Raising development funds
- Thread starter Hulkster
- Start date
Hulkster said:
Need more info than you have given to provide any help/opinions.
Is $4 mill the asking price or a ball park you'd expect it to achieve?
Who is selling it? why are they selling it? and what is their situation?
Are you just doing a straight land sub division - ie put in some roads and run utilities to each site or do you intend develope housing?
Have you got assets and income backing you for this purchase or are you wanting to fund against the potential developed value of the land?
Paulie
Hulkster said:
Hi Hulkster
Were are you based
I raise funds through a number of accounting firms across Australia, I like land subdivisions, it works well for self managed superfunds.
Send me some details
[email protected]
Regards
Nigel Kibel
Hi Paulie - have replied beneath your questions.
Hulkster
Need more info than you have given to provide any help/opinions.
Is $4 mill the asking price or a ball park you'd expect it to achieve?
$4M covers purchase and development to sale
Who is selling it? why are they selling it? and what is their situation?
Vendor has no experience with subdivision
Are you just doing a straight land sub division - ie put in some roads and run utilities to each site or do you intend develope housing?
Straight subdivision
Have you got assets and income backing you for this purchase or are you wanting to fund against the potential developed value of the land?
Have assets and income to back, but future value would be preferred option
Paulie
Hulkster
Need more info than you have given to provide any help/opinions.
Is $4 mill the asking price or a ball park you'd expect it to achieve?
$4M covers purchase and development to sale
Who is selling it? why are they selling it? and what is their situation?
Vendor has no experience with subdivision
Are you just doing a straight land sub division - ie put in some roads and run utilities to each site or do you intend develope housing?
Straight subdivision
Have you got assets and income backing you for this purchase or are you wanting to fund against the potential developed value of the land?
Have assets and income to back, but future value would be preferred option
Paulie
Hulkster said:
Hi Hulkster,
$4 million is alot of bananas to be holding as a loan with no added income(like rent) if the market slows down.
I'd suggest you approach the owner with a profit sharing exercise, for if there is a lot of un realised sub dividision value in the property (There would have to be for a developer/investor like you to want to get involved) I'd offer to handle the sub division for the owner in exchange for 50% of the future extra value sub dividing will create, provided he/she funds the costs to sub divide (If they are not prepared to fund the sub division costs - look at providing the finance to do so and either remove these costs from her/his share of profit or agree to fair total value once sub division sold the owner will get).
So my suggestion would be to do the figures on what the residual land value purchas price would be for a developer who would work backwards from a realistic current final sell prices of all the new blocks less all costs & profit (there are a few threads around which highlight the process in detail and various costs - remember to included at least 20% profit on final figures, holding costs to borrow all the money to buy and sub divide and the 10% gst on all final block sale prices!)
I have shown some imaginary figures below as an example.
FINAL SALE PRICES - Site can be sub divided into 100 new blocks worth $100,000 each ~ $10,000,000
PROFIT - Less 30% ~ $3,000,000
~ $7,000,000
GST - Less 10% on all blocks sold 100 X $10,000 ~ $1,000,000
~ $6,000,000
SELLING FEES - Agent selling fees to sell blocks on your behalf $5,000 X 100 ~ $500,000
~ $5,500,000
INTEREST - Cost of borrowing money to purchase site, pay for professional fees, site preparation, legal fees, development apps, etc - est $5,500,000 at 10% for 12 months ~ $550,000
~ $4,950,000
SITE WORKS - The actual costs of demolition, all the professional fees, site preparation, legal fees, development apps, installing roads, utilies services etc. est ~ $950,000
~ $4,000,000
RESIDUAL LAND VALUE $4,000,000
If the owner is prepared to wait a year to receive an extra $1,000,000 you can save massive amounts by not having to fund the upfront $4 mill buying costs, not having to pay interest on all borrowings $550,000, not having to have such a large profit & safety buffer in 30%, possibly only 15% - 20%.
Therefore costs to you example would look like this:
SITE WORKS - The actual costs of demolition, all the professional fees, site preparation, legal fees, development apps, installing roads, utilies services etc. est ~ $950,000
~ $950,000
INTEREST - Cost of borrowing money to pay for demolition, all the professional fees, site preparation, legal fees, development apps, installing roads, utilies services etc. - $950,000 at 10% for 12 months ~ $95,000
~ $1,045,000
SELLING FEES - Agent selling fees to sell blocks on your behalf $5,000 X 100 ~ $500,000
~ $1,545,000
GST - 10% on all blocks sold 100 X $10,000 ~ $1,000,000
~ $2,545,000
PAY OWNER HIS AGREED PORTION - $4mill plus $1 mill for waiting a year ~ $5,000,000
~ $7,545,000
END OF THE PROJECT Total Sales proceeds of development are $10,000,000 having paid $7,545,000 you are left with $2,455,000 profit on a lot less exposure to the risks of a big ticket development.
Whilst I am sure I have missed loads of costs, my figures are wrong and timing issues not accurate, I hope this has given you a second option for progressing with this project.
Cheers
Paulie
