Valuing 3 units on one title

R

RightValue

Hi Rightvalue,

This is something that frustrates me no end.

If you ever see a brand new 3 townhouse development being sold for $270k less than it would be worth when strata titled, please let me know, as I would buy it in a flash. This simply doesn't reflect the reality of how commercial transactions take place.

Cheers,
Matt

Quote:
Originally Posted by RightValue
Also be aware, if you are borrowing from a bank , even though the development may be worth $1.07m upon completion and on separate titles, that on one title as it will be valued by the bank it could be worth/valued at less than $800k upon completion.
 
Ok so lets work this one through.

Bear in mind that the valuation of three on one is being undertaken for mortgage security purposes for the lender who takes a fair chunk of the risk


But let us start anyhow, Matt,

If the total realisable value of three units if they are on separate title is $1.07m, how much will you be willing to offer for all three on one title?


Bear in mind that the pool of potential purchasers for such a transation is limited.

Are you paying cash for the whole lot or how much do you propose to borrow?
 
Aaron_C said:
Value of all strata'd, minus 15%. Done. :)
Click to expand...

Ok, so you want a 15% return for your risk, including holding costs, titling expenses and the remainder a return for risk and your capital?

That is not far off what I use when I do my valuations (I do a lot of these), although some other valuers use a flat 25%.

So that means the lender will get $$910k for them if they are left holding the project.


any other takers?
 
Lets work on the following cost base:
Strata titling (survey, council fees, legal costs) = $10k
Closing costs to purchase @ ~5% = $40k
Cost to resell @ 3% of $1.07M = ~$30k
Purchase cost $800k

So I am in and out for $880k = $190k profit margin

Don't really care how much I need to borrow, in and out in 3 months, or could hold longer if required as rentals.
 
RightValue said:
Ok so lets work this one through.

Bear in mind that the valuation of three on one is being undertaken for mortgage security purposes for the lender who takes a fair chunk of the risk


But let us start anyhow, Matt,

If the total realisable value of three units if they are on separate title is $1.07m, how much will you be willing to offer for all three on one title?


Bear in mind that the pool of potential purchasers for such a transation is limited.

Are you paying cash for the whole lot or how much do you propose to borrow?
Click to expand...

Im playing the same game at the moment and this is a weekly scenario for us

1650 end value, ready to strata at completion. Nil additional cost required

IOL 1365 k

Logic being

Sales and Marketing 2 @
Profit and Risk @ 10 %
Interest cost for 90 days @ 8 @
Buying costs 5.5

Englobo Value therefore 1365 k

The REAL on the ground reality for us is the below which is a verbatim extract from a request to review val.

ta

rolf


By the same token, with the end methodology of “ buy strata risk profit “resell for a margin is “statistically” and dollar valid, my 13 year experience in dealing with savvy property investors tells me this property , if sold in one line, on completion would be purchased not by somebody looking to turn a quick profit, but indeed for a buy and hold investor who would then extracting equity back out of the property.
I can say this with reasonable comfort because I have done similar types of transactions on the much slower East Coast market in recent times, and there is a ready market for this type of stock that can be purchased with a 90% lend even though it is on one title initially. This type of stock is in high demand where the price to end strata value is 10 % or greater, with the demand increasing more so, the larger the spread.

Please bear with me on my logic for a moment

The current strata value position based on this valuations GRV is 1 680 000, and the one line val 1365.

Typically we are finding that properties of this nature are selling at 10% discount to the Strata valuation, thus 1512 to this property. There is a natural floor to the price below which the market wont go.
The borrower then simply applies to finalise completion of separate titles at negligible cost, and refinances the three of them separately at 90% loan to value ratio.

Based on this valuation, the new owner would be able to borrow 1 512 000 of the end valuation, thus they would get their entire deposit component back, and the only out-of-pocket cost to hold this asset would be the stamp duty and the small separate titling fees. Lenders mortgage insurance would generally be added to the loan

To test the marketability of this

Assume 1365 buy price ( based on our one line val)
Strata title, property now worth 1650, negligible cost
1512 re lend at 90% loan to value ratio, immediately new equity released of $147,000 in cash. On those numbers the property would not last a week on the market
Even at 80% loan to value ratio with no mortgage insurance component the re-lend would be 1344, and so the total borrowers cash to hold this asset is $ 21 000

In any case, I understand this is just “theory” even though this is pretty much every day lending and credit structuring practice for us. It's something that the valuer cannot necessarily consider as a valuation option, it's just important to me to present a counter view, as to why the market would price such an asset significantly differently than a valuations process

The real basis of our request to review to the end dollar amount is not based on the system or modelling used to get the end value for the one line.
 
mattnz said:
Lets work on the following cost base:
Strata titling (survey, council fees, legal costs) = $10k
Closing costs to purchase @ ~5% = $40k
Cost to resell @ 3% of $1.07M = ~$30k
Purchase cost $800k

So I am in and out for $880k = $190k profit margin

Don't really care how much I need to borrow, in and out in 3 months, or could hold longer if required as rentals.
Click to expand...

Ok, so let us say the opportunity cost of your money is the same as the borring rate and adopt 7%.

How long to get the strat title through?

You reckon 3 months.

How long is the selling period for the out?

The marketing campaign will last how long?

Will the buyers all give you 30 day terms?

Would not 6 months be a more realistic time frame?

If so you have just plowed through around $30k in holdiing costs.
 
You can start marketing day 1, there is no requirement to have them individually titled prior to sale. Just get the surveyor there asap and draw up contracts based on the new titling.

2 months for strata title, 30 days for settlement once titled. Plenty of fat in the deal, if it goes beyond this point. They are already certified for occupancy, so can be rented to cover costs if required.

As Rolf correctly points out, there is no requirement to immediately sell.

If we calculated all real estate transactions in this manner, a valuation would never equal the purchase price, as the new owner would always have to pay stamp duty and sales commissions to exit.

RightValue said:
Ok, so let us say the opportunity cost of your money is the same as the borring rate and adopt 7%.

How long to get the strat title through?

You reckon 3 months.

How long is the selling period for the out?

The marketing campaign will last how long?

Will the buyers all give you 30 day terms?

Would not 6 months be a more realistic time frame?

If so you have just plowed through around $30k in holdiing costs.
Click to expand...
 
TheFinanceShop said:
Why are we assuming that we can simply change the title from Strata to Torrens? Its a very dangerous assumption.

Regards

Shahin
Click to expand...

No, we are going from single title to strata.

Obviously prior to purchase, you would review the conditions of the DA to ensure that strata title can be granted. Get a building inspection if required.
 
Ok Matt,

You are at $880k you would pay for it,

Aaron is a $910k,

Rolf infor shows higher.

Let us run with your $880k.

Now assume your parents super fund is the lender, are you happy to reccomend and 80% lend based on an end value of $880k to them?
 
Actually I was at a purchase price as "valued" at $800k and laughing all the way to the bank. The remaining $80k was my cost to flip them in 90 days for a $190k profit.

RightValue said:
Ok Matt,

You are at $880k you would pay for it,

Aaron is a $910k,

Rolf infor shows higher.

Let us run with your $880k.

Now assume your parents super fund is the lender, are you happy to reccomend and 80% lend based on an end value of $880k to them?
Click to expand...
 
mattnz said:
You can start marketing day 1, there is no requirement to have them individually titled prior to sale. Just get the surveyor there asap and draw up contracts based on the new titling.

2 months for strata title, 30 days for settlement once titled. Plenty of fat in the deal, if it goes beyond this point. They are already certified for occupancy, so can be rented to cover costs if required.

As Rolf correctly points out, there is no requirement to immediately sell.

If we calculated all real estate transactions in this manner, a valuation would never equal the purchase price, as the new owner would always have to pay stamp duty and sales commissions to exit.
Click to expand...


Matt,

You have assumed that you will sell them all and have them settled within 90 days, do you not think 180 may be a bit more realistic?
 
TheFinanceShop said:
So you are saying that once you have DA to build 3 dwellings on a single title then you have 99.99% chance of approval to for single titles?

Regards

Shahin
Click to expand...

Well the DA approval is usually for three individual properties. They are usually held on one title until they are built, basically when a council gioves DA for a three townhouse development they are approving a 3 lot subdivision.
 
RightValue said:
Well the DA approval is usually for three individual properties. They are usually held on one title until they are built, basically when a council gioves DA for a three townhouse development they are approving a 3 lot subdivision.
Click to expand...

Yes if the DA is staged in such way that subdivision is granted after construction (Which most are) then thats fine. There are councils like moreton bay in QLD that allow for multi dwellings on a single title but have specific rules against subdivision which is where I was going with that.

Regards

Shahin
 
I have a contra , but its not relating to strata of newish stock

Back in 2002 i arranged finance for 2 pre 1900 terraces in melb on one title.

90 days we thought..............finally in 2007 after many hydraulic issues and disputes we had 2 titles

ta
rolf
 
You must log in or register to reply here.

Similar threads

P
Funding a two townhouse development
2
Replies
20
Views
3K
perthguy
P
D
valuing the land component in a strata title (apartment/townhouse)
Replies
4
Views
2K
daedalus2014
D
T
Advise on what to do next
Replies
3
Views
1K
tegs77
T
M
Why wouldn't my bank release the title for subdivision
Replies
5
Views
4K
Rockstar
Rockstar
S
WA - West Leederville 6007, 3 unit development
2 3
Replies
53
Views
11K
boeman
B
Back
Top