Recently I had a gentleman approach me to meet with him to discuss a deal he was working on:
A 17 lot land subdivision that had a projected profit of about $600,000.
He proceeded to tell me the figures, a purchase price about $1.55M to $1.65M and kept rambling on and on…
I interrupted him as I had a feeling this was going nowhere.
“Harry (not his real name), what is the biggest project you have done to date?”
He was Chinese and I wasn’t sure if he understood my question, so I asked it another way:
“Have you done land subdivisions before?”
After another awkward silence he said: “No.”
Trying to give him some opportunity to redeem himself, I asked another question:
“Have you done Townhouse Developments before?”
Once again more silence, and then: “No.”
This didn’t seem to bother him, as he proceeded to ramble on about the feasibility blah blah blah….
As far as I was concerned the conversation was over.
It turned out that he had $500,000 cash and wanted a good return for his money and was looking for a great deal.
Here are 5 reasons why he will probably do his dough if he buys the site:
1. No experience.
This says it all.
Having a car with no driver’s license is dangerous for all, and definitely a recipe for disaster.
2. Holding Costs.
When you don’t know what you are doing it generally takes you 2-3x longer to figure out what to do, get an efficient approval, presales, etc.
If this happens any presales you may have will probably fall over due to delays.
I have experienced this first hand so I know believe-you-me.
3. No Local Knowledge.
In 3 guesses I figured out the suburb he was in.
I actually got the postcode right the first time.
I refuse to develop in that area as it is over supplied.
He doesn’t know that.
4. Banks will not lend development funding to a beginner.
Private lenders probably will once he has an approval, at 14% p.a. interest rates, and $30,000 upfront fees, secretly hoping he defaults and they buy the site at 65c in the dollar…
He mentioned Mezzanine lenders will lend him money too…
Yes at 48% p.a. and then 60% p.a. when he defaults…
5. Selling land is not easy.
This has been proven time and time again, you need good sales people and finding these people take time and building a relationship.
So here are 3 tips for those of you looking at being the next Donald Trump but have yet to get your feet wet in the Development game.
Don’t get me wrong, there’s a lot of money to be made in development, but there’s a process you need to go through, as you can learn the lessons with TIME or with MONEY.
I have done both…
Time is a lot less painful and a lot less expensive…
Tip #1: Think Big, Start Small.
In a hot market, everyone wants piece of the action, you’re probably reading this newsletter because of all of the property hype that’s out there.
Start with where you’re at, take your time, it took me 6 months to find my first deal.
It took me 3 years to get a deal where I had to lodge a Development approval.
Even then when we sold that property, the approval got torn up and tossed in the bin as I got it wrong.
Tip #2: Be An Area Expert.
Get to know 2-3 suburbs intimately, the streets, the shops, the development, the transport, the schools.
You probably do this in 3-6 months.
After 12 months you can probably cover 4-6 suburbs.
I’m in just 2 postcodes and that’s good enough for me.
I know guys who make 7-figures in 1 postcode, go figure!!!
F.O.C.U.S. stands for FOLLOW ONE COURSE UNTIL SUCCESSFUL.
Not bad advice hey?
Tip #3: Get Educated By Someone Who’s in the Market.
This could be me, it could be someone else that you trust that has time to support and educate you.
There’s a saying
“If you think education is Expensive, Try ignorance”
The market 5-10 years ago is completely different.
Most of the players around then are no longer active in the Current Market.
They have either sold up and exited, or lost money in the GFC and haven’t been able to recover emotionally to get back in.
Either way, the game has changed and constantly changing from month to month.
Til next time,