Platinum Equities Inc, is land investment in Calgary speculative ?

[dobiso]

Hi,

I`ve been approached about investing in Land purchase project by Platinum Equities Inc.

www.platinumequities.com

Here`s the proposed deal:

Project is to purchase LAND in 17 Ave and 85 St SW. They pointed out the WEST LRT expansion and North West UTC Ring Road as major contributors to the increase in land value in these areas. They are projecting 25% increase per year over the next 2 yrs. They`re selling $25,000 per unit.

Questions:

1. Anyone have experience or know of this company ?
2. There economic research seems bang on with what we discuss at REIN meetings, any issues with this ?
3. I don`t see any red flags with this deal or this company, do you ?
4. I`m concerned about exit strategies since you really just own units, not the land itself, does anyone have any experience on how to exit in this type of venture ?

I`m doing this as part of my due dilligence. It sounds like any other land investment company like Waltons, Genesis etc. I know of some people who had a hard time exiting with Genesis. At one point, they ask investors to convert there land units into shares of Genesis. Hopefully, some investors in our REIN group have some experiences with Platinum Equities to share ?

Thanks.

 

[RedlineBrett]

Hi There,
While I don`t have any experience with platinum equities I do specialize in Calgary and I am familiar with some land investment options. The west LRT expansion is also a cornerstone of our acquisition strategy.

However, I think it will take A LOT longer than two years for the west LRT to get all the way out to 17th and 85. I would question the fundamentals analysis that went into this projection.

The ring road will be a N-S corridor... it won`t provide any better access to the DT core which is the primary employment center for the city and also where the majority of jobs are going to be added over the next decade.

Apart from that here`s the rub (for me anyway) investing in land: It`s not bringing in any cash!!

So, you are banking on the value of the land in that area going up. Wouldn`t it make more sense to find a similar location with equal upside (there are MANY in Calgary) and buy a cashflowing property? At that point it doesn`t matter what pie in the sky number you pick for year over year appreciation because as long as you manage your investment properly you will be covering your costs. Also, rent rates appreciate at a very similar level to land values... so with a cashflowing income property not only will you see the same equity kick you will also benefit from increased cash flow over the same time period. This last point has a dramatic effect on the long term risk sensitivity of your investment to variables like inflation and interest rates.






QUOTE (dobiso @ Jun 2 2008, 01:22 PM) Hi,

I`ve been approached about investing in Land purchase project by Platinum Equities Inc.

www.platinumequities.com

Here`s the proposed deal:

Project is to purchase LAND in 17 Ave and 85 St SW. They pointed out the WEST LRT expansion and North West UTC Ring Road as major contributors to the increase in land value in these areas. They are projecting 25% increase per year over the next 2 yrs. They`re selling $25,000 per unit.

Questions:

1. Anyone have experience or know of this company ?
2. There economic research seems bang on with what we discuss at REIN meetings, any issues with this ?
3. I don`t see any red flags with this deal or this company, do you ?
4. I`m concerned about exit strategies since you really just own units, not the land itself, does anyone have any experience on how to exit in this type of venture ?

I`m doing this as part of my due dilligence. It sounds like any other land investment company like Waltons, Genesis etc. I know of some people who had a hard time exiting with Genesis. At one point, they ask investors to convert there land units into shares of Genesis. Hopefully, some investors in our REIN group have some experiences with Platinum Equities to share ?

Thanks.

 

[GSI]

QUOTE (dobiso @ Jun 2 2008, 01:22 PM) Hi,

I`ve been approached about investing in Land purchase project by Platinum Equities Inc.

www.platinumequities.com

Here`s the proposed deal:

Project is to purchase LAND in 17 Ave and 85 St SW. They pointed out the WEST LRT expansion and North West UTC Ring Road as major contributors to the increase in land value in these areas. They are projecting 25% increase per year over the next 2 yrs. They`re selling $25,000 per unit.

Questions:

1. Anyone have experience or know of this company ?
2. There economic research seems bang on with what we discuss at REIN meetings, any issues with this ?
3. I don`t see any red flags with this deal or this company, do you ?
4. I`m concerned about exit strategies since you really just own units, not the land itself, does anyone have any experience on how to exit in this type of venture ?

I`m doing this as part of my due diligence. It sounds like any other land investment company like Walton`s, Genesis etc. I know of some people who had a hard time exiting with Genesis. At one point, they ask investors to convert there land units into shares of Genesis. Hopefully, some investors in our REIN group have some experiences with Platinum Equities to share ?

Thanks.


Hello Dexter,

I think Brett`s excellent post answered many of the questions you have. Although I actively invest in residential properties I do have a few land and mortgage investments as well. I did one about 6 years ago with Walton. In the Walton land deals at that time (not now from what I understand) you did own the land directly and had title. My wife`s family has invested with Walton on and off for about 15 years.

They (Walton) had picked up a lot of key land sites in Alberta and have a good track record. Some of the downside to these types of land banking deals is that it can take a long time to cash out. With Walton it was 5 to 7 or longer. If you have a mortgage on the land, that is also a monthly cash call. If you buy the unit out right (as in the $25K unit) then you don`t have to worry about making any payments. Walton doesn`t have anything else in Alberta now I think.

If you have extra cash and you`re not looking to actively manage a property and/or lack the expertise to get started, then buying a unit could work for you. If it`s a matter of options- you can look for a property to invest your $25K into or work with a JV partner who can provide the expertise if that is an issue.

I can`t speak directly for Platinum Equities. I would say that 2 years sounds too fast, prepare for longer. Also temper down the returns a bit so that you`re not disappointed if they don`t reach the estimates given. 25% per year is pretty good...

Due diligence, continue doing what you`re doing and ask to see the last similar projects cash-out return and actual time frames. Ask how they compensate you if it is longer than the estimated time frame, will they buy back their investment at cost? Plus the return over 2 years? Look to speak with folks who have done it and see if they`d reinvest.

It is of course `speculative` versus `fundamental` investing, but can be a good addition to a balanced portfolio. Again, 90% of my portfolio is in active rental properties.

Hope that helps,

 

[dobiso]

Hi,

Your points are excellent and answers alot of my questions. As far as balancing my portfolio goes, I do have 70% in residential rentals, 20% in equities/mutual funds and I was planning on adding 10% in land. For my situation, it helps to balance my portfolio.

With the land investment of $25,000.... I plan to use my HELOC at 4.25% which will amount to a monthly payment of $88.00. This is very little risk versus using the $25,000 as downpayment and leveraging a mortgage to buy rental property for $200,000. The cashflow we expect from a tenant is good but there`s a major factor of risk like vacancy, damage repairs, maintenance cost etc. etc.

When it comes to risk, due to the small LEVERAGE required in land investment, the risk is also very small. In a rental property, you LEVERAGE BIG, this also increases your risk dramatically. In return, you expect BIG profits.

I still believe that there`s a place for LAND INVESTMENT in our portfolios (10%) especially if you are interested in balancing your asset mix.

 

[MonteDobson]

We have used a lot of our idle, under-performing RRSP funds to invest in these types of land investments in the past and have reaped some fairly significant returns, however there are some things to think about when choosing a project to join, and more importantly the track record of the people behind the company doing the syndication.

Under the right circumstances, land development can be very profitable. Important factors influencing profitability in land syndication projects include:

-The original price of the raw land - Some companies take a very large "lift" or profit off of the start.
-The cost of financing the services needed to create the building lots
-The skill of the management team - What is their experience and track record? There are many of these new companies popping up almost daily claiming to be land "experts". Essentially there are only a few that have the know-how, financial backing and experience to make your investment a success.
- What approvals are in place? - some projects will take many more years than expected because the approvals drag on forever. No approvals = higher speculation = higher risk
-The sale price and demand for the building lots in the community - will the project sell within projected timeline.
- There is typically NO cashflow
- Some offer a fixed bond return plus profit sharing

Ideally the land should:
- border a city that is growing quickly and has a strong economy, minimizing the time it takes to be annexed or rezoned
- have proximity to existing sewer lines and other services , the closer the land is to services the cheaper and sooner the land can be converted into lots
- be attractiveness in regards to the geography and topography
- have surrounding developments (be close to amenities that will attract home owners to the area such as golf courses and shopping malls)
- have good potential lot density (the more building lots per acre the higher the profits)

Hope this helps a bit. Any questions, feel free to contact me anytime.

Regards,