$1mil to spend

Discussion in 'Real Estate' started by Jacque, 1st Nov, 2006.

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  1. Simon Hampel

    Simon Hampel Founder Staff Member

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    Shhhh !! :D
     
  2. Bob__

    Bob__ Well-Known Member

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    Maybe a bit overcrowded...in parts
    ;)
    Bob
     
  3. grossrealisation

    grossrealisation Member

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    hi Jacque
    I would go to any of the majors and term deposit my 1 mil and use it as the 20% deposit on half a dozen developments site
    that each are holding in sydney or melbourne
    if you walked into westpac anz nab or cba and had 1 mil to throw in cash into a development site you would be lucky to walk out alive.
    you usually have to put in about 20% into a development so 1 mil gets you a 5 mil site and in this market thats up over 60 units site,
    so I would split it and spread into 3 x 20 unit development sites
    and use the same builders that the banks taken the site off
    as they will give you the best deal jv what ever and you basically become the cash /equity injector and go along for the ride.
    you get a good return on your 1 mil along the way .
     
  4. Jacque

    Jacque Jacque Parker Premium Member

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    So what dvpts have you been involved in from the beginning, GR?
    Also, why would you be lucky to walk out of those mentioned banks alive? I'm lost....:confused:
     
  5. perky

    perky Well-Known Member

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    Hmm, good question Jax.
    I would prob spend it on a potential development site in the Blue Mountains, and leave enough left over to put into a managed fund to produce the income needed to offset the probable negative gearing.
     
  6. grossrealisation

    grossrealisation Member

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    hi Jacque
    I have been involved in a couple and am involved in a couple now and all are from the start.
    the banks are holding in there hot little hands alot of sites at the moment and they are in a very unhappy position:mad: .
    and anyone that is looking at sites
    in sydney in particular
    and melbourne to a lessor degree from what I can see
    you are in a great position at the moment to bargain with them.
    but don't think that this is any type of walk in the park
    you need all your negotiating skills.
    but if you have 1 mil you should have these skills.
    this is the best market I have seen for negotiating on sites for some time.
    and I think the window is only there for about the next 10 to 12 months.
    but thats a bit of crystal balling for me.
    with regards to walking out alive
    the development managers would fight to get your money.
    you have sites in sydney that are being held by banks at 105% lvrs at the moment and lots of them.
    I know of one site in parramatta that the offer on the site before auction ways 75% of the borrowings and at auction didn't get past 50% of the loan and the bank is still holding that site.
    why would the bank hold it
    very simple to let it go at that value would throw all the lvr in half of woodville rd out and it would be like a deck of cards.
    and the trouble is that a reduction like this would drag down the paper value of the site next door and increases the banks lvr on that site.
    I know of one builder in sydney that has already gone bankrupt not because he went bad but a site a next door sold at auction at 50% of value so the bank wanted more equity from him and started closing his loans one by one as his sites lvrs were checked an he could not stay afloat, one of his site had a 16 mil val with 13 mil loan( the site next door took his val on paper to 8mil), full da excavated to car park level and sold for 9 mil.
    I have had one of my site revalued 3 times and each time have had to had equity to reduce the lvr to come within ratio's
    one of my site I paid 165k per site the site down the street is at 75k and no buyers.
    sydneys unit site price has gone from 160k per site in 2003/4 to about 75k a site now and still falling
    there are sites in parramatta, lidcolm, auburn at 45k per site.
    if you are a developer bleeding there is no doctor in this market your only hope is to construct and to do that you need an investor to stop that bleeding and start construction.
    so your 1 mil can buy a lot of very good real estate at the moment.
     
  7. MichaelW

    MichaelW Well-Known Member

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    GR,

    Excellent post, thank you! Now if only I could get my Mona Vale development done in time, and then revalued at completed gross realisation, then free that equity to use as a deposit to move onto something bigger like a unit development in the CBD or similar.

    Oh to have the cash to be building big in Sydney right now! :D Ah well, in time I'll be there...

    Cheers,
    Michael.
     
  8. tropic

    tropic Well-Known Member

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    Great post Grossrealisation.
    the areas you mentioned parramatta, lidcolm, auburn are they a desirable areas? Sorry I don't know much about Sydney. The rental market is still very strong but the prices are dropping, some drastically. Is this mean many are paying good yield now based on their current valuations?

    How wide spread is the problem with developers going bankrupt in Sydney?

    I alos have difficulty trying to understand 60k per site. I imagine this is a unit site but how big is the land size per unit?
     
    Last edited by a moderator: 9th Nov, 2006
  9. grossrealisation

    grossrealisation Member

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    hi tropic
    yes 75k a site is unit numbers and thats the unit formular when you buy a site.
    the problem is relatively wide spread I may see it more as I am trying to find these site so I am actively looking for them
    I have one on my desk that is 28 units/townhouses built returning 300,000 per annum and the bank wants 3.6mil its on 165 acres of land rural and subdividable with a builder bleeding.
    I have a 11mil site cbd with a bank accepting 6 mil (107 x 2br units)
    55 x 2br units villawood 2.5mil and this is just scratching the surface.
    I would say that I looking at 100th of 1% of the sites out there.
    but they( the banks) have lots of problems and that why getting funding is very hard at the moment.
    I have to be nearly a performing circus dog to jump thru the hoops they require.
    parramatta is central sydney now and is going along gang busters and is looking great but will it get the sales of the units that are being built?
    yes if my idea of 2008 is right
    if I am wrong they are in real trouble.
    lidcolm is in a great spot on the rail line straight into sydney next dorr to parramatta and Auburn is next to lidcolm.
    with regard to valuation for me that are not worth the paper they are written on in this market because simply they don't know what they are doing.
    prices are dropping because people have to sell hense the price comes down and a valuer values on comparitive sales in an area so the value on paper has dropped for your property but that does not mean that the value has dropped the value is governed buy supply and demand so it could be say 400k one month and the house next door sells for 320 and the valuation price drops to 320 then theres no where to rent and you have huge demand and the value jumps to 500k whats your property worth?
    in this market you have two thing the drop to the 320( because the house next door) and you have the rental demand at the same time( this is very unusal and I have not seen it for a very long time)even valuers are having problems working it out hense so many variation between valuer companies.
    you only need a true valuation when selling, not holding
    for holding you revalue when the price is rising and leave a lone when falling or flat.
    The thing that st-ff up the sydney market was bob and his vendor tax and the chinese and there commodity boom.
    why
    The vendor tax sent a lot of developers north.
    And the chinese sent the rest west to perth.
    And in the middle of that the market adjusted.
    So what you are seeing in the sydney market and you will see in the melbourne market what I call a gap in the supply of new unit product and that gap is about 12 months.
    Thats a very big gap to have no new product comming on line and thats what you are seeing know
    as that gap soakes up whats in the market and then there will be a huge demand.
    when the developers leave the builders/contractors bleed and if they hold large properties they have large problems.
    and thats what we are looking at.
    my .002
     
  10. Handyandy

    Handyandy Well-Known Member

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    Hi GR

    I wonder if you can expand on the following?
    How does the 28 units return $300k, rental / sales?
    Are you saying this is $22K per acre and is subdividable?

    The villawood site I assume is on woodville rd so that may explain the price but still $45k per unit. What would be expected development cost and subsequent rental returns in this location?

    Must get together before Xmas for a drink.

    Cheers
     
  11. grossrealisation

    grossrealisation Member

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    hi handandy
    work on 180k to build so they are in the 23 to 25% margins (returns)so very doable.
    ( have one site that I have 4 people wanting presales in it and I haven't neg the site yet)
    with regard to the other project
    no the 300k is the rent
    the 28 units give an income of 300k now and only on about 3 to 5 acres so 160 to play with.
    plus is zone resort so you can imagin why I am looking at it
    here in nsw as well a nice project they are willing to give 6 months extended settlement I am trying for 12 but very early days at this stage.
    price is agreed just adjusting the screws to get the most out at the moment had this one on the back burner for about 8 months not up for sale and never advertised private purchase
    and has big problems internally with in there group and definently not for any board a very nice part of the world and growth in this area with in the next 3 years will be hitting on the 25% and once the paperwork is signed and I have extracted as much juice as possible I will give a heads up of the area.
    got to settle on one before moving to the next.
     
  12. tropic

    tropic Well-Known Member

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    Grossrealisation, thank you very much for your explanation.

    With the credit squesse that developers are facing, how much does it impact on new apartments? From what I understand from your post, once the developments are completed you still can make 20+% profits.
    From what you can see, is it a good time to buy apartments in the area you mentioned? I realise that developing and buy&hold is a different ball game. I am a small fish, I neither have the money nor experience to JV with a builder.
    I value your opinion.