Just recently I have seen a number of developers asking for equity partners to invest in their upcoming developments either land subdivision of aprtment complexes just wondering what are others experience with type of investment ?
@Agent99 Do you mean where someone has the land and the developer approaches them to do a deal where the people put up the land and the developer does the rest? If so, I am loosely aware of someone in my extended family who was approached with this sort of proposal, and they decided it was too much risk for them. The developer stayed in touch for a few years, asking occasionally if they had changed their mind (I think until they eventually went broke). I don't know any specific details/numbers of that proposal, but would be curious to hear about any such deals that have been successful..... anyone?
I mean developers who are offering equity partnerships ie say you and other investors put in $50k each and developer is offering you 20% + on your money at completion of development.
Are they offering you a fixed return of 20% on your money, which indicates a debt arrangement or a % of profits, currently estimated to be 20%? If the word equity was used then this would not be the case but thats assuming the developer is not embelleshing anything. Also, what is the structure of the deal? Will the investors money be going into developers general funds and so they still retain ownership but you get a profit share or are you buying a stake in this venture with the 50k and getting a % of profit based on your investment? All the above scenarios occur and all the above scenarios have different pros and cons, need more info/clarification from you.
Ask yourself Why would a developer need to seek finance from you vs a bank, commercial bank, PE fund, their own family & friends, etc Why would a developer be willing to pay such an astronomically high ROI?
I have happily paid high returns in the past at various times, thats no automatic indication of anything imo. There are also some sizeable developers who put together syndicates for many of their projects, again it isnt automatically suspicious imo. The info in the relevant documents and how it is structured is what will determine viability, not the fact that the developer is raising funds.
Excellent questions, I have only just come across this type of thing and have no real info to share at this stage as I dont know the full facts. I dont know anyone who has been involved in these type of deals before but would be interesting to find out more. @sanj I believe that the money goes into the developers general funds as they retain ownership and will sell off land once subdivided. I do know that they dont have council approval at this stage and have said that if they dont it wont go ahead however it will cost $150k to get to that stage. I did hear that a $100k investment is 2% and it was more than likely going to be a 30 month project.
I haven't gone in, as I only listened to the deal that was presented by my family's mate who we grew up with, he's a med-large developer in the area. The deal was to offer up equity of a 1mill, in return for a completed apartment and the return on Initial mill over 24 months. Similar sold apartment values where 400k at the time. After a lengthy discussion I decided I didn't have faith in the deal and politely declined. 12 months later it turns out he's bankrupt, his parents place had been sold off to repay debts, and his dad's business also, as they had gone guarantor for him. I'm still open to the idea of going in with large developers, I think it's a great way to make a much better return, but only if I truly trust the person or persons I'm investing with.
Did they send you an IM or proposal or anything like that? In deals like this the structure is just as important as the viability of the project imo. Id ask them to send you the info and then take it from there. Even if you dont go ahead or arent all that interested it could be a good learning exercise for you so is recommend doing that personally.
Thanks sanj When you say the structure is just as important are you saying the developers structure ? I think they mentioned a unit trust structure for the investment. Yes, trying to learn as much as i can from this but not sure where I can go to find out more DD on projects of this nature.
Agreed - it's very common for developers to offer investments like this, it's to cover the gap between the commercial finance and total costs. This can mean the developer themselves may not have much skin in the actual game OR only partially deposit funding themselves, which isn't surprising with a lot of developments requiring multi mil contributions. Check the terms of the investment, protections, how likely the estimated date of repayment is etc. No point locking in a 20% return payable on sale of development, but it doesn't complete for 4 years.
Sorry i meant overall structure of the deal, ie some of the points mentioned earlier. If you get the full set of docs/info fron developer flick them to me via email and ill give you my thoughts.
This kinda sounds like the "armchair developer" arrangement that @Crido is just finishing up with...?
Not really, sounds more like a straightforward proposal. The one crido participated in was an unusual model because each person investing was effectively assigned and took the risk (in terms of final values, settling on completion etc) for 1 particular unit in the development whereas in most cases someone investing in a syndicate gets a% of the overall development and its resulting projected profits. This way once you invest the money effectively there ia nothig for you to do and no power for u to do anything anyway until completion, with armchair developer ultimately i believe each person had to arrange for the funding at settlement to pay out the bank that funded the project and the numpties who put it together.
