Hello and thank you for reading my letter.
I wrote to you because I believe your property may fit our criteria as a potential development site, but there are also some very specific reasons why I might be able to offer you a price premium for your property.
I encourage you to read this with an open mind as selling to or dealing with a complete stranger can be worrisome for many.
I assure you, though - I'm not a real estate agent and my partners and I have had some amazing, mutually rewarding relationships with landowners just like yourself.
I will share more about this with you below.
By way of example: we recently paid some landowners on the Sunshine Coast more than $14m for their homes. Their homes we independently valued at just below $8m. That's a big price difference than if they had gone to the open market to sell....not to mention the hassle and the costs.
$6million is a significant premium!
We didn't pay them more because the council zoning permitted development. We could have bought similar properties nearby in the same zone... for less... on the open market.
What these landowners learnt from us is if they had chosen the hassle and cost of selling on the open market then they would have lost out on a significant chunk of money...there are some good reasons why we paid them a premium which you will discover in a moment.
We also recently paid $2.5m for a home in Port Macquarie, NSW that was independently valued at $1m less than what we paid.
Now before you think we are some charitable philanthropists, there is a very good reason we pay more and the magnitude of the premium really depends on a range of factors (we don't give it all away on a public web page like this, of course).
Why do we offer more than the properties are worth on the open market?
As I said, I won't reveal all our trade secrets as we've learnt our lesson sharing them with less scrupulous land owners. I'm not suggesting you are one of them. Not at all.
In essence though, most property developers prefer to pay market value and CASH for a property they can develop.
Cash...in a cooling market?
Sounds perfect, not so?
Most property developers prefer to pay market value and cash for a site
It only sounds perfect to those that need to sell now and need the money now.
Many land owners don't meet our criteria on this fact alone, but unfortunately, and many don't need the money right away but lack the knowledge about how to get more money - very safely - by giving the buyer a little more certainty.
Let me explain...
99% of property owners with developable land forgo a premium for an agent advised straight sale. Many are persuaded that an auction will get them a higher price than a private treaty sale....OR...an expensive marketing campaign will drive more offers and push the price up.
These are good methods in a normal straight sale. But they are not the only option you have.
The problem is what we offer vendors does not benefit the estate agent.
In fact, it cuts them out of the transaction entirely.
Developer's price for developer's terms...
So often what is not explained to landowners is how they can get a 'developer's price for a developer's terms'.
And it applies in all market cycles - hot or cold or flat.
What they are not told is that a developer will pay a premium (or "developer's price") for certainty.
The landowner's I mention in the examples above had very desirable land. They would have done well at auction but they did better without all the hassle of engaging an estate agent.
A developer's price for a developer's certainty
Too often, with inaccurate advice, property owners with developable land want a higher price for their unimproved land without understanding the developer's motivations.
They are told that a buyer / developer could put townhouses or units or multiple lots on their land and it must therefore be worth more than the current house on a piece of land.
And they are mostly correct.
And that's fine if they can get the price premium....and many do.
However, even in a hot market, a developer has a ceiling before the deal becomes too risky and the profit margin too low.
In a cooling market, the concept of selling for a developer's price with developer's certainty becomes all the more important.
And this is why our model works so well.
Let me explain.
A developer always asks the following questions when sizing up a deal:
But these concerns are meaningless to you, not so?
Just because your property is zoned for some kind of development this does not mean to say it will be profitable. And if it is profitable, a developer will not pay a premium if the risks are still on the table at settlement....UNLESS...
You are prepared to offer certainty.
As a capital partner to many developers over the years, through my various businesses like Boomscore, the developers I partner with, and their experience, is far more important than the site specific details.
When they come to me to raise private equity to seed the projects before the banks join in, I want to know how they have addressed all the questions above?
When they tell me, "I have arranged plenty of time with the landowner to get certainty on all the matters above", then I'm interested in helping fund the project.
Most real estate agents and sellers have not heard of the concept "developer's price for developer's certainty".
Instead they think because their land can be developed it must be worth much more. Unfortunately it's not worth any more than it is until someone makes it worth more by getting development approval, obtaining pre-sales to test the market, arranging debt and equity funding to settle the land and build, dealing with consultants such as town-planners, land surveyors, architects, geo technicians, quantity surveyors, valuers, council officers....the list goes on.
If you are prepared to help us get some certainty, and if your site really is that good, then we want to pay you more.
Some landowners try to become developers themselves. This rarely works unfortunately.
Instead, our landowners let us do all the hard work, spend the money and work with our hand-picked consultants to verify the true value of the land i.e. get the DA approval, building approvals etc. This can take as little as 6 months and as much as 18 months or more depending on the type of project.
Enjoy the benefit of a developer's expertise, contacts and time to enhance the value of your property without the risk of doing it yourself.
Apart from the obvious benefit of making more money selling privately, there are many softer benefits that might mean more to a landowner like yourself.
The benefits of selling privately
Why you want to avoid selling on the open market
Example case studies
Every project is different. Every seller that we have worked with has unique needs and circumstances. We listen intently and almost always find a workable solution that benefits everyone involved. More money is not the only motivation.
Single home into 46 house lots
The landowner of this property in Mid North Coast, NSW had been approached for decades by various local developers interested in buying their land. Ultimately they decided to work with us to secure some certainty with council as to how many lots we could get approved.
Initial town planning reports indicated 31 home sites. Even this was looking more unlikely as time went on due to various complexities associated with the site (slope, bushfire and koalas etc). Our initial due diligence was not encouraging and most developers would have walked away and certainly not paid a 'developers price' for the site i.e. more than it's unimproved market value.
Most developers prefer to pay normal market value, because if they are unable to obtain Council approval, they must then sell, which means they don't want to pay the vendor too much due to approval risk
We put together an agreement with the vendor which gave us enough time to obtain a development approval at our cost and structured the purchase agreement in such a way that it removed the approval risk.
As a result we were able to pay more for the land simply because the owner gave us some time, that is, 18 months to get council approvals and to obtain enough pre-sales for finance requirements. We had to pay out over $500,000 to get the site approved and sales volumes established. Just because council approved the development application there was no certainty around actual sales that could be achieved and in what time period. Crucial to get bank funding approved to then develop the site (roads etc), lot registration, home designs etc.
If they had stayed in as a JV partner they would have earned potentially another $2m on the already larger price we paid. If this site was on the market for $1.5m to settle in, say, 30, 60 or even 90 days we would have walked. The best offer they had was $1.8m before they decided to work with us.
40% more paid to owners of individual houses required to develop units
To get approvals for a unit development, we were required to merge a number of houses into one development site. After giving us enough time to do our initial due diligence at our expense we agreed that if we could get the number of units we thought we could, and get some sales to prove the local market appetite, then we would pay more. Combined the houses would have sold for about $8m on the open market without the DA approvals.
We landed up paying each owner approx. $400,000 more per $1m house value. They gave us 18 months to get the development and building approvals and some initial sales to support the construction funding.
Some of the individual homeowners, who were owner-occupiers, decided to retain a brand new luxury apartment with incredible elevated sea views that were not as apparent in their low set beach front homes.
For each homeowner, at the very least they got a premium for their site, we undertook all the cost, time, expertise to 'prove' their collective homes could indeed be developed appropriately. They effectively shared in the developers profit without any of the risk or effort required to get this project done.
For the owners that wished to continue to live on their beautiful beach front paradise, they were able to pick the very best of the units, have a say in the interior design and all the little things they previously wished they could have in a brand new home...and some spare cash too.
20 Lot Subdivision Joint Venture.
In this deal the landowner wanted to stay in as a joint venture partner. They had little experience, and some money, but not enough to risk on a project by themselves. The land carried no debt and they were happy to be paid at the end of the project.
We agreed to pay them 50% of the profit and indemnify them for the value of their land.
The land stayed in the owners name to save on stamp duty on transfer.
A project management / profit sharing agreement was created with the landowner and the land valued by an independent valuer.
A line of credit was established against the equity in the land to fund the council approvals and this was then replaced by a development loan once the DA was obtained.
The loan was guaranteed by the developer and the landowner indemnified against any potential loss greater than the value of the land. So they would never lose their land and it's inherent value. After each new home site was sold, the banks were repaid, the landowner got the valuers price for their site and finally the profit was split 50/50.
The owner would have got about $900k for their site 'on market' with an agent with development potential ie no DA, BA or pre-sales for bank funding requirements. They might have got $1m (10% premium) for the site with delayed settlement to help the developer get more certainty instead, by leaving their land in the deal (while being indemnified against any loss), they were able to get 45% more than if they did a straight sale with a developer.
So the key outcome is you can JV with an experienced developer, have your equity and home legally protected while the developer brings all their contacts, experience, considerable time and creative skills; and earn a significant premium on what would typically be a 'straight' sale.
Everyone is different
Do you fit into any of these 'life' scenarios? We can work with you regardless of your fears, needs, concerns related to selling your property for development.
Retain a Property on Completion
"I want to continue to live where I am now"
Most owners of units in a body corporate either want to continue to live where they. They love the area and they know the community. In this scenario you might choose to 'swap' your unit for a brand new unit in the project. Some owners don't have the capital to upgrade to a brand new, architecturally designed home. In this scenario, if the numbers permit, you can have the best of both worlds.
Get more rent
"I want to keep my property for rental income and retirement."
One of the best methods of boosting your rental income is to improve the property. Tenants love new properties and will pay more. It's that simple. We might be able to work it out that you do no lose on the rent while developing the property and your new tenants will be delighted when it's completed.
It's my home and I need the cash now
"It's my home and I cannot afford to move out while the project unfolds"
Most owner-occupiers need the money when they sell to buy elsewhere. If you gave us the time to get some certainty on what can be done on the site, we could potentially ensure you had a top quality accomodation (for example) while we either build your brand new home (you keep a property in the project) or we pay you more than the market value.
Do you want to continue to live where you do now but enjoy a much higher degree of amenity by staying on in a brand new home.
Typical questions answered
I'm Michael Fuller
I was raised in Cape town, South Africa.
I started my career providing financial planning advice to HNWI before I moved to the UK where I was fortunate to travel the globe advising banks on how to meet their anti money laundering (AML) obligations using technology which had become an international regulatory requirement after the September 11 terrorist attacks in New York.
I was then invited to relocate to Sydney, Australia to help the banks here catch up with their international AML obligations. The technology solutions used to help these banks understand what money laundering across their networks looked liked is known as 'neural networks' which are a series of algorithms that recognise underlying relationships in a set of data through a process that mimics the way the human brain operates.
It was during this time where I began to think, "if the large financial institutions can make huge automated financial decisions based on 'big-data algorithmic ranking mechanisms' i.e. credit scores, identity scores, fraud scores and money laundering scores, then why can't the thousands of property investors do the same for deciding when and where to buy property for optimum returns?
Boomscore was created to do exactly this by measuring the gap in supply and demand for over 15,000 suburbs recognising that each suburb is a micro-property market with its own supply-demand dynamics. The magnitude of the gap in supply and demand or imminent price increases is now represented by a single score - a locations Boom Score.
The next part of my journey bring me to you.
Thousands of investors use Boom Score and many of them form my collective of investors who prefer to invest in property development projects. When I find a development site - or a site is brought to me by my network - I am able to match the project to one of our thousands of developers that that use our property technology tools.
Does it work?
I think the varied client testimonials I've published over the years suggest it does work for everyone. We've had retirees, teachers, Doctors, Accountants...even a student from Amsterdam participate in our projects. It's not just the access I have to our own proprietary technology for finding profitable projects on good sites in great locations but the network of consultants that make a break a 'on paper' great project.
I've written about these strategies and property market research, in general, in various property magazines and the media in general as have they published our Boomscore data as viewed by tens of thousands of readers.
The premium we are prepared to pay depends on many factors.
I actually need you to tell me what price you have in mind if you were to sell today on the open market.
It's a good idea to get some idea now what the price you have in mind because I don't want to spend two weeks doing my research...it's expensive...only to discover we were always far apart on price.
That would waste everyone's time.
If I pay a premium and then build costs continue to fluctuate wildly then I will make a big loss if I have to sell your site.
If I can get more certainty on sales prices, build costs and what I can get approved then I can pay a premium. I would also save on holding costs as you would save on commissions and all the hassles of selling on the market.
We've approached you because we know you have a property that is 'under-utilised' in town planning terms. When undertaking our calculations, we appraise the value of your land as separate from your house. In the majority of cases, the development land value exceeds the current market value of your property based on proposals to accommodate further development on your land. By giving us time to get the necessary approvals and market feedback, we can pay more for any uplift not associated with buying a DA approved site without any pre-sales to 'prove' the revenue assumptions we make in order to pay you significantly more than a site with potential 'STCA'. Most developers will pay the least amount possible when they have no certainty as to the planning, design, sales funding and construction outcomes. We'd rather pay more for more certainty. It's that simple.
Let me make this important point.
The legal agreement will look exactly how you and I want it to look like. I'm not a lawyer but we will certainly get a lawyer to reflect what you and I want to achieve. The legal agreement will reflect our desired and what we want to achieve. It's merely an instrument for this purpose.
For example, we may use a contract that is unconditional, subject to conditions, or a contract with a put and/or call option that gives us the time to achieve what we need to before settling.
Let's say you wish to participate in the project profits. How much profit really depends on how long you stay in.
You might ask for a certain price above the premium price if we are able to first secure a certain number of units or townhouses or land lots via a DA. Settlement may only occur at the time of DA approval.
Another option for the more intrepid landowner is a Joint Venture Agreement where we share the end profits on a 50/50 basis. Frankly and contrary to what most people think, this is not our preferred option - there is a huge amount of work and skill involved and the land is just the beginning. Sharing a much greater portion of the profits with the landowner for not much more on their behalf is costly.
In some cases, we do offer a 50/50 JV when the site is mostly or entirely unencumbered and the landowner allows us to fund the DA and BA costs through a loan facility against the site.
For example, the landowners we paid $14m for their $8m properties would have earned an extra $10m if we didn't have to settle on their land until the project was completed.
The developer may use the unencumbered land as security against a loan taken out to develop the property. Most landowner would be very concerned about safety of a structure like this, however (in this example), the loan is guaranteed by the us, you would be indemnified against any potential loss greater than the value of your site coming into the project. The value is pre-determined by an independent valuation. So there are mechanisms that might seem daunting at first but, once understood, can secure your position but also provide a much higher share of the profits.
The more common agreement is fo the landowner to 'trade' some certainty for a higher price. See next FAQ
As a landowner you want to achieve the maximum price for your site. That's a fair assumption?
The developer, on the other hand, wants a degree of certainty before they buy your site. The price you want, believe it or not, is the least of the developer's concerns because it's less subjective than say the price of a luxury home. What the developer focuses on is the 'residual value' of the site. The residual value is the maximum they can pay for a site to ensure a certain profit margin after deducting all costs. The only way to get some certainty is to get the development approvals at council (costly and time consuming even if you know how), obtain sufficient pre-sales to back up the sales price expectations (and therefore profit margins), get funding to build, and lock in a build price. In order to get this certainty, the developer will pay more for your land.
This certainty is created by giving the developer time.
In exchange for this time/certainty, the developer will often pay you more. A lot more.
If you need the money immediately then we're not the ideal fit for your needs.
The problem with asking for cash, in quick time, for your development site is we will have to price in the risks associated with little certainty beyond the initial due diligence period. We will have some idea of what can be built. We will have some idea of the demand by end buyers for the end product. We will have some idea what it will cost to build. My point is, like all developer's, we have to factor in all the uncertainty and therefore the risk and factor this into our price.
Off market sales tend to give the owner and the developer more to work out what each other needs and how to meet in the middle. Most estate agents want a quick deal (no certainty) so they can be paid their commissions. Only the more advanced agents realise that the land it worth much more when there is more certainty (DA and BA approvals, some pre-sales to prove the local market demand and funding secured for construction and settlements etc).
In summary, if you need to money urgently, cash is king. If you want more for the site (your price) then you will need to give us more certainty and time.
In most cases an estate agent will slow down the sale due to their ignorance about the true total costs of the development project and therefore the residual land value (maxim land price to make a certain profit). They usually want to be paid quickly too so they almost always encourage the landowner to take the price with the least terms so the land can settle sooner (and pay them) sooner rather than later.
The very first question to ask yourself is if you have the TIME, MONEY and EXPERTISE to develop your property yourself. You need all THREE in abundance to go it alone. If you have the money then great. But do you want to risk it all? Do you have the time? Developing can be incredibly time consuming and most people with busy lives prefer to partner up with an experienced developer or sell to a developer for a better price.
Then there is the all important expertise. Suggest to any developer that development is easy. I just have to buy some land (or use my own), get council approvals, build and sell. Easy.
Watch their response.
I've been putting investor capital (and my own) into development projects for over a decade, with many different developers. The one thing the successful developer's I've worked with all have in common is the ability to remain calm when things start going very wrong. And they always go wrong. Always. The next trait is the ability to solve complex problems almost daily. I could regale you with stories for days on how many problems you simply cannot foresee actually pop up.
If you want to explore the potential of your site then let me know. I can do a quick site assessment using our very smart AI driven technology that details what can and can't be done and at what cost and total sales.
My business is not just property development. My partners and I provide data driven property technology systems to developers...about 1,500 of them who assess sites like your all day and every day. When you decide to sell off-market directly with a developer - just keep this in mind....not all are equal.
Frankly with experience and some creative thought, the possibilities are endless. Here are some we have used over the years by transaction type:
CASH SALE - when we have cash freed up from other projects we prefer to pay cash. The landowner will rarely gets a cash price that reflects the true value of their land if it has potential. Why? Because the risks are not fully known, the site yield (number of units, land lots, townhouses etc) are not known until a DA approval and construction or building approvals are done and a range of milestone not yet achieved. In essence, if you want a 'developer's price' you need to give 'developer certainty'. You simply can't expect one with the other.
DELAYED SETTLEMENT OR CALL OPTION AGREEMENT - often this certainty can be provided by giving you giving us time to seek council approvals, get some sales while approvals are in play and use these sales to prove to the lenders that their is sufficient demand. How this certainty is provided from a legal perspective is quite basic and a standard legal instrument used by all experienced developers.
JOINT VENTURE - you might decide to share the profits with us rather than sell for market value alone. Recently a group of landowners opted to give us time to get certainty and were paid a significant premium on the market value of their (see example below). If they had stayed in the whole way, they would have come close to DOUBLING their proceeds of sale at the end of the project. For very little risk and no effort or experience. Our developer didn't have to get funding from the lenders to buy the land (the land component was only 20% of the total costs) so this was a big saving on costs.
In terms of the development type: it depends on the zoning of your property and what can be done - townhouses, duplex, apartments, land subdivision. We have approached you with some belief we can do 'something'. Together we can explore the possibilities that work for us both.
If the Local Planning Authority refuses to grant us planning permission for your land, then we'll evaluate the reasons for refusal on the Planning Decision Notice. If the reasons can be overcome, which is typically the case, then we'll use our expertise to carefully devise a challenge against the refusal decision, by appealing to the relevant authorities. It is rare that we do not obtain planning consent, however, we have had some locals take us to the Land and Environmental Court to try and stop our project. They lost.
Obtaining planning permission is a complex task that can be time-consuming. There is far more to it than submitting drawings to the Local Planning Authority. Most Local Planning Authorities now require a raft of documentation to be submitted in support of applications. These often include planning statements, design and access statements, topographical surveys and acoustic surveys amongst others.
Aside from the technical support documents that we are required to produce, we have to consider the design and impact of our proposals on the character of an area. The results form the basis of our pre-application enquiries with the Planning Officer. Making draft changes to set drawings and attending meetings with the Planning Officer are normal practice when we prepare an application prior to submission.
Once the application is submitted and registered, the formal process begins and the Planning Officer may seek advice from other external consultants, in order to make the public aware of the application. This part of the process takes from 8 to 13 weeks (depending on what we are proposing for your site) and may result in us presenting the application to your Local Authority's Planning Committee. Members of the Planning Committee tend to meet once month and this process can add time to a planning decision.
After all the expense and time taken to get approvals, in many cases the land is not worth anymore just by the way of an approval. The land value jumps as a development site when we have pre-sales (proven market for the product), Building approval to start construction. When this is in place then the lenders are more likely to provide development funding and, therefore, much of the risk has been removed. Selling your site for a developers price implies these approvals, pre-sales and funding are all in place.
If you are not interested in selling right now, but would possibly consider doing so in the near future, then please contact us now. We can discuss your requirements and tailor a contract to accommodate your timescale. Contact us now to start the planning process. This will place us in the ideal position to make a purchase at a time that is appropriate for you. In fact, we prefer it that you are not ready now. But with some planning and forethought - you might be ready to sell in, say, 18-24 months by which time you will know the true development value of your property all achieved at our expense, with our seasoned consultants and our time and expertise involved. All this done for you and you get to share in the upside with no risk. This does not work for someone who has the mindset of 'get a good deal now and settle in 30 days'. It's for those who appreciate the enormous effort, money and skill required to unlock the value in a property.
No. We’ve selected your property and undertaken an initial development assessment to determine your land's potential with regard to planning policy, architectural design in the context of the wider area and financial viability. As a result, we are writing to you as we have decided that your property has development potential that we would like to explore with you.
If our proposals require the acquisition of your property, then agreeing to sell in the current economic climate can work to your advantage. We can offer you a sum in excess of the market value of your property upon obtaining planning consent. This places you in the enviable position to use this windfall gain to acquire the next property you desire. What's more, entering the market as a cash buyer, and not as part of a chain, allows you to operate from a strong negotiating position. Looking ahead, it's important to remember is that prices are relative, so selling when prices are high does not necessarily represent best value if the values of other accommodation have risen proportionally.
If your property is a tenanted investment property then you can continue to enjoy the rental income while we work towards achieving a better planning outcome and therefore pay you more money. You might prefer to retain a property on completion if we were developing a multi-unit project for example. Often brand new property will rent for much more and you may also enjoy the benefits of additional cash paid on settlement or on completion if you choose to Joint Venture with us - a joint venture without you taking on any of the risks. We ensure that in our legal agreements.
LDA stand for a Land Development Agreement: a document drafted between a landowner and developer.
In many cases this can include a form of joint venture-project management where the developer takes the project from concept to completion and shares the profits with the landowner after the landowner has received the agreed price for their land.
During the project the landowner retains the land (yes, this is important for the landowner) while the developer deals with, and pays all the costs associated with the council and a range of consultants (bushfire, geo-technicians, quantity surveyor, valuers, architects, town planners, funding specialists...the list goes on and on. The developer assumes the development risk and may, in some circumstances, use the (unencumbered land) as equity for development funding cost while indemnifying the landowner to the pre-agreed value of the land.
The benefit of this arrangement is the landowner can expect a premium for their land or a larger slice of the profit pie on completion. The developer gets to leverage 'lazy equity' in the land to secure funding to get the development approvals which, in turn, further increase the value of the landowner land.
In essence the LDA ensures all the rules are known by both parties and each of their positions are secured.
Do you want to explore your options?
Please contact me for a confidential discussion. I can also do a brief site analysis including understanding what could be achieved on your land or site.