Why option land? In recent years, major developers have secured conditional options to purchase on vast tracts of land throughout Australia as option land for development because an option is the right to convey a piece of property.
Option land sale vs options to purchase land? Option land means the person granting an option is called the optionor (or grantor) and the person who gets benefits of using an option is called optionee (or the beneficiary).
An option agreement is where one person grants another person the exclusive right for a set time to buy a property normally at a set price. A non-refundable fee is normally charged for this option.
During the term of option, no one else can buy or sell the property. The property may then be purchased by exercising option and entering into a pre-agreed form of contract or option can be left to expire.
Option agreements can either be call option agreements (where the buyer has the only right to “call” for a contract to be entered into) or a put and call Option agreement (where the buyer can “call” for a contract to be entered into or the seller can “put” the contract to the buyer).
The form of option agreement used depends on the circumstances…
Finding option land subdividable, how do you find the blocks with the highest possible profit? Like any property investing strategy it takes skill to find, negotiate and acquire a site which meets your investor needs.
To enhance this skill it’s important to become an area expert first which means choosing two or three suburbs and become intimate with what each property in that area is worth in the current market.
From there you should be educating yourself on what parameters council have set for potential subdivision sites e.g. minimum lot size, frontage etc.
Build a good network of agents in the area to help you find the right site and use online resources like realestate.com.au, pricefinder.com.au and googlemaps.com…etc.
You may also be able to get access to integrated free mapping service which your local council might provide.
Options exist in one of two types:
- Call options give beneficiary the right to require grantor to sell or convey property to them at agreed price on exercise
- Put options give beneficiary the right to require grantor to buy or receive property at agreed price on exercise
How do options work? A landowner grants a property developer an option for a fixed term of years to purchase their land. The eventual sale price is usually agreed at a percentage of market value once a suitable planning consent is secured for development.
As part of the deal, the developer is responsible for promoting site for development through planning process as this can be costly, time consuming and may not always end in success.
There are many ways to fund your option land project and it depends on the size of the deal, capital (cash or equity) which is supporting the subdivision project and potential end value of site.
For a small splitter from one into two lots residential subdivision you could potentially secure site with a residential loan and use other forms of funding to pay for the associated subdivision costs.
For example paying a private lender a premium interest rate on $100k lended into project for a short period of time provides flexibility and speed to get project back on the market.
What are the benefits of doing subdivisions? The subdivision strategy can be one of the better property investing strategies for a number of reasons. It is a simple enough process for an intermediate investor as well as a beginner if supported with the right team.
Option land subdivisions is a highly leveraged strategy leveraging your town planner to effectively do a lot of the work for you; this means it is a strategy which can be implemented by someone that still has a full time job.
There are many exit strategies within the option land process which helps to mitigate or reduce a lot of the risk. Finally, there are a lot of opportunities to subdivide in the current Australian market with the ability to make a substantial profit.
When looking for your next subdivision project, it’s important to spend plenty of time assessing the area and running numbers on many sites before you finally acquire one.
To do this you need a method to quickly assess each site in a way which provides clarity on whether to move ahead with the site acquisition.
Due diligence is a critical part of assessing your option land project for financial viability. Since there are more sites you’ll reject than go ahead with its important to use a system to do your due diligence quickly and effectively.
If you are a landowner and believe your property has potential for development your options are:
1: Do nothing beyond sitting back and waiting to be approached by a developer or investor interested in acquiring your property. This is a risky option.
Your site could end up not being considered by the planners as a future development option. Or the planners may decide to favour another site that is being actively promoted for development.
2: Take responsibility for promoting your property for development through the planning process. This can be very costly.
It may be right for you if you can comfortably afford the investment required and you are prepared to accept the risk that you may ultimately loose your investment if you are unsuccessful.
3: Invite developers to submit offers for an option to acquire your property in future for development. In return for bearing planning costs and accepting the risk of loosing its investment.
The developer wants an option to purchase the site at a discount to full market value once planning consent is secured.
If you feel your property has potential for future development and you want to find out more, please feel free to contact us for free initial impartial advice without obligation.
If your strategy is to sell a new created lot or lots you could always have them available to sell, even before the actual subdivision has been completed because getting a buyer to purchase property subject to titles being issued provides a lot of financial certainty with your project.
Property Investments Now can act on behalf of landowners looking to sell development options, developers and investors looking to secure development options as part of their property investors strategy.
Property Investments Now could partner with you to discover what the real value of your land is and it’s development potential. Why? Because property development is a very challenging and indepth process.
Option land means being able to deliver a project from concept to completion, it requires commitment. Many land owners do not have skills, experience, contacts or resources to take it on independently.
Option land by partnering with our team to fill in gaps and increase the profitability of your property. You get a piece of the profits from the development in return for giving us time to add value to your property by way of obtaining a Development Approval.
We co-ordinate the whole process with you through the use of a standard option agreement. This is a legal document which gives us permission to obtain the Development Approval (at 100% our cost) while you still have the title of the property and can continue to live or rent the property out.
For the owner of the land this can add massive value to their property through the Development Approval because it is our time, energy and money spent on your property whilst you still own it.
We do everything within council guidelines and town plan through understanding and fulfilling the council’s needs first and foremost backed by research which is done upfront to save time, ensuring the end result of getting the development approval sooner.
Our communication with you is consistent and constant throughout the development process. We appreciate the more you engage and understand the process…the more confidence you get in us to deliver better results.
Once development approval is obtained, we’re able to pay you the land owner, effectively settle on the land and continue the physical development process. We keep you updated regularly throughout the planning process.
Property Investments Now prides itself on its honest and direct communication with land owners and we respect your property is a great investment and needs to deliver the highest return through a strategic partnership with us.
Want to know how to option land or use land banking strategy, click here for more information or feel free to send us an email.