What due diligence should I do for land development investment?

[llee]

I received an opportunity for investment (1-year term).

A developer in Oakville (Ontario) has secured a large plot of land. They are in the process of sub-diving two of the lots enabling them to build four semi detached houses on these lots while building a few single family residential detached homes on each of the remaining five lots.

The developer is looking for secured JV backing from multiple investors with the individual investment amounts being ‘bonded’ against the title and land value of the property. The minimum investor participation is $25,000. Investment term is 12 months at 25% per annum with prorated cash payments made out in calendar quarterly instalments.

What kind of due diligence should I do on these land development deals? What kind of questions should I ask?

Lucas

 

[Ken15]

I`d ask and/or confirm the following:

Is the property currently zoned for what they are proposing?
Are services available: sewer, water, storm, gas, hydro, tel, cable, etc...
Who is responsible for servicing? Costs of servicing? How deep are the services... i.e the deeper the more expensive?
Do the services have capacity to support this development?
Are building permits available?
How will stormwater be managed?
Are or will building permits be available?
Enviromental issues (the "toxic kind" and the "tree huger" kind) Does the local Conservation Authority have jurisdiction over this land?
Are sidewalks, fencing, roads, curbs, street lights required? Who pays for these?
Who is responsible for the Development Charges? When are they required to be paid? At building permit stage? At development stage?
What kind and/or how much of "Letter`s of Credit" is the City requiring. Who is posting these. How long will the City hold these Letter`s of Credit.
Parkland Dedication or "Cash in Lieu of Parkland"

I hope this helps....

Ken

QUOTE (llee @ Feb 1 2010, 01:25 PM) I received an opportunity for investment (1-year term).

A developer in Oakville (Ontario) has secured a large plot of land. They are in the process of sub-diving two of the lots enabling them to build four semi detached houses on these lots while building a few single family residential detached homes on each of the remaining five lots.

The developer is looking for secured JV backing from multiple investors with the individual investment amounts being `bonded` against the title and land value of the property. The minimum investor participation is $25,000. Investment term is 12 months at 25% per annum with prorated cash payments made out in calendar quarterly instalments.

What kind of due diligence should I do on these land development deals? What kind of questions should I ask?

Lucas

 

[llee]

Wow - thanks Ken for the list.

Is 25% a typical return for such lending?

QUOTE (Ken15 @ Feb 1 2010, 01:53 PM) I`d ask and/or confirm the following:

Is the property currently zoned for what they are proposing?
Are services available: sewer, water, storm, gas, hydro, tel, cable, etc...
Who is responsible for servicing? Costs of servicing? How deep are the services... i.e the deeper the more expensive?
Do the services have capacity to support this development?
Are building permits available?
How will stormwater be managed?
Are or will building permits be available?
Enviromental issues (the "toxic kind" and the "tree huger" kind) Does the local Conservation Authority have jurisdiction over this land?
Are sidewalks, fencing, roads, curbs, street lights required? Who pays for these?
Who is responsible for the Development Charges? When are they required to be paid? At building permit stage? At development stage?
What kind and/or how much of "Letter`s of Credit" is the City requiring. Who is posting these. How long will the City hold these Letter`s of Credit.
Parkland Dedication or "Cash in Lieu of Parkland"

I hope this helps....

Ken

 

[Ken15]

Sorry.... I`m not familiar with this sort of lending arrangement so I can`t comment on the return.


QUOTE (llee @ Feb 1 2010, 02:02 PM) Wow - thanks Ken for the list.

Is 25% a typical return for such lending?

 

[housingrental]

Lucas - If not familiar with the particular property, valuation, issues, and you don`t have a will to take over ownership and direction of project in event of default don`t invest in it.
If your looking for a 25% return OR building project go for it

 

[BrianPersaud]

QUOTE (llee @ Feb 1 2010, 03:25 PM) I received an opportunity for investment (1-year term).

A developer in Oakville (Ontario) has secured a large plot of land. They are in the process of sub-diving two of the lots enabling them to build four semi detached houses on these lots while building a few single family residential detached homes on each of the remaining five lots.

The developer is looking for secured JV backing from multiple investors with the individual investment amounts being ‘bonded’ against the title and land value of the property. The minimum investor participation is $25,000. Investment term is 12 months at 25% per annum with prorated cash payments made out in calendar quarterly instalments.

What kind of due diligence should I do on these land development deals? What kind of questions should I ask?

Lucas

Check out what the land is worth..their might be a lift on them. Many of these companies went under, there are good lawyers on west that specialize in them..

The devil is in the details in the contracts

 

[gwasser]

QUOTE (llee @ Feb 1 2010, 01:25 PM) I received an opportunity for investment (1-year term).

A developer in Oakville (Ontario) has secured a large plot of land. They are in the process of sub-diving two of the lots enabling them to build four semi detached houses on these lots while building a few single family residential detached homes on each of the remaining five lots.

The developer is looking for secured JV backing from multiple investors with the individual investment amounts being `bonded` against the title and land value of the property. The minimum investor participation is $25,000. Investment term is 12 months at 25% per annum with prorated cash payments made out in calendar quarterly instalments.

What kind of due diligence should I do on these land development deals? What kind of questions should I ask?

Lucas

There is also liability involved. Are you a full partner or a limited partner? Definitely something to follow up with your lawyer. In the first place you may expose yourself to liabilities larger than your investment.

 

[Thomas Beyer]

QUOTE (llee @ Feb 1 2010, 01:25 PM)
..



What kind of due diligence should I do on these land development deals? What kind of questions should I ask?


Is your investment in first position (a syndicated 1st mortgage) or in 2nd or 3rd position ?



What is their track record ?



Demand for land/ houses ?



prices realistic ?



25% interest paid annually paid from your own money .. I trust you understand that !!! so on a 3 year project 75% of your own money is paid in interest .. and only 25% is available for "real" construction work. There is no income on construction until a sale happens !! You are paying your own interest .. or someone else's!!



However, construction can be very profitable if (and ONLY if)



a) purchased at the right price

b) managed well with tight cost control and a tight schedule

c) good accounting

d) good sales on exit of properties

e) ethical / honest people with a track record of success



Risk of ENTIRE capital is possible .. "bonding" means nothing if 30 investors scramble for $s from a semi-finished construction in foreclosure .. especially if they are not in first position behind a 1st mortgage !!



see item 5 here: 8 mistakes to avoid in real estate syndications: http://myreinspace.com/public_forums/Real_Estate_Discussion/62-13817-Real_Estate_Syndications_-_A_Good_Idea_.html

 

[Thomas Beyer]

QUOTE (llee @ Feb 1 2010, 02:02 PM) Is 25% a typical return for such lending?
NOT USUALLY ..

If they can execute .. which MAY BE IN DOUBT HERE .. they can get money in the low 10-13% range .. so why pay you 25% ? Likely poor credit or high risk deemed by most banks !!!