Firsly, my condolences go out to AL, whose development has faltered. This is very sad to hear, and I wish you all the best in the future.
I have no problem with MY charging fees, and am quite aware that the property market, and in particularly the subsection of development is massively leveraged, so to magnify both losses and gains.
Reading and rereading the posts, though, many statements seem to confuse me so much to consider that something smells awfully like an off trout.
So if I could make you $60 -$90,000 you never had and it was tax free (as it usually is to our clients) why would you not pay us a fee.
"tax free" usually means equity locked up, or a financial dodgy scam or investment. Occasionally it means tax paid (as in the case of imputation credits). Be wary when you see those magic two words put together. The average person in the street loves to hear them, and hence, a lot of professionals love to spruik with them.
And Dave if you wouldn't recommend us why did you come along after and ask my personal advice on a number of matters related to your own property portfolio and then email me personally asking me further advice?
Are the snide remarks you made because we would not discount our fees to you like you requested? We act professionally and generally our clients respect this.
Comments such as this, placed in a public forum about members (whose identities were not substantiated, can hardly be construed in any way, shape or form as "We act professionally"
My favourite line from MY was
No we do not discount our fees
Firstly we did not charge the full 5% fee we normally charge. This was a decision we made at the beginning of the project to make it more viable.
Further I contributed funds to a number of items to keep costs down and improve the quality. For example I personally decided to tile the entry porches and paid for this out of pocket to make the project look better.
To me this sounds like discounting your fees, but, then,
At the end of the project there was about $10,000 in variations cost overruns due to various factors. We had allowed a sum for contingencies and the builder was not able to bare these extra costs as he was doing the job at cost.
Could these variations be directly, or indirectly related to the previously mentioned 'discounts'?
The final value of each of the units was in the order of $300,000 meaning they would appeal to the first home buyer or investor.
The average home loan used to be under 200k, I saw some recent figures, (forget the exact amount), but it was about 220k. Thus, the units were about 40% dearer (forgetting about stamp duty, agents fees) than the average mortgage.
Back to my favourite line-
Secondly we got one of our builders to construct the project AT COST plus the builder’s wages. He made no profit on the job
A lot of codswallop, in my opinion. Shouting AT COST, but who's cost? If the builder "made no profit on the job", he should have been down the pub getting drunk or playing with his children, instead of working bloody hard in a dangerous job and dealing with subbies. If you suggest that any builder, in the middle of a huge building boom, would be working for nothing, well, consider the simple rules of supply and demand. In short supply, costs of labour, materials go up. To suggest that a builder would forgoe 40k (about six or eight months worth of wages to the average builder, I would presume), would mean that MY would consider working eight hours a day, for six months, for no income. Personally, I wouldnt do it, nor ask anyone else to work for nothing. Fact is, everyone in business will pass on unprofitable deals (unless they are treated as a loss leader)
But, hey, it must have been really, really and truly extremely lucky to find that builder with the pure heart of gold, particularly considering that you write later,
During this time construction costs also rose due to our property boom.
The following paragraph has only two sentences in it, yet they contradict each other brilliantly.
Why haven’t the clients in our 64 other projects sprung to our defense and said how good we are? As far as I know, only one other current client is a participant on this forum.
Why haven't the other clients sprung to your defense? Well we could always speculate........ But then you mention that only one is a participant on this forum. So perhaps there is your answer. Strangely, if I was a pm for hire, I would be actively promoting somersoft to all of my current, past and future clients.
Another favourite of mine was
It was impossible to be aware of the problem prior to purchasing this property.
What an absolute load of crap. The pile of crap in that last statement is incredibly high. Now lets see, we all can do building/pest/survey prior to exchange/deposit, so why not soil? $300 insurance policy sounds a lot better than proceeding with a $1M development on quicksand.
How about write it in the contract? How about finding it out in your due diligence prior to entering into a legal contract, or at least finding out about it prior to going unconditional? "Impossible", no, "not investigated properly", I would conclude.
Of course you can put any clause in a contract of sale. The question is whether the vendor would accept it.
But, a better question is why should a vendor, and a pm with an express opinion on immediate construction would accept the contract without it.
If it was going to set back 30k and 3 months, did this suggest another round of changing numbers in the spreadsheet, to check out the newest feasability study? Particularly since time was obviously of the essence to al.
The lessons- do your due diligence carefully. Chose an experienced development manager and do not attempt to trade property in a falling market.
Due diligence, of course, extend it past the da, to potential construction problems off the A3 page. Experienced dm, of course. Have you suggested to all of your other 63 current projects not to sell, and advising all future clients with a buy, build, sell strategy to change?
I am sure you want to understand what went on as a learning experince. That is one of the great things about this forum, we can all learn from each other. But I am not going to respond to your questions becuase they relate to a client's private business.
The learning experience is what AL wanted as a student, with you, the experienced pm, teaching and guiding him through the huge maze that he was presented with.
As for not responding, well you have already done a bit of that.
If I were to answer your questions, I am certain would find there would be appropriate answers to each of your questions.
Such is a discussion forum. Are we being a little evasive on the hard questions, and answering the littlies?
In distillation, imho, the problems were,
i) Poor due diligence, particularly with regard to the soil.
ii) Insufficient profit margin, that was eaten up, if it ever existed at all
iii) Feasibility study not reexamined with the due diligence it deserved after soil problem was finally realised,
iv) An intention to sell, probably due to the very low yield of this type of investment.
v) An oversupply of nice new units on the market. They are now a dime a dozen everywhere, in an oversupplied market. Unfortunately, many other projects are part way through construction, and will again depress markets and rents in the next year or two.
Is there any reason why MY would not like to answer the immortal words of a redhead, "please explain"?