Prior to off the plan

From: Greg Loucos


Hello all

My wife and I have just had a discussion with an accountant who is planning an IP development interstate and have come out of the meeting feeling a little puzzled as to whether the deal is to good to be true.

On offer are new boutique units within a 2km radius of a capital city CBD, offered at a discount rate of $25000 off OTP pricing otherwise in their words at a wholesale price!

That is the carrot, for this you have to provide an up front sum of $100,000 which is used to provide the funds for land acquisition and loans for construction.

This money is lent to the developer who pays you interest of 2% higher than your loan. In effect we would become co - developers. This money is raised with a line of credit using the equity of our home.

On commencement of the building the interest paid to us by the developer on the $100000 is stopped, this money is now used as the deposit for the unit. Prior to settlement a new loan is organised for the full purchase price of the unit and on settlement we are paid back the original $100000 plus the $25000 discount.

Effectively we get to pay back the original LOC and pocket the $25000(or use it for the next IP).

NOW FOR THE QUESTIONS

1 Has anyone heard of this type of deal before?

2 Is this the way blocks of units get off the ground?

3 Is this to good to be true?

My concern is the up front money which they use to help get the project going, can I put a caveat on the development to secure my funds?

A contract/loan agreement will be issued to cover the initial up front money and lay out the details of the transaction, will this protect the funds or do we need to find other ways to protect the money.

Thanks for the help

Regards

Greg
 
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Reply: 1
From: Brett Burt


Yes, I am doing similar however we are using a trust (more secure for
investors ). The 2% is just a 'lure' in my opinion. The return is 25% and
taxed so depending on your and your wife's marginal rate it may end up being
very little. Also the location and type. If it is a large block of units it
may take 18 months to complete therefore your 25% is diminished by time.
Can you take actual cash profit ? If not why not? I would stay away from
hotel type units or anything in QLD. When you state '2 km from CBD' this
sounds like the old sales pitch for good old Brisbane. I would stay away
from there as there are a huge oversupply of units in those areas.

The concept is sound it is just the execution that I disagree and the return
is bit too low, based on what you have indicated.
----- Original Message -----
From: "propertyforum Listmanager" <listmanager@bne003w.webcentral.com.au>
To: <Recipients of 'propertyforum' suppressed>
Sent: Thursday, January 24, 2002 12:53 AM
Subject: Prior to off the plan


> From: "Greg Loucos" <greg.loucos@baesystems.com>
>
> Hello all
>
> My wife and I have just had a discussion with an accountant who is
planning an IP development interstate and have come out of the meeting
feeling a little puzzled as to whether the deal is to good to be true.
>
> On offer are new boutique units within a 2km radius of a capital city CBD,
offered at a discount rate of $25000 off OTP pricing otherwise in their
words at a wholesale price!
>
> That is the carrot, for this you have to provide an up front sum of
$100,000 which is used to provide the funds for land acquisition and loans
for construction.
>
> This money is lent to the developer who pays you interest of 2% higher
than your loan. In effect we would become co - developers. This money is
raised with a line of credit using the equity of our home.
>
> On commencement of the building the interest paid to us by the developer
on the $100000 is stopped, this money is now used as the deposit for the
unit. Prior to settlement a new loan is organised for the full purchase
price of the unit and on settlement we are paid back the original $100000
plus the $25000 discount.
>
> Effectively we get to pay back the original LOC and pocket the $25000(or
use it for the next IP).
>
> NOW FOR THE QUESTIONS
>
> 1 Has anyone heard of this type of deal before?
>
> 2 Is this the way blocks of units get off the ground?
>
> 3 Is this to good to be true?
>
> My concern is the up front money which they use to help get the project
going, can I put a caveat on the development to secure my funds?
>
> A contract/loan agreement will be issued to cover the initial up front
money and lay out the details of the transaction, will this protect the
funds or do we need to find other ways to protect the money.
>
> Thanks for the help
>
> Regards
>
> Greg
>
>
>
> To reply: mailto:propertyforum.20576@bne003w.webcentral.com.au
> To start a new topic: mailto:propertyforum@bne003w.webcentral.com.au
> To login: http://bne003w.webcentral.com.au:80/~wb013
>
>
 
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Reply: 2
From: H T


yeah yeah ive heard of that arrangement before. Matter of fact I was in something simliar 3years ago with promises of big returns and a discount on a flat. Got the discount on the flat but out of my 100 i got back 100. That's 0% return on investment over 2.5 years when everything else was going flat out.

lesson I learnt - despite the best of intentions of everyone concerned there are lots of variables that can shatter that return your going to get. questionable management, dodgy costings, sep 11 are variables that can get in the way of returns, but that said if you are willing to take the punt as I did, well it might be a big winner. if the numbers stack up and you are certain you've done all the independant research into the project that answers all your questions, then go for it.


HT
 
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Reply: 3
From: Joanna K


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Greg,

I have heard of this type of deal before. I believe it's being done in =QLD alot at the moment (could be wrong, but I think that's what I read =in the Herald).

I'm not the expert here, but I wouldn't do it that way. That's not to =say that it's not a good deal. I could be.

If I were looking for an investor to do a project I would basically =issue them "shares" in the consortium according to how much they're =contributing. At the end of the day when all is said and done, they get =their original contribution back and the profit is distributed according =to the "share" allocation. If they wish to use the money to purchase =one of the properties then that is a separate deal altogether and would =be treated as such.

Maybe Michael C or Metropole Properties guy (can't remember his name, =sorry!) can shed some light on how they do it.

Kind regards

Joanna Karavasilis
Principal
THE RENTAL SPECIALISTS

PH: 02 9599 3363
FAX: 02 9599 3447
EMAIL: rentals@rentalspecialists.com.au
WEB: www.rentalspecialists.com.au




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Greg,

I have heard of this type of deal =before. I
believe it's being done in QLD alot at the moment (could be wrong, but I =think
that's what I read in the Herald).

I'm not the expert here, but I wouldn't =do it that
way. That's not to say that it's not a good deal. I could
be.

If I were looking for an investor to do =a project I
would basically issue them "shares" in the consortium according to how =much
they're contributing. At the end of the day when all is said and =done,
they get their original contribution back and the profit is distributed
according to the "share" allocation. If they wish to use the money =to
purchase one of the properties then that is a separate deal altogether =and would
be treated as such.

Maybe Michael C or Metropole Properties =guy (can't
remember his name, sorry!) can shed some light on how they do =it.

Kind regards


Joanna Karavasilis
Principal
THE RENTAL SPECIALISTS

PH: 02 9599 3363
FAX: 02 9599 3447
EMAIL: rentals@rentalspecialist=s.com.au
WEB: www.rentalspecialists.com.au=




------=_NextPart_000_0038_01C1A4BB.EB777A40--
 
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Reply: 3.1
From: Michael Yardney


Joanna
This is "the Metropole Properties guy" as you call me.
I can't (and won't) comment on the specific investment opportunity. I don't know enough about it.But in general.....
One of the problem many property developers face is finding the capital to commence a project. Lenders usually require that the developer to contribute 20% of the project cost (Interestingly today there is a bit of money around for experienced developers where lenders will advance 100%).
Anyway....this need for capital means that some often undercapitalised developers have come up with a number of innovative structures to raise capital.
I find the proposal you have suggested as "interesting" and would be cautious. Please ensure an independent accountant and solicitor check it out.
Also check on the credentials and track record of the developer and most importantly why he needs your capital. If it's a good deal, he should have little trouble raising capital.
At this stage of the property cycle "everyone" is becoming a property developer and if history repeats itself
many will go broke.
Michael Yardney
Metropole Properties
 
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