z=16&t=k&nmd=20110114
Not too bad, just a gully up the middle got a bit wet. Spose you could zone that as parkland
See ya's.
