Continued from…
Property Options – An Ace Up The Developer’s Sleeve [Part 1-2]
Property Options Alternative
With More Or Less The Same Result, Without A Property Option
The Longer Settlement
If getting a property option is off the table, here is what you can do to still maximise your profits.
First things first, as a seasoned property investor / developer, you want to make sure that you control the property as long as possible with the least amount of your own money as possible.
And the best part is that anyone can do this and anyone can learn this. And the coolest thing is that you get to maximise your upside and minimise your investment at the same time.
Property Development Timeline
This is a 36-month project timeline. Here’s how you would go about your entire development process. Now, this timeline’s only used as an example based on averages for a standard townhouse development.
The timelines can vary for every project, but all I wanna do here is show you the best way, but make sure you watch 'til the end because there’s a twist.
Contract Of Sale | Settlement
Let’s say you signed the contract of sale in month one, and you are required to settle or forfeit your contract in three months time.
You then start adding value by preparing your town planning application for obtaining a permit, which takes about three months from settlement.
Town Planning
Once the town application is lodged at the end of six months, the counsel then takes approximately nine months to process their application. Before granting you a permit, also known as DA or development approval.
Land Value Uplift
Now let’s say when you bought the site as is without a permit, your land value was sitting where you see the green line.
However, now that you have added values through the land, post-permit or post-DA, you’ve bought an uplift in your land value. Your next phase is getting your town planning drawings endorsed.
Endorsed Drawings
Drawing endorsement is basically reflecting all the town planning conditions that came with your permit on your town planning drawings, and getting them stand-by counsel.
Marketing And Pre-Sales
Once you’ve got endorsed drawings, you can commence your marketing for pre-sales, organize finance and start preparing your working drawings, which again, can take up to another three months.
Building Permit
Post which, you will apply for a building permit and satisfy the building’s.
Construction
Then you commence construction. For the sake of keeping things simple, I’ve allowed nine months for construction.
Settlement
Post-construction, you’ll allow another three months for your pre-sales to settle and pay you the well-deserved profit for all the hard work you’ve already done. And that’s’ when the project is completed. But here’s the thing.
The moment you settle on the land, it triggers two things. Need for finance and serviceability and your need for developer’s equity or cash injection, as well as the need to be able to service the monthly installments or land holding costs.
The Twist
But here’s the twist. Because that’s not how I work, and that’s certainly not how I teach my students to go about it either.
Because we want to make sure that we control the property as long as possible with the least amount of your own money as possible.
By the way, if you want to learn more, simply visit pdsblueprint. Here’s what I do with every development. I delay the settlement as far out as possible or closer to obtaining the planning permit as possible.
In this example, I don’t settle until I am close to getting a permit or have already obtained one.
Land Holding Costs
Let’s look at both scenarios side by side. Landholding costs in my model are less than half of what you would have had to pay if you had followed the norm.
Another thing that you cannot see in this model is that I don’t have to inject any of my equity until later in the project. And I don’t have to bear any holding costs.
Exit Strategy
Here’s another thing to know. There are two exit points for you to get out of the project should you choose to. You can exit just before settlement, or you can flip or onsell the project after adding value.
That is after you’ve obtained the permit. Now, if you can manage to obtain the permit before you can settle on the land, bonus points to you, because all this project probably ended up costing you is the cost of getting the town planning permit.
And that’s how you have maximised the upside of the value of the land has now gone up.
I’m sure quite a few of you are going, “Yes, you can do this, but I can’t do this.” Stick with me, because I’m gonna prove you wrong.
But for those who already know what they’re doing or they’re interested in learning more, all they have to do is go to pdsblueprint.
You Can Do This, But I Can’t Do This
Now, for the ones who think that they can’t do this, let me throw you off a bit. Now how many of you can replicate this image of Brad Pitt with a pencil and a piece of paper? I don’t think many of you would say yes to that.
But I’m gonna show you how to do this. And in doing so, I’ll give you the skills to become a world class artist.
But before I do that, how many of you think that you can replicate a solid piece of grey square? Everyone, yes? Now, if you would agree, if you can make one grey square, you can actually make two, three, nine grey squares.
Correct? Yes? And you can keep making more grey squares, and more, and more, even more, and keep going, and you keep making grey squares. Keep going, and that’s our end result.
The truth of the matter is that if you can make one grey square, it would be very difficult to argue that you couldn’t make every grey square necessary to replicate the image in its entirety.
And there you have it. Apart from teaching you about becoming a property developer, I just gave you the skills necessary to become a world class artist.
In fact, even Stephen Duneier, in his TED talk, which is where I got this example from, talks about an artist by the name of Chuck Close, who is a world class artist and he creates his art using this exact same technique.
The point that I’m trying to make here is that if you can take one step towards your goal, one step in front of another, you can achieve any goal. You can overcome any obstacle, and you can solve any problem. Just one step at a time, and anyone can do it.
That’s the way I teach property development. Simple to learn, easy to understand, and anyone can do it. That’s why I call it the property development system.
So as you can tell, there are only three main things that you need to learn. You need to be able to negotiate a longer settlement, add value, and then flick or develop towards the end. Don’t get overwhelmed, don’t get frustrated. One grey square at a time.
If you are just starting out in Property Development, I would highly recommend that you checkout our Ultimate Guide To Getting Started In Property Development.
FAQs
What are property options?
A contract between a seller and a buyer is a property option agreement. The parties have to agree on a sales price at some point in the future under this contract.
The buyer must additionally pay an option fee to the seller.
How does a property option work?
A real estate option is a contractual clause between buyers and sellers that is specifically designed.
Real estate solutions are negotiated between sellers and buyers, with the buyer often benefiting the most.
