My "Armchair Development" Experience

[Crido]

Crido,

Would you mind explaining how the funding situation works in EOS?

Having spoken with them my understanding is:
You provide a deposit as part of the JV
The JV (iaw EOS) obtains a loan through their broker for the land (and construction in some cases)
A 100% construction loan is taken out by the JV once settled on the land (if step 2 didnt include)
Each party in the JV then takes out a residential loan to purchase the property at cost price from EOS.

Does this sound correct? And did you have to pay the deposit via cash and LOC or could you take out a separate loan using the land as security?

Cheers
AM

Hi AndyM,

You're almost on the money with your explanation of the funding situation.

Let me try to clarify:

1. The JV members deposit their initial funds in the JV Acc and this is used to buy the land outright. We (the JV) now own the land. We cannot obtain these funds by borrowing against the land or development.

2. The Development Manager then employs a builder to construct the 12 units.

3. On completion, each party in the JV then pays the balance of the original purchase price (which is their share of the cost of construction) and takes ownership of their unit. These funds CAN be borrowed against the property.

Fairly complicated and quite simply at the same time!

Hope that helps!

Cheers,
Crido

 

[westminster]

Hmmm ... I hadn't thought of the volume factor, so I'm unaware of the ceiling height they are planning for 33 Windsor St. I'll get back to you with this.

Also, I've invested in one of the (two) one bedders in the block @ 40.1sqm of thoughtfully designed space, including a space-saving "galley" kitchen (+50sqm courtyard + storage room + car space) with the bedroom at a cosy (but functional) 3.11m x 2.8m. I'm very happy with the large courtyard too!

Your thoughts, Aaron?

Cheers,
Crido

Crido,
You have one of the ground floor ones? I love the courtyard - really helps them stand out from the crowd.
Looking at the plans you have 2.9m high ceilings which is higher than normal - umm I think it might be 34 course.
Yours is a very practical design. Not an inch of wasted space.

 

[MTR]

i have done a useable 1 bedder at 37sqm titled, plus balcony, carbay and store.

it just depends on your thought process and your understanding of space and how it's used.

for example, a 3x3 bedroom isn't a shoebox if it has 3m ceilings (or raking ceilings) - likewise a 5.5 x 3.5 living space feels like a good size if it has raking ceilings, with clerestory windows to view the sky above.

i think when people buy OTP, it's very easy to forget that VOLUME makes a comfortable space, not just floor area.

imagine it - a 1 bed unit with 40m² of space but 140m³ of volume (3.5m average ceiling height) , versus a "bigger" 50sqm 1bed with only 120m³ of volume (2.4m ceiling height).

i know which one i would buy.

I think I have learnt something today, will now consider volume if I go down this road.

Financing under 50 sqm may be an issue though??

MTR

 

[oc1]

I think I have learnt something today, will now consider volume if I go down this road.

Financing under 50 sqm may be an issue though??

MTR

Nope. Built and sold 44m2 one bedders in Melbourne (metro). No probs for the buyers financing.

 

[westminster]

I think I have learnt something today, will now consider volume if I go down this road.

Financing under 50 sqm may be an issue though??

MTR

Financing under 40sqm is hard - especially if it's a studio/bedsit. Once it has a bedroom with a door it gets easier.

Crido also has wonderful outside areas. When you look out of one of his windows the courtyard wall is 2.5m away. This will help make the rooms appear larger than if the wall was 1m away from the window.

This in probably intangible when it comes to valuation but you won't have a tenant feeling claustrophobic and high turnover therefore - one hopes!

 

[MTR]

Financing under 40sqm is hard - especially if it's a studio/bedsit. Once it has a bedroom with a door it gets easier.

Crido also has wonderful outside areas. When you look out of one of his windows the courtyard wall is 2.5m away. This will help make the rooms appear larger than if the wall was 1m away from the window.

This in probably intangible when it comes to valuation but you won't have a tenant feeling claustrophobic and high turnover therefore - one hopes!

If I buy something OTP I will have to get you to look at it, as you have a great eye for this.

Cheers MTR

 

[Aaron Sice]

If I buy something OTP I will have to get you to look at it, as you have a great eye for this.

Cheers MTR

westminster and sanj are both pretty switched on with apts and OTP.

you could do A LOT worse by not running ideas past them first - sanj has been my soundboard for a number of years now.

 

[MTR]

westminster and sanj are both pretty switched on with apts and OTP.

you could do A LOT worse by not running ideas past them first - sanj has been my soundboard for a number of years now.

Its great stuff to be able to bounce ideas and get this type of feedback.

 

[Crido]

...

Crido also has wonderful outside areas. When you look out of one of his windows the courtyard wall is 2.5m away. This will help make the rooms appear larger than if the wall was 1m away from the window.

This in probably intangible when it comes to valuation but you won't have a tenant feeling claustrophobic and high turnover therefore - one hopes!

Excellent! Thanks for this perspective westminster!

 

[westminster]

I love design. It's my passion in life. I love looking at plans and things

 

[Aaron Sice]

ENTJ personality, myf?

 

[westminster]

ENTJ personality, myf?

Hmm I can't remember what I am. Work is sending me on another similar doovilacky - Hermann Brain Dominance Indicator - this is colour based. I'm pretty sure I'm a different colour to all my geek workmates

 

[AndyM]

Hi AndyM,

You're almost on the money with your explanation of the funding situation.

Let me try to clarify:

1. The JV members deposit their initial funds in the JV Acc and this is used to buy the land outright. We (the JV) now own the land. We cannot obtain these funds by borrowing against the land or development.

2. The Development Manager then employs a builder to construct the 12 units.

3. On completion, each party in the JV then pays the balance of the original purchase price (which is their share of the cost of construction) and takes ownership of their unit. These funds CAN be borrowed against the property.

Fairly complicated and quite simply at the same time!

Hope that helps!

Cheers,
Crido

Perfect, thanks Crido

 

[Waldo]

Great thread Crido.

A quick question (for anyone)- do you think there is much risk of the property valuation coming in low come settlement time (I'm thinking about the standard OTP risks here)? Since there is so much 'fat' built into the profit margin, I would imagine that this risk is greatly reduced.

Also are there many groups that do projects like these? I would imagine the developers who have the capital behind them would proceed with the development themselves in order reap the gains themselves.

Finally, if an investor does fail to settle (and hence pay their part of the group construction loan); is the remainder of the group likely to be held liable or it would simply be a matter between the individual and the bank. I'm thinking normally its the developer who wears the burden if someone won't settle.

Sorry for all the questions - I'm definately not trying to put a dampner on your purchase - I'm just wondering how this type of investment could fit into my portfolio (because lets face it, on the numbers side it is very attractive).

 

[MTR]

Great thread Crido.

A quick question (for anyone)- do you think there is much risk of the property valuation coming in low come settlement time (I'm thinking about the standard OTP risks here)? Since there is so much 'fat' built into the profit margin, I would imagine that this risk is greatly reduced.

Also are there many groups that do projects like these? I would imagine the developers who have the capital behind them would proceed with the development themselves in order reap the gains themselves.

Finally, if an investor does fail to settle (and hence pay their part of the group construction loan); is the remainder of the group likely to be held liable or it would simply be a matter between the individual and the bank. I'm thinking normally its the developer who wears the burden if someone won't settle.

Sorry for all the questions - I'm definately not trying to put a dampner on your purchase - I'm just wondering how this type of investment could fit into my portfolio (because lets face it, on the numbers side it is very attractive).

Hi Waldo
I think you are posting good questions....

There is a group in Perth Ionic Property they have been successfully doing this stuff for over 10 years, making around 20%+ on completion for their investors. These developers build small groups of units/villas, for example with a group of 8 they have a data base of investors who purchase 4 and they will keep/sell 4.

I know someone who has been making around 100k each year, has been 5 years now that she has been involved in various projects, latest is Joondanna and Midland, she is time poor. I am told this group has an excellent product, all in house, total control, they operate a tight ship and it works well. The down side is they want about 50% equity on wholesale product, I think you own the land. My friend has accumulated some great properties with the help of this group.

For the record I have not purchased with this group and have no vested interest.

This is one of their properties currently under construction. Of course the investor did not pay this price, and I am pretty sure the profit on this is more than 20%.

http://www.realestate.com.au/property-house-wa-yokine-112818491




MTR

 

[John_]

Hi Waldo
I think you are posting good questions....

There is a group in Perth Ionic Property they have been successfully doing this stuff for over 10 years, making around 20%+ on completion for their investors. These developers build small groups of units/villas, for example with a group of 8 they have a data base of investors who purchase 4 and they will keep/sell 4.

I know someone who has been making around 100k each year, has been 5 years now that she has been involved in various projects, latest is Joondanna and Midland, she is time poor. I am told this group has an excellent product, all in house, total control, they operate a tight ship and it works well. The down side is they want about 50% equity on wholesale product, I think you own the land. My friend has accumulated some great properties with the help of this group.

For the record I have not purchased with this group and have no vested interest.

This is one of their properties currently under construction. Of course the investor did not pay this price, and I am pretty sure the profit on this is more than 20%.

http://www.realestate.com.au/property-house-wa-yokine-112818491




MTR

I spoke to them 28% - 32% returns most projects are maximum of 12 months start to finish, capital required is more then 50% it's at about 70% upfront then balance on completion but you pay no stamp duty.

Good thing about it is, they have a proven track record + you don't sign a as a guarantor for the construction

hope this helps

 

[MTR]

I spoke to them 28% - 32% returns most projects are maximum of 12 months start to finish, capital required is more then 50% it's at about 70% upfront then balance on completion but you pay no stamp duty.

Good thing about it is, they have a proven track record + you don't sign a as a guarantor for the construction

hope this helps

I knew their returns were amazing but just wanted to be conservative as I did not know the exact figures, as I mentioned I know someone who has been doing very well using them for 5 years now. She has lots of equity/lazy money and happy to sit back and let them do all the work. She also has her own family and friends who have been purchasing. I don't believe they are short of investors wanting "in".

I personally am not prepared to put that much of my own money into the deal, I would only want to place 20% as I would rather leverage and have a couple of projects on the go and I have the time to do this. Of course if they accepted 20% I would be jumping at these.

MTR

 

[Crido]

Latest Armchair Update:

The guys from EOS Property Group had a webinar update the other night for all investors of their 33 Windsor St development.

It was a great way to receive the update and was very professionally run!

We are currently ahead of schedule, but depending on the DA process, this could change. The market in Perth is good and there are some interesting prospects in the pipeline concerning our construction finance, that could mean some savings for investors down-the-track.

Next webinar is scheduled for May 6 - all very organised - I like it!

Cheers,
Crido

 

[westminster]

I love that idea - good to see all is going well.

 

[cyborg]

I love that idea - good to see all is going well.

for now