What do you think of this deal..

[akyboy]

G'day,

My business partner and I have found our first deal which we believe will get us some good CG with very little work, but would like your opinion.

We are looking at buying landi (2 adjacent lots) off-the-plan (stage 2 of 8 i think) in a regional area. The settlement is in 12 months, but is dependent on the DA of infrastructure (such as roads, electricity, etc.).

To exchange contracts we need to put down 6K.

We have a few options come settlement time:
1. Flip/Flick the property for hopefully a decent CG. (preferred)

2. Develop on these lots, either duplexs or a villa complex. This will be harder to do as we will need to the help of investors.

Why we believe there will be growth:
Since we are purchasing in stage 2/3, the natural price progression of stage 4,5,6.. will force our land value up.

At the moment, we were thinking of doing more research and if all goes well we were hoping to exchange the contracts without organising the finance seeing that we are hoping to pursue Option 1. Is this a good idea?

While we are waiting for CG and settlement, we are also planning to work on other projects (+ve geared properties)

I'm guessing we have overlooked some points and thus would appreciate your insights on this deal...

akyboy

 

[Aceyducey]

All depends on where the land is Akyboy.

Have you done research on price movements in the area over the last 20 years (ie: last two cycles)?

Who will live in the development?
Will it be mostly owner-occupied or rentals?
Are you able to settle in 12 months and at what % deposit?
Who would buy the land from you?
What level commission are you paying on the land? (if going via marketers you may be paying 30% over land value or even more - it takes a LOT of capital growth to make a profit!)

etc, etc, etc

There is NO easy money in property.

While it may look easy it takes at least 5 years of researching, learning & dealing to become an overnight success!

Cheers,

Aceyducey

 

[akyboy]

G'day Aceyducey,

Have you done research on price movements in the area over the last 20 years (ie: last two cycles)?

No, all I have looked at is the current prices in the area.

We are heading to the area on Monday to have a talk to the council and real estate agents.

Who will live in the development?
Will it be mostly owner-occupied or rentals?

Haven't considered who will live in the development as we would probably like to sell it.

Are you able to settle in 12 months and at what % deposit?

6k is required to sign the contract. I believe 4k of that will go the Buyer's Agent. I'm still working to get all the details as we were told of this deal by a friend/acquaintance (same person as the thread in the general topic area where I was asking about mentoring).

Who would buy the land from you?

Investor and homebuyer wanting to build their home/IP.

What level commission are you paying on the land? (if going via marketers you may be paying 30% over land value or even more - it takes a LOT of capital growth to make a profit!)

I don't know yet. How would I find this out? get is valued?

akyboy

 

[Aceyducey]

akyboy,

What you are doing sounds like property speculation to me. I certainly would be very cautious about it as an investor.

You can get an independent valuation (best) and look at comps.

Who will likely be living in the development is important even if you sell the land. You need to understand who the potential buyers may be & their reasons for buying your land.

Don't neglect to set up the appropriate legal structures & evaluate your Capital Gains Tax, Land Tax & Stamp Duties exposure.

Cheers,
Aceyducey

 

[Puppeteer]

Is your friend/acquaintance involved in the deal at all. ie does he have any involvment with the vendor, or will he be receiving a commission on the deal.

If so, any advice given isn't independent.

Also, will the other stages of the development be available before you settle or onsell. There may be the potential of oversupply in this area if this is the case.

Overall, sounds like a pretty high risk deal for someone new to property investment. Lot's of due dilligence required.