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Development Developments are projects that are, well in development, new housing estates, blocks of apartments. The margin is smaller than in deals, and they have up to recently been far easier to find, and in many cases well advertised. Since we have had the link up through the Self Build Homes Club you can now get far better deals through this route, and they are no longer as hard to find. There are however some situations where developments may be better for you even if less profitable.
The developments we are interested in are those that show a larger discount, or cash back element. There are a number of reasons why this can come up, for example:-
It should also be remembered that as we put together deals we know the cost of constructing a property, and the cost of land etc, we are in a very knowledgeable position when we go into a negotiation. Unlike a house buyer we have no romantic attachment to any particular piece of property and will walk away from deals that are not right. Few developers understand our math's as well as we understand theirs, so they don't know what we can stretch to, they may be prepared to let you walk away and not make a single sale but few would be as keen to see us leave. Sometimes it is said that they can get other sales, if we do not buy, and while that is true, if the houses were going to sell like hot cakes they would have already been sold, and most would prefer sales at a discount than the unknown. With new developments, often its a case of knowing ahead of the herd what is to come available, and getting in just at the right time, when the plans are set, when we can see what is to be done, but ahead of loads of interest. Often at this point they are uncertain of what they can get, and will be concentrating more on costs and return than the market value down line. On some developments we are able to get options at no cost or very minimal cost, for properties that we do not have to complete on, if we do not want to, or can sell the options on, once the rest of the development has been sold. From the developers perspective these are good, as some plots can be flagged up as reserved or sold, and therefore other people are more inclined to feel they have to commit rather than continue to think about things. On some occasions when others come along later and really fancy a particular plot you can sell these options for a premium and obtain a replacement option, after all the developer is mainly interested in getting the whole lot sold, and getting commitments from as many people as he can as soon as possible, as often the finance will then be released to him. If you choose later not to keep some of the options and he has sold the majority these coming onto the market would not present a difficulty, and he could re-sell them at the then market value. We have two services
In many ways these are the same as the deal services, we can ask a service provider on behalf of the club to go and find you a development opportunity that matches a set of criteria, or you can ask to be offered opportunities that they come across or have available. Realistically only some types of opportunity will come up within the speculative group as it makes sense for options to be held for as long as possible and then sold or taken up, so most of the best of these will be taken up by franchises that get these services like all others included. The pre commissioned deal and developments services can be combined within a single specification at no extra cost. The pre commissioned service (D5) involves the pre payment of 3% in fees of the maximum price you are prepared to spend (minimum fee £1500). As the objective is to get it for you as low as possible this just gives a top figure, not the likely cost. You set criteria that has to be met and a property development is found that meets this. The more difficult the specification the longer it will take, but you can modify the specification over time if you want to speed things up. If you turn down an opportunity that fully meets the specification it costs you 50% more to find a replacement, and the opportunity is offered to another person. In some cases you may be offered multiple situations where the logic is that you could make a great deal more, for example if it is possible to put a firm order for one property and get an option on a second. These will be offered to you at the same rate as a pre-commissioned development. Should you decide that later you want them to sell on the option for you as a speculative development opportunity you will of course price at a discount based on the property values at the time, and as the system the club uses is working for the buyer you would have no fees to pay on the sale. The speculative option (D6) involves no up front cost, but a 5% fee. However we are not going to offer you any development opportunity that has less than a 10% initial discount built in. Our normal criteria is to look for at least 15%. Excluded developments
Some developers have started to create developments aimed at the 'buy to let' market, and have inflated the price in order to be able to quote a larger cash back percentage. The concept being that one gets an 85% mortgage and then all the deposit and sometimes more back on completion. A few of these deals will work, but where many fall down is on the valuation, in that what is available on the mortgage is 85% of valuation, not necessarily the asking price. In many cases timing is the key, a deal involving a large cash back percentage can be attractive if the initial price is set based on the current price and property prices in the area jump considerably before the development is complete and a mortgage obtained. As we cannot project with certainty what the future holds we do not 'find' these deals, due to the risk that you would have paid a deposit, but should property prices not rise fast enough be unable to get the mortgage. In a similar way some who organize courses, have gone to developers and encouraged a pricing structure aimed at producing a large cash back, so as to be able to provide this as a service to those who go on their courses. This allows them to offer an incentive for people to book expensive courses, and the developer to get all of the price he originally wanted. If all of the development can be sold by this means, then it is possible that the initial price will be established and a mortgage obtainable at 85% of this value. It therefore achieves its objective of allowing people to build large portfolios with minimal cost, however the valuation of these properties down line will tend to not increase as they have to fit into the local pattern, and are compared with similar property. Similarly it will be difficult to get an inflated rent to cover an inflated purchase price, so the risks are greater. Added to the problems, they may have to limit the funding sources they go to, to those who accept their valuation and often the mortgage rate offered will be higher to account for this known situation, and often large broker fees funding commissions to the course organizers, requiring even higher rents. Some will not be let and people will be in a forced sale or foreclosure situation, if they cannot pay the mortgage from other sources. If this happens to several then the value of the property, being based on recent sales achieved will fall drastically. It is therefore essential for anyone going into this type of deal to be able to fund it, and to intend to keep it for a very long time. Maximum Coverage has taken the view within advice they have given that these are to be avoided, as they slow down future gearing and growth and the figures that you can show from such operations will tend to show no expertise and be unlikely to encourage others to do business with you or provide funding at attractive rates. At the forced sale prices, when values drop however they can present a good buy. Requirements that clearly cannot be met, for example houses in the south east for £50 each, will not be accepted. It is more sensible to set a realistic expectation and better it, than to set a silly objective that is unlikely to ever be met. You should also remember that time is money, and while you are inactive waiting for the ideal deal a good deal may have earned you several times more. Members offering development opportunities As there are a number of suspect deals around, we don't wish to be in a position of offering members inflated properties, marketed at above their value. For this reason we have chosen not to offer the member service equivalent of the deal making service. However if you have an option on a property on a new development or are able to offer a good opportunity in some other way then you should decide what you want for this, and offer it to Maximum Coverage to look at. As they work for buying members there is no commission to sellers, and they may agree it is an opportunity they should look into. They will however fully research it before offering it to anyone, so you will be wasting your time and theirs if it does not represent a good deal to members, of at least a 15% discount from independent valuation. In the case of a forced sale, or some other special circumstances you are best advised to explain as clearly as you can exactly the situation in terms of value and problem you are in. The sooner they have the full facts the sooner they will be able to act. None of this should put you off trading opportunities through the club, or in bringing opportunities you hear of but cannot make anything on, to our attention. Information for developers If you have a development in hand or are planning one, then please talk to Maximum Coverage about what may be available. As you will have seen above there are a number of valid reasons why a developer may wish to offer a part or all of the development through the club. You will appreciate that they will be looking to get a good deal for members and not be interested in deals that involve inflating the price over valuation in order to provide artificial discounts. If the project will not stand up without resulting to this then there is something seriously wrong, or you have put together the project in the wrong way. A common cause is in paying too much for land or access, compared with the way you propose to use it. Another area that interests some developers is in the need to provide a quantity of smaller homes to comply with planning requirements, while the developer has to build several sizes, he may wish to concentrate his sales on the luxury (profitable) end and in this way generate a different image, leaving the smaller homes to be marketed in other ways and to other markets, such as buy to let through the club. To promote these locally in the first case might reduce the perceived value of the luxury homes within the development, but also people may be unhappy about committing to a development where building is to be done in stages, and they will be expected to live on a building site for an extended period. The best point to start talking to them is as soon as you can, even in early planning stages. At no point do they wish to stop you making a profit and often they will show you ways of improving the profitability of the project. They may be able to help you with costing, help negotiate for you, or to find others who will want to come in on the venture with you. If you have more plots than you need they may also be able to handle some of these, which could involve the purchase of them and allowing you to use the ground temporarily until your development is complete. Other advantages to you include, no sales cost or commissions, and business buyers who can be far easier to deal with. It costs nothing to talk to us, even if we cannot come to an agreement, so get in touch as soon as you are able.
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