Am I missing something...or sell and run with the money?!

I have a duplex site in Sydney with a home on it currently rented to a long term family. The house is very old so it's worth peanuts but the land is worth ( based on recent comparables) between 3.9-4.1m. very small debt of around 300k on the property.

I haven't developed it as a duplex because the margin is just too tight, especially with the recent market retraction on the higher end stock. Recently a well known agent who gets record sales in the area approached me with a qualified developer wanting to buy it and offered me handsome price above market value. When I do the sums...I just don't see how it stacks up for him. Ok, he's a developer/builder so he saves some cost on the build. But it's still way too tight, especially after the premium he's offered me. I checked and triple checked the zoning and any possible density changes, and it's definitely only for a duplex.

The agent basically said that the recent surge in house prices has made the opportunity for this type of deal more attractive, and the developer is happy to accept the risks and possible rewards, if it pans out the way he thinks it will.

Now to me that's extremely high risk, hoping values keep rising by the time the build is complete. I worked out the numbers using some sensitivity analysis and IF growth in the area continues to surge over the next 3 years, he could do well. And if not, could break even at best....

So basically I need to decide do I hold and develop myself later on,or accept this great offer now ( 8 month settlement) and run.

I'm 90% planning to sell but just wondering if there's something I'm missing/overlooking..??

 

How much are the re-sale values or GRV for the site?

 

You don’t go broke making a profit. Sell and put the money into another project instead.

 

Is it only an 8month settlement?
what other terms are there in the proposed contract?
It's not subject to DA etc?

 

In current market GRV at best would be around 7mil.

 

There's an option considered to control the the site for 8 months and if they pull out the fee is 100k.

 

I am not a developer. Given you are having second thoughts about it, when do you need to respond? Can you leave it a couple of days and look at it again with fresh eyes before making a decision?

For me, if my gut says,’no’ then it’s no for anything. When I don’t have a clear answer though I find leaving it a day or two if I can will clarify my gut feelings.

 

I'll make my decision by Friday. I've looked over the numbers backwards to front and looked at all the risks vs rewards possible and for me to sell seems like a no brainer... which is what is making me apprehensive about missing something. Hence my post to the greater brain trust on PC.

 

Sell and buy your daughter a pony. We know you are a workaholic and would rather look forward to developing it yourself, so buy a nice country retreat for your family and do another development later. My husband and I can be the live-in housekeepers on your estate.

*This is not financial advice

 

Sounds very relaxing and peaceful

 

A second pair of eyes looking over the potential / time frame / what if / what not / your capability x time / life outlook x quality.
Anyway looks like you are sitting on a nice deal to ponder over. All the best.

 

There has to be a time in the future when that block will be worth even more, alot more. Assuming you're not missing anything currently, will you regret selling in fifteen years time for example, or will your mind be focused on the fifteen years of amazing experiences you and your family enjoyed as a result of letting it go?

 

@Sackie - Will the site yield more if the developer owns the adjoining lots? ie each site may yield 2 duplexes but 2 sites may yield an extra one. Not obvious outcome on first glance but you may have to consider combined property frontages, minimum frontage required etc.

 

@Sackie I have seen your statements about margins, you wouldn't proceed with a development without a big margin but in my experience some folk will.

If they form a view about future capital gains that is one reason as you mentioned (high risk developing on hope but people do it.)

Or they might have a vested interested (like a builder may have a team about to finish a project and if he doesn't keep them busy he loses them) so I have seen builders in particular willing to take projects for wages only when the timing means keeping the boys happy versus sitting on your hands and do nothing for a year.

There are other reasons too but either of the 2 above could see someone buy something at a price above what you would pay in the same situation.

 

What would the tax situation be on something like that ?

Does that play a big role when considering your options ?

Good problem to have.

 

I'm quite certain ( as much as anyone can be in a crazy investing environment) that in 15 years it will be worth more than today. I'd be happy to sell now and make less profit than make say 30% more in 15 years. What I'm trying to avoid though is selling 2-3 years too soon. Impossible to really be certain I guess. My mind says sell but my heart says.... but what if.....

Usually my mind wins out but I just wanna be certain about this.

 

Yes mate that crossed my mind but both sides are developed. One side has a guy rich enough to say F U and he built a massive home ( instead of duplex) and the other side already has a duplex. So I doubt both sides will sell any time soon.

 

Without being specific,The tax side of things adds to the pros for me to sell.

 

I think this is most likely the case of the interested buyer. Plus they are hoping for more growth over the next 3 years. Tbh prices are starting to increase in the area compared to 6 months ago when it was almost dead.

 

You're saying $3.9-4.1M is the value now, what is he offering how much of a premium?

Sounds like a sell to me.