Property financier

[x452]

Hi,

Is it possible to become a "property financier". Say I've got $100K to buy an IP, rather than borrowing another $200-$300K to buy an IP and play the property game. Can I inject my $100K into a property developer and get back the % of the profit that I put in?

Just say it costs a builder/developer $500K to build a property and I inject $100K into it (20%). They then sell it for $700K. I then get 20% of the $200K profit ($40K) of whatever the net profit will be after tax and other outgoings?

Has anyone done this and if yes where can I get more info on it?

Thanks,
x

 

[goonandtell]

I imagine you would either go through some sort of solicitor & a broker who would bunch a whole bunch of people like you together like a mini property fund. Or joint venture.

Although if i was looking for a financier i would probably want to be able to get more than $100k at a chunk, and i doubt i would offer full % cut of cost since you aren't doing the work.

 

[Gools]

x, first you'll need to change your expectations.
A builder/developer is working on a profit margin of 30% over 12 months. If they can get finance for <10% then there is no way they will take up your offer of giving yuo a 30% return.

If the developer is working on a margin of less than 30% or their finance is costing them more than 10% per annum then I would be hesitant of getting into bed with them anyway.

Put your $100k into property development/builders shares??

Gools

 

[x452]

Thanks for the feedback. Found this article through google:

This is where you come in.

You look at the developer, the site, the plans and the area and think that this house will have no trouble for selling at $350,000. You agree to lend the Developer (or lend part of the money in a syndicate) the $40,000 on the basis that you receive a second charge over the property after the bank (this basically means that if the property is sold, the bank is entitled to its money first and then you are entitled second). Because you are taking a second charge, your risk is greater and therefore you are entitled to charge a high rate of interest on your $40,000.

This is the juicy part!!!

Typically, as a private investor you will be looking to receive 2-4% per month on your money. 4% on $40,000 is a whopping $1,600 per month you will receive in your pocket, every month for the life of the loan. Now that is what I call explosive cash flow!!! And what have you done - nothing other than carefully check out the investment and the developer. Of course you don't get to keep the property at the end of the project, but you do get your money back plus a dynamite return and you did not experience one property related hassle!!! Your investment is also fairly safe in that you will have carried out your due diligence on the project AND you have the second charge.

Setting up these type of deals means making sure you structure the deals correctly and making sure you have watertight legal agreements.
http://ezinearticles.com/?How-to-Become-a-Property-Financier&id=3386494

 

[Gools]

Caveat emptor

They'll only give you 2-4% per month if there is a large risk involved. If it seems to be too good to be true then it more than likely is. Maybe that's a bit of a cautious approach but I'd rather that than lose my $100k. You're the second mortgagee so you could well lose it all. Just ask Craig McDermott!

Gools

 

[The Y-man]

Hi,

Is it possible to become a "property financier".

If your going to be a financier, why are you interested in the profit on sale?

Surely you would just lend you money out, secured against the property (or not) as per any other lender.



Cheers,

The Y-man

 

[josko]

Hi,

Is it possible to become a "property financier". Say I've got $100K to buy an IP, rather than borrowing another $200-$300K to buy an IP and play the property game. Can I inject my $100K into a property developer and get back the % of the profit that I put in?

Just say it costs a builder/developer $500K to build a property and I inject $100K into it (20%). They then sell it for $700K. I then get 20% of the $200K profit ($40K) of whatever the net profit will be after tax and other outgoings?

Has anyone done this and if yes where can I get more info on it?

Thanks,
x

You might also do a little research on Mezzanine Finance.

The higher the return, the higher the risk.

Regards JO

 

[x452]

If your going to be a financier, why are you interested in the profit on sale?

Surely you would just lend you money out, secured against the property (or not) as per any other lender.

I was thinking more along the profit rather than getting an income from interest.

I'm not seriously looking at doing this, just wanted some feedback on the idea.

 

[mortgageman]

Hi x452,

If you are very comfortable with the developer you can do this. We have worked with a large number of deals that involved money partners and the arrangement can work well as long as there is trust from all concerned and the numbers stack up. In effect you would become a JV partner, perhaps with a developer who has the expertise but not the available cash to put into the project. You would want to make sure you are getting a fair return for your risk, however. You would also need to implicitly trust the competence and integrity of the developer and have the arrangement clearly set out in a suitable contract. Developing is a risky game so be careful.

Regards,

Cameron Perry
Perry Financial Strategies

 

[The Y-man]

I was thinking more along the profit rather than getting an income from interest.

IF you were to look for interest, how much interest would you charge for an unsecured loan? (Never know, I might need some quick cash )

Cheers,

The Y-man

 

[Peter_Tersteeg]

There's lots of private funders & mezaine funders out there. People with cash to invest is where they get the money from. If you're really interested, it would be possible to get a few names together, but one of the first I'd look at would be La Trobe.

 

[x452]

IF you were to look for interest, how much interest would you charge for an unsecured loan? (Never know, I might need some quick cash )

Cheers,

The Y-man

How's 4% per month ;-)

 

[Ausprop]

or invest with someone like Angas that does the hard yards and gives you above bank returns

 

[Ana]

We have come accross a few money partners in the past and it has worked successfully as long as all the details and expectations are put in writing in a proper contract so that everything is disclosed properly and there are no miss-understandings.

Wishing you every success,
Ana Stankovic

 

[treehouse]

Is it worth it?

Ana

Before organising the financing, based on the strategy you use of buy reno sell - from your opinion as from the following comment is it really worth it? Gross profit of say $80 to $90K sounds good in principle, but when you see the net return of only around $20K for all this effort??? Would be interested to hear your view.....

cheers

IMO buy, reno, sell is VERY difficult to make money out of.

Your Example:
Buy @ $300K
Reno @ $30K
Stamp Duty $9K
Legals $1K
Holding costs (4 months) $5K
Total costs = $345K

Then sell @ $390K (if you can)

REA comms @ 2.2% $8.5K
Legals $1K
Discharge fees etc $1.5K
Total selling costs = $11K

Profit before tax = $34K
Assume you do this for a living so no GCT but PAYG tax instead so tax @ 30c in the $
After tax profit = $20K

Now this $20K profit will evaporate if you run over time on your reno, or you cannot sell for $390K ish, etc

That is why most seasoned investors would do a buy, reno, hold and refinance some of created equity out, tax free. You'd get $20K out no problem to use for whatever you like (or as a part deposit on your next one).

 

[The Y-man]

How's 4% per month ;-)

Hey, I found a potential customer for you

http://www.somersoft.com/forums/showthread.php?t=59131

Do I get trailing commission?

Cheers,

The Y-man

 

[Ana]

Hi Treehouse,

Let me give you some real examples.

Current deal one:
Purchase price: $441,500
Purchase costs: $18,760
Holding costs: $15,366
Renovation costs: $50,000
Selling costs: $16,600
Selling price: $700,000 (min)
PROFIT: $157,374

Current deal two:
Purchase price: $300,000
Purchase costs: $13,000
Holding costs: $10,900
Renovation costs: $78,000
Selling costs: $13,000
Selling price: $500,000 (min)
PROFIT: $85,100

Current deal three:
Purchase price: $462,000
Purchase costs: $19,080
Holding costs: $13,769
Renovation costs: $60,000
Selling costs: $15,000
Selling price: $720,000 (min)
PROFIT: $149,751

Now these are just some of the deals we are currently renovating.
I also for example have just helped a lady who did my coaching program get a property with the following profitability:
Purchase price: $985,000
Purchase costs: $51,250
Holding costs: $22,500
Renovation costs: $160,000
Selling costs: $33,300
Selling price: $1,500,000.00 (min)
PROFIT: $247,350

I am currently in the process of doing 5 major renovations all at the same time. And I do choose to re-sell most of them and only keep the special ones. However, it only takes me 3 months to do even the biggest renovation with re-stumping, re-roofing, structural wall changes, bathrooms, kitchens, floor coverings, paint, etc so I get them back on the market quite quickly.

And it all depends on your accountant too. I for example don't pay capital gains tax, I pay income tax. And one of the structures I use for this is a company, so I pay company tax of 30% on my yearly income, but only after all my expenses have been deducted prior to declaring income...

With most people doing one of these deals will replace their yearly income, and if you get to the point where you are doing 6 in 7 months which is what I did when I had a bit of a sea change in Qld for a bit or like now 5 at the same time, you have a lot of flexibility and earn the kind of income that would not have been possible for me if I had held on to every property I purchased.

I hope this helps and has given you some additional info. Feel free to have a look at my website if you want more info or to see other case studies.

Wishing you every success,
Ana Stankovic

 

[Ana]

I forgot to mention that the first example has a 7 month turn around time (4 for reno, 3 allowed for settlement of purchaser), the next two will have a max of 6 month turn around time and my coaching students one has been purchased with the intention holding on to for 12 months which is what the figures are based on.

Wishing you every success,
Ana Stankovic