Making Your First Million.pdf - Association of Net Entrepreneurs and ...

Making Your First Million
Take your cash flow and put it into real estate development and most likely your income
from real estate will come to exceed that from your core business. Recently we were in
property acquisition mode and were presented with an 8 Ha block for industrial
subdivision for $330,000. Running the numbers on it we felt it was line ball. Five miles
away, on the F3 freeway was a 45 Ha industrial block for $720,000, a much bigger
project, but the numbers stood up very well and we bit the bullet. Again, we sold out at a
profit shortly after, but the remaining stakeholders will turn a maximum investment of
$500,000 into anywhere from two to ten million, depending on how long they stay in the
project.
The advantage of property development is it's self-funding. You don't actually need much
(or even any) money to get started. We purchased the 4 Ha on a borrowed deposit and
vendor finance then turned around and onsold to a developer for a handsome profit. We
did the same with a 30 Ha rural block, borrowed deposit, vendor finance, a bulldozer for
a week to develop the land, then onsell for a significant profit.
One project we took to completion involved the purchase of two adjoining 1.6 Ha blocks
for residential redevelopment for $190,000 and $220,000. The dearer block had a house
on it which we subdivided and sold for $145,000 so the total cost of the remaining 3Ha
was $275,000 which was borrowed from the bank against the security of the land. Getting
development approval for a 24 block subdivision increased the value of the land and
enabled us to borrow the $430,000 needed to take the subdivision to completion. Sales
off the plan of 9 of the best blocks meant the $430,000 was repaid in the first fortnight!
The sale of the next 4 blocks repaid the remainder of the borrowings and over the next 3
years we sold the rest of the less desirable blocks at the rate of 4 a year. Total cost
$705,000. Total income over 4 years: $1,120,000. Profit $415,000.
While this was a small, slow-moving project with a modest profit margin of around 36%,
remember, at no time did we have any of our own money in the project. Everything was
borrowed against the value of the project and our cash-flow in other ventures. If you have
a separate cash-flow to underpin loan repayments while waiting for sales to come in, you
can do it today. The trick is to find undervalued land, borrow up to 100% to acquire it,
develop it, then sell or onsell at a worthwhile profit. As often as not all the development
you need to do is envision the result and sell this vision to the next guy. This can be as
simple as drawing up a development proposal or getting a DA approved through council,
putting an $800 a day bulldozer on the land to clean it up, or going the whole hog and
putting in roads, power, sewer etc.
The key is to make a profit, and the sooner the better. Quite often you can make a profit
on the same day. Stephen, a colleague and friend of my partner, recently spent many
months in protracted negotiation in order to sell a timber concession in Noumea to a
Malaysian syndicate who onsold it an hour later to a Japanese group for 6 times the price!
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