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Old Jul 2nd, 2007, 10:07 PM   #1
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Property Development & Investment Financing

I don't know if anybody here has any experience on either of the above mentioned topics, I was wondering if I could ask you a few questions.

I found a beautiful piece of property that I would like to find investors for and build cabins on it to rent during the summer and winter. I am unsure of the process for dealing with potential investors, and given that I have nothing but an idea, how do I make sure I get something out of it as well (Other than running the place haha).

Any and all help would be appreciated!!
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Old Jul 2nd, 2007, 10:23 PM   #2
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Some experience in this--I help my father with this kind of analysis when we buy, and help prepare packages about this when we sell.

First you need to figure out if this is feasible at all, and present that:
1) Zoning, services, etc. Can you actually build cabins there at all? Do you need to get it rezoned? How feasible is that? Do you need to bring in municipal water, electricity, etc?

2) Cost of development, bringing in services, rezoning if needed, etc.

3) How much will it actually cost to run the place (unless you plan to develop it to sell), etc. How much income can you bring in on the place? (You'll likely need comparables to prove that--average cabin rents, etc.)

4) Once you've worked out all that, how much money will investors need to put in, and how long until they get their money back out, what's their ROI, etc.?

5) Finally, why can anyone trust you to actually make this happen? What experience do you have in this line of work? You'll need something to get people to trust you with large sums of money.

As for how you get something out of it, there's lots of ways to work that out, but it boils down to what value are you adding to all of this? For example, we sometimes set things up that if we bring the value of the place up to a certain level through our management, we take a percentage of the profit.
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Old Jul 3rd, 2007, 07:44 AM   #3
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Sonal is giving you good advice there.

I would add a couple of things:

1. Account for time. Zoning changes, planning approval, service installation and sales period etc all cost time. This means you are paying taxes, financing etc. over that period. Long time agowhen the earth was green, I did an appraisal of vacant land for development in Scarborough. I found that at that time it was taking 10 years to take raw land and put it into production.

2. In a rural setting watch the locals. If you need zoning changes to do this and it just happens that the mayor's son in law owns a resort down the road, it is not going to happen. Large developers have spent millions going to O.M.B. to deal with reluctant locals. It can get real nasty real quick.

3. Watch the official plan for the municipality. This sits on top of the zoning and will effectively dictate whether rezoning is possible in the short term. Many rural municipalities do not want to increase infrastructure and officially plan some lands into oblivion.
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Old Jul 3rd, 2007, 08:53 AM   #4
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Yes, very good points LS.

Additional costs relating to zoning/development. Experienced investors and the mortgage company will prefer to see this too:

1) Environmental reports
2) Surveying costs--if no survey exists you may need a new one.
3) Planning consultants--not strictly necessary, but a good idea if you need rezoning
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Old Jul 3rd, 2007, 09:08 AM   #5
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...and there may be development taxes or fees on top of everything else.

Correct me if I'm wrong, but isn't there GST on vacant land?
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Old Jul 3rd, 2007, 09:27 AM   #6
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Quote:
Originally Posted by kps View Post
...and there may be development taxes or fees on top of everything else.

Correct me if I'm wrong, but isn't there GST on vacant land?
It has been awhile since I was in real estate. I believe that there is. There is also land transfer tax (now doubled if you live in Toronto - that will help economic development there).

Even if there is GST, when you sell, you should be able to credit it back.


I think the main warning is if the develpment is of any scale, there are hidden costs and delays to consider. Developers make money because they actually do add value. Also, if you take a look at the history of developers in Canada, and we do have some of the best in the world, almost all of them have had some point in their careers where they have made a mistake and gone broke - Even the Richmans, pretty much la creme de la creme in that world.

It is not the risk free environment the infomercials would have us believe.
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Old Jul 3rd, 2007, 11:24 AM   #7
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All good advice.
While I destest speculation without value added responsible development is a real boon BUT as mentioned it's not for the faint of heart or light of wallet - especially rural.

Were I doing it ( talked with some friends ) I'd look for off the grid and very green both for marketing purposes and ease of environment requirements ( sewage is a BIG issue ).

Unless you have contracting experience that's fraught with peril as well. There are some very good pre-done cottages that might be considered to avoid the worst of sticks and bricks contracting.

Given the current heat of the market empty desirable land may be short supply

of course DO bear this in mind since you have a time line to deal with

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Old Jul 3rd, 2007, 11:34 AM   #8
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You might want to form a small company to do this. Incorporation costs to set up, but it can limit your personal liability and can give potential investors an image of seriousness and professionalism that can "grease the skids".

There is a saw-off here that you will need to manage: balancing the image you give to the "locals" with the image you give to investors. As I am in fact "one of the locals" here in this rural area, I can tell you that developers and development, and in particular outside developers, are viewed with grave suspicion as a point of departure. You will have to come off as non-threatening to the way of life currently existing in the area if you are to have any hope of local support. If you do not inform the locals in a way that keeps them comfortable, and keep them so informed, you have no hope at all. I have watched a lot of wannabe developers go down the toilet because they tried to come off as "doing something for" the local 'economy' which was interpreted as "doing something to" the locals. Be sure to make yourself aware of this for-to distinction.
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Old Jul 3rd, 2007, 12:47 PM   #9
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The property is in BC, in a location not far from where they are building a large ski resort, so the winter months are covered for rentals haha (OK, thats not a given, but pretty close since all the hotels are booked up months before the season starts already).

Here is my plan. It is currently zoned as industrial, and they will be doing an environmental assessment on the property before they sell it, so if it can't be rezoned, the point is moot. If it can be rezoned for what I want, I want to put together a basic proposal of what I want to do (How many cabins, plans for the property and such). If I can get pre-fab log cabins, that is what I want to do, if not, I sitll want log. Nice an rustic, but more technologically advanced. The whole place would be geared towards the more wealthy.

Once I get the plan together, I want to approach an very wealthy Oil Guy I know. The plan here, is to get him to partner with me to form the inital company to get stuff started. He is very smart business wise and would add credibility to the ability to get the project done. I would want to hire developers to get it done, but I would like to manage the project to make sure everything gets done (Managing people to get things done is the easy part, making sure they get done is the hard part haha). I would also want to live there and manage the place when it is complete. He would stay as partner and have say in the day to day, but I am hoping he would rather just collect his monthly income and let me run it haha.

Thanks for the advice, I will start looking into some of the things mentioned, especially about the locals (Though I think they are pretty keen on the added tourism from the resort already, and I do want to make this a very green project as well).
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