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Pre-sales

Discussion in 'Development' started by GoOnAndTell, 4th Jul, 2015.

  1. GoOnAndTell

    GoOnAndTell Well-Known Member

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    I am unsure about our next direction, i think we want to move into more of a development space rather than a invest + improve existing asset. I know this opens us up to GST and even CGT exemption loss but ultimately I can build this into the model and we are still making nice 'theoretical cash'

    Does anyone have any experience with what type of discount they are seeing with offering pre-sale versus selling finished product?
    What type of deposit can we usually hope to get released for funding?
    Basically can anyone offer some advice?
    I can ask our real estate agents and see what there advice is but I wouldn't mind going in with at least a list of questions, so would really appreciate any initial guidance.
     
  2. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    what scale development are you looking at as developments (mainly from a finance perspective) can be broken into a few different types of categories.
     
  3. jippa3000

    jippa3000 Member

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    VERY hard to gauge because the market can change overnight. We had one site that started at $360k off the plan about 2 years out from completion for a 4+2+2. The last one sold only a few months before the site was completed for $460k. In another site around the corner, same product in terms of finish we saw $355k start and $385k finish...So it really is hard to say, we are fortunate enough that our sites are quite big so if they are flying out the door we know we could get more for them especially after a few have sold to show confidence in the site.
     
  4. Chabs

    Chabs Well-Known Member

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    Could you please elaborate on that?
     
  5. GoOnAndTell

    GoOnAndTell Well-Known Member

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    Typically we are playing with 2-4 unit sites, although we are hitting serviceability as we are about to lose an income and also have a fair debt level.

    cheers, i suppose there is less chance of someone falling in love with a bit of paper and some paint chips. but if it lets us start a project and take profit it might be worth it.
     
  6. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    So have you considering doing these under residential lending instead of commercial? You wont need presales.

    I do think you may have a servicing issue which has forced you to go commercial and presales.
     
  7. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    Sub 5 units sites
     
  8. wombat777

    wombat777 Well-Known Member Premium Member

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    What is the typical construction window for a small development? 12 months?

    Is having a cash buffer to cover the IO payments during the construction period sufficient to tackle a small development?

    I guess you would also want a contingency fund if you can't negotiate a fixed-price construction contract.
     
  9. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    How small are we talking?

    The problem with developments under resi lending is the valuation and the massive variances you will get.

    Developments require loads of capital - note that there are significant soft costs too like s94, s73, hydraulics, CC plans, bonds, etc.
     
  10. wombat777

    wombat777 Well-Known Member Premium Member

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    3-4 townhouses / row houses or a small unit block ( no lift ).
     
  11. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    Ballpark = You will need 30-40% deposit for the total project.

    Construction window = 12 months maybe more/less depending on the complexity of the project.
     
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  12. OC1

    OC1 Well-Known Member

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    Plus extra money for contingencies. It will eliminate the "i don't know what the hell i'm doing" factor in your first few developments.
     
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  13. wombat777

    wombat777 Well-Known Member Premium Member

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    Just trying to get a feel for what is involved. Would be a few years before I would attempt a development, although could likely extract equity from my PPOR or IPs down the track to achieve sufficient capital.
     
  14. OC1

    OC1 Well-Known Member

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    Check SS as there were quite a few threads on development. Rockstar had some, Westminster a few, I had a couple as well. Good place to start reading.
     
  15. jippa3000

    jippa3000 Member

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    Yeah I guess that's where being in the business for a while can pay off as we have plenty of built stock to show them through. Good luck with it and if you need any help don't hesitate to send me a PM. Cheers
     
  16. GoOnAndTell

    GoOnAndTell Well-Known Member

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    Shahin, we are more or less tapped out on resi loans.

    OC1 i was a lurker on sommersoft, just not a very active poster.

    jippa, cheers for the offer.
     
  17. GoOnAndTell

    GoOnAndTell Well-Known Member

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    Little bit further down this path :), what is the order of things.

    Get planning approval
    Get quotes from builders
    Speak to bank get targets on project
    Speak to solicitor and get contracts
    Market/Sell what ever is required
    Sign contract with selected builder
    Get building permit
     
  18. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    So you've done feasability and sought advice from broker about finance options and your likelihood of approval and likely LVR therefore how much cash needed?

    Then yes pretty much what you have above.
     
  19. GoOnAndTell

    GoOnAndTell Well-Known Member

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    yes broker is across it. more or less told its presales or selling with plans and permits, no chance of another $750k of funding on top of current options :(