🏘 How to Overcome Borrowing Capacity Using Developing - Ross Versteegh & Marce Wild 🏡🔥🤠🤝

Name: 🏘 How to Overcome Borrowing Capacity Using Developing - Ross Versteegh & Marce Wild 🏡🔥🤠🤝
Uploaded: 2026-02-18T22:25:40.000Z
Duration: 3 h 8 min 47 s

How to Overcome Serviceability in Property Development

Introduction to the Session

The session welcomes property investors and introduces the theme of overcoming serviceability challenges while exploring advanced development strategies.

Ross and Marci, experienced developers, are introduced as guests with nearly 20 years of combined experience in property development.

Challenges in Current Market Conditions

Discussion highlights rising interest rates impacting borrowing capacity but emphasizes that opportunities still exist for property investment.

Ross experiences technical difficulties, indicating potential issues with internet connectivity during the session.

Perspectives on Property Development

Ross describes property development as an active strategy that forces growth rather than waiting for market appreciation, likening it to day trading versus long-term investing.

Marci views development as a value-add opportunity where she can manufacture growth from properties that may not appreciate naturally.

Strategies for Value Addition

Marci explains her approach to subdividing properties to maximize growth potential, emphasizing the importance of capturing market trends effectively.

Both guests agree on the necessity of actively adding value through development strategies, which can be applied across various markets.

Risks Associated with Development

Ross acknowledges that developing properties carries significant risks due to leverage and uncertainties involved in future predictions.

He stresses the importance of having robust feasibility studies and spreadsheets to mitigate these risks effectively.

Understanding Development Risks and Strategies

Comparing Buy and Hold vs. Development Projects

The speaker emphasizes the importance of understanding how to execute an exit strategy, particularly in relation to risk management in development projects.

A focus on assessing worst-case scenarios is crucial; comfort with these scenarios can influence the decision to proceed with a project.

Key Considerations for New Developers

The discussion encourages interaction, inviting questions about development at various experience levels, from beginners to advanced developers.

For newcomers, starting with simple projects like a one into two (renovating existing houses) is recommended to mitigate downside risks.

Project Selection and Risk Mitigation

Simple projects are less profitable but carry lower risks; they allow for value addition through renovations or tenant involvement which helps manage holding costs.

The speaker shares personal experiences of starting with low-risk projects that allowed for gradual learning and value enhancement.

Understanding Motivations Behind Development

It's essential to clarify motivations for entering development—whether financial gain or creating housing opportunities for family and friends influences project choices.

Some individuals prioritize outcomes over profits, focusing on community benefits rather than strictly financial returns.

Importance of Defining Your "Why"

Identifying the underlying reasons for pursuing development can guide decisions and help maintain focus amidst potential distractions from profit chasing.

The conversation highlights the need to balance ambition with purpose; understanding one's goals can lead to more meaningful investment strategies.

Exploring Development Opportunities in Real Estate

Initial Concepts and Ideas

Discussion begins on the importance of community engagement and how it can drive personal and professional growth.

Marci is prompted to share insights on real estate development, particularly for those with existing portfolios looking to add value.

Value Addition Strategies

The conversation highlights strategies for property owners with buy-and-hold portfolios, focusing on identifying opportunities for value addition through subdivision or redevelopment.

An example is given where older properties can be renovated or "supercharged" to enhance their value without needing new purchases.

Financing and Development Challenges

The discussion shifts to the challenges faced by property owners regarding borrowing capacity and restructuring existing assets instead of acquiring new ones.

A specific case is presented about a block of land that faces approval issues not due to council regulations but other factors, emphasizing the need for strategic planning.

Zoning Changes and Market Dynamics

Insights are shared about financing options available if sufficient equity exists in a property, including considerations around zoning changes that may increase development potential.

Ross discusses recent zoning changes in Adelaide that have allowed previously non-subdividable properties to become viable candidates for subdivision, highlighting the importance of staying informed about local regulations.

Joint Ventures and Landowner Perspectives

The conversation touches upon joint ventures as a strategy where developers collaborate with landowners who may view large plots as burdensome rather than assets.

Marci notes an increasing trend where landowners prefer smaller blocks due to maintenance concerns, indicating potential opportunities for developers willing to engage with these individuals.

Understanding Property Preferences and Investment Strategies

Shifts in Property Preferences

Many potential buyers are moving away from large properties, preferring smaller homes with manageable outdoor spaces. This trend is particularly evident among downsizers and young couples who seek convenience.

The desire for low-maintenance living is driven by busy lifestyles; people want homes that require less upkeep, allowing them to enjoy their space without added stress.

Equity and Development Opportunities

If a property has sufficient equity, it can be leveraged for further investments or developments. This strategy allows investors to roll profits from one project into another effectively.

A question about suburbs suitable for land banking in Jalong or Melbourne highlights the importance of identifying undervalued areas before they gain popularity.

Identifying Investment Hotspots

Specific suburbs like Karia and Norway in Jalong are mentioned as having potential for investment, especially if they feature old houses on corner blocks that can be redeveloped.

The speaker notes that opportunities exist not just in Jalong but across Australia, emphasizing the need to act quickly before competition increases.

Exploring Adelaide's Market Potential

Adelaide is highlighted as a market with significant development opportunities, even during flat market conditions. Creative approaches to property development can yield profitable results.

Investors should consider various property shapes beyond traditional corner blocks; flexibility in development strategies can lead to success.

Tax Strategies for Property Investment

Discussion shifts towards tax-effective strategies for building knowledge and experience in real estate investment. Personal ownership of properties is suggested as a beneficial approach.

The conversation touches on the balance between personal investment strategies versus company structures, weighing flexibility against potential tax benefits.

This structured summary captures key insights from the transcript while providing timestamps for easy reference.

Understanding Common Development Mistakes

Key Considerations in Development Deals

The speaker highlights common mistakes made by developers, particularly regarding fees and growth expectations. It's crucial to assess whether a project is viable in the current market rather than relying on future growth projections.

Emphasizing that if a development project does not make sense based on today's market conditions, it should be reconsidered. Future market changes are uncertain and should not be relied upon for project feasibility.

The discussion shifts towards the importance of understanding technical details in development projects, suggesting that while detail is important, practical execution must also be prioritized.

Feasibility and Financial Levers

Ross introduces four key financial levers that can impact project profitability: resale values, purchase prices, build costs, and contingency planning. Each lever plays a significant role in determining overall success.

Resale values are highlighted as a critical factor; even minor fluctuations can significantly affect profit margins compared to fixed purchase prices which only have one-time effects.

Developers often attempt to cut costs by reducing build expenses or adjusting resale expectations. However, this can lead to unrealistic projections and potential losses if the anticipated market movements do not occur.

Contingency Planning

The conversation addresses the necessity of including contingencies in financial planning for development projects. A standard practice is incorporating a 5% contingency for overall profits or specific line items like builds.

It’s advised that all aspects of the budget should include some level of contingency to account for unforeseen circumstances, ensuring more robust financial planning.

Key Terminology Explained

Important terms such as Gross Realized Value (GRV), which refers to projected sales revenue from the project, and Total Development Cost (TDC), which encompasses all expenses related to developing the property are defined. Understanding these terms is essential for financing discussions.

Different lenders may offer varying percentages of funding based on TDC or GRV; thus it's vital for developers to understand their financing options thoroughly before proceeding with projects.

Market Trends and Developer Expectations

A question arises about property owners expecting higher premiums due to subdividable land. This reflects current trends where many owners overestimate their property's value based solely on potential subdivision opportunities.

Marci shares her approach when negotiating with landowners who have inflated expectations about their properties' worth due to subdivision potential. She emphasizes realistic assessments during negotiations to align seller expectations with market realities.

Negotiating Property Values and Development Challenges

The Art of Negotiation in Real Estate

The speaker discusses how potential sellers often return with more realistic expectations after initially rejecting offers, highlighting the importance of patience in negotiations.

Emphasizes the need to be upfront about property constraints, such as environmental issues or lack of utilities, which can affect value perception.

The speaker contrasts the perspectives of developers and investors, stressing that while developers may overpay slightly, investors should avoid overpaying to ensure profitability from the outset.

Risks of Overvaluation

Warns against becoming overly attached to a single project; manipulating numbers to justify an inflated purchase price can lead to significant financial pitfalls.

Highlights that developments are plentiful like buses; if one deal falls through, there will be others available soon.

Addressing Site Challenges

Discusses common site challenges such as easements and tree regulations. These factors require creative solutions during design phases.

Notes that easements can complicate designs but are manageable with proper planning. They often necessitate alternative construction methods (e.g., paving instead of concrete).

Navigating Tree Regulations

Mentions the increasing complexity surrounding tree regulations and the necessity for arborist consultations when assessing properties for development.

Stresses that understanding local council restrictions on trees is crucial; improper removal could lead to legal issues.

Building a Strong Development Team

Inquires about essential team members for successful projects, emphasizing roles like town planners and architects who help navigate complex development challenges.

Suggests focusing on difficult sites where others see obstacles; solving these problems can yield higher returns in property development.

Financing Development: Myths and Realities

The Importance of a Support Network

An arborist, planners, engineers, accountants, and mortgage brokers are essential for successful property development. Understanding their roles is crucial to navigate the financial landscape.

Learning from experienced developers is emphasized as a way to gain insights into the process of property investment and development.

Financing Insights

Financing is critical in property development; without it, projects cannot proceed. A comprehensive understanding of financing options is necessary.

The notion that you don't need money to develop properties is discussed; while it's possible to develop with less capital than expected, some initial investment or equity may still be required.

Understanding Loan-to-Value Ratios (LTV)

The speaker shares personal experience with high LTV loans (up to 97%) when purchasing their first home, highlighting how this can reduce upfront costs for new developers.

Closing costs and other expenses can keep initial investments under $100,000 for smaller developments. This challenges common perceptions about the amount needed to start developing.

Realistic Expectations on Returns

Potential returns from small developments are discussed; while profits may not reach millions, earning $50-$100k can still be significant considering the learning experience gained.

The value of practical experience in development is highlighted—earning even a modest profit after an extensive project can provide invaluable knowledge compared to costly courses.

Debunking "No Money Down" Myths

The concept of acquiring properties with no money down is critiqued; while it might be feasible for seasoned investors using equity, beginners typically require some foundational assets.

New developers should consider investing smaller amounts alongside experienced developers as a strategy to grow their capital effectively rather than relying solely on traditional bank loans.

Joint Ventures and Passive Investment Strategies

Discussion shifts towards joint ventures as a means for passive investment in real estate. Collaborating with others can help overcome financial barriers while entering deals.

Community support among peers in real estate development is acknowledged through positive feedback shared during the conversation.

Joint Ventures and Money Partnerships

Understanding Risks in Lending Money

The speaker discusses the inherent risks involved in lending money to a partnership, emphasizing that there is always some level of risk.

Suggests forming a joint venture where investors pool their funds into a trust account for project development.

Structuring Investments

Describes scenarios where an investor with capital but no borrowing capacity can partner with someone who has the ability to borrow, seeking shared ownership or profit.

Highlights the importance of having formal agreements in place, even if paperwork may not guarantee trustworthiness.

Communication and Clarity in Joint Ventures

Stresses that clear communication about roles, responsibilities, and expectations is crucial for successful partnerships.

Discusses defining contributions from each partner (financial vs. operational), ensuring clarity to avoid future confusion.

Flexibility and Adaptability

Emphasizes the need for flexibility in joint ventures; adapting plans based on market conditions can lead to better outcomes.

Shares an example of successfully pivoting from selling land to building houses due to market changes, resulting in higher profits than initially projected.

Engaging with Audience Questions

Acknowledges audience interest in joint ventures and invites questions for further discussion on creative approaches within this context.

Personal Development Experiences

Marci shares her journey starting her own portfolio while also working on client projects, highlighting growth and learning experiences.

Mentions ongoing projects involving transforming properties into new titles as part of her professional development.

Financing Pathways in Property Investment

Understanding Financing Options

Discussion on various financing pathways for property investment, including private and non-bank lenders.

Emphasis on the importance of raising funds effectively to overcome serviceability issues after completing a few deals.

Common Investor Challenges

Many investors feel confused about where to start in property investment, often comparing themselves to others who seem more successful.

The disparity between successful investors and those struggling is attributed to knowledge gaps regarding market opportunities and strategies.

Introduction of the Level Up Property Course

Jeff Miles and Joe Tucker introduce their Level Up Property Course, designed to provide a step-by-step process for investing in property successfully.

The course aims to help everyday investors secure significant equity without wasting years figuring out the market independently.

Course Value Proposition

The course is not free; it reflects the creators' extensive experience and effort put into developing effective investment strategies.

Participants will gain confidence and tools necessary for building a robust property portfolio through guided mentorship included in the course.

Engaging with Community Insights

Acknowledgment of community contributions, such as Rebecca's idea of partnering financially while leveraging personal skills like landscaping.

Importance of vetting partners when investing money into properties to avoid potential pitfalls.

Funding Strategies for Property Development

Exploring Funding Methods

Inquiry into different methods used by experienced investors for funding deals, including personal capital and joint ventures (JVs).

Simplifying Financing Approaches

Marci suggests that viewing investments as buying and holding properties simplifies financing; preparation should begin early with planning approvals.

Cost Considerations in Development Projects

Discussion on costs associated with development projects, emphasizing that these can vary significantly based on location and specific project requirements.

Development Costs and Financing Strategies

Understanding Hard Costs in Development

The discussion begins with an overview of hard costs associated with property development, estimating costs between $50k to $100k depending on the site.

Typical statutory fees for a one-to-three block development in Adelaide are around $60k, with additional costs scaling at approximately $15k per block.

Demolition costs vary based on factors like asbestos presence, ranging from about $14k to $30k.

Financing Considerations for Development vs. Buy and Hold

A key difference in financing development compared to traditional buy-and-hold strategies is highlighted; developers can hold onto properties post-approval without immediate demolition.

Conditional approvals allow developers to delay demolition for up to two years while securing finances and potentially increasing equity.

Strategic Timing and Risk Management

Developers can strategically time their projects by waiting until market conditions improve before commencing construction, reducing risk exposure.

Holding a development application (DA) without immediate action allows flexibility in financial planning.

Capitalizing Interest and Managing Holding Costs

It’s possible to capitalize interest during the holding period, which can minimize overall holding costs if structured correctly.

Unlike traditional loans where full amounts are drawn down upfront, development financing may allow staggered withdrawals aligned with project progress.

Negotiating Long Settlements

The conversation shifts towards negotiating long settlements (18–21 months), emphasizing the human aspect of real estate transactions rather than just focusing on properties.

Successful negotiation involves understanding the seller's needs and providing value through service exchange rather than pushing for quick sales.

Negotiating Loan Settlements and Understanding Seller Emotions

The Importance of Negotiation in Loan Settlements

Effective negotiation is crucial for securing favorable loan settlements without overpaying. Understanding the seller's perspective can lead to better deals.

Building trust through problem-solving is essential; sellers are more likely to cooperate if they feel their risks are mitigated and fairness is prioritized.

Human Element in Real Estate Transactions

Real estate transactions involve emotional aspects, especially for sellers who may have deep personal ties to their properties.

Sellers often face significant life changes, such as downsizing or moving into retirement, which can affect their willingness to accept quick sales.

Strategies for Learning About Bigger Deals

Transitioning into larger real estate deals requires careful learning and mentorship; seeking knowledge from experienced professionals is vital.

Demonstrating commitment by actively engaging with mentors can open opportunities for learning about bigger projects.

Approaching Larger Developments

Gaining confidence in handling larger deals involves starting small and gradually taking on more complex projects as experience grows.

The principles of negotiation remain consistent across deal sizes, but larger numbers require a deeper understanding of market dynamics.

Key Considerations for Large Scale Developments

Larger sites entail additional complexities, including higher costs related to civil works and financing options that differ significantly from smaller developments.

Pre-sales become critical for securing bank funding on larger projects, serving as proof of market demand before development begins.

Understanding the Importance of Relationships in Real Estate

Building Connections for Success

The speaker emphasizes the value of small developments as a gateway to larger projects, highlighting the importance of networking with experienced individuals in the field.

A discussion about understanding human connections arises, noting that sourcing properties off-market can be challenging when relying solely on agents.

The majority of properties discussed are off-market, with personal relationships often leading to direct deals with landowners who prefer not to work through agents.

The speaker argues that human relationships provide significant leverage in real estate, especially as technology becomes more prevalent; people crave genuine connections over digital interactions.

Drawing parallels between personal relationships and professional ones, the speaker stresses that trust and understanding are crucial for long-term success in real estate dealings.

Trust and Relationship Dynamics

Trust is highlighted as a fragile element in relationships; it takes time to build but can be quickly lost, making relationship management critical.

The analogy of dating is used to describe forming partnerships with agents and brokers, emphasizing the need for compatibility and mutual respect.

A question from Gurav regarding private debt credit investment leads into a discussion about funding sources for development projects.

Funding Sources and Investor Expectations

The speakers acknowledge uncertainty around specific figures related to private credit funding but estimate that 40% to 50% comes from private sources rather than banks.

They discuss how superannuation funds and other investment vehicles contribute significantly to private lending within their projects.

When raising capital, lenders prioritize feasibility studies or case studies demonstrating project viability and risk management strategies.

Lenders also seek historical data on previous developments from borrowers to assess reliability and experience before committing funds.

Understanding Development Financing

Importance of Financial Structure in Development

Discussion on the significance of completion dates and profit margins in development projects, emphasizing the importance of financial structuring.

Mention of first mortgage security and the approach to blending funds within the capital stack, highlighting a preference for simplicity in funding arrangements.

Confidence in Funding Strategies

The conversation shifts to discussing recent deals, with an emphasis on showcasing successful projects to engage the audience.

Introduction of three investing books that cover various aspects of property investment, indicating a resourceful approach for aspiring developers.

Personal Journey into Development

Ross shares his background as a building designer, detailing how he began developing by drawing plans for a house in his backyard.

Reflecting on early experiences, Ross describes the risks involved and how he approached obtaining council approval without overthinking it.

Problem-Solving in Development Projects

Acknowledgment that challenges are inevitable during development; discussion about problem-solving strategies when issues arise.

Marci discusses a specific project where unexpected complications occurred due to easement issues not being recorded properly.

Managing Surprises and Feasibility

Insights into managing unforeseen circumstances during development projects; emphasizes conservative feasibility planning to mitigate risks.

The importance of teamwork is highlighted as they navigate through challenges, showcasing how collaboration can lead to effective solutions despite setbacks.

Understanding Property Investment Challenges

The Learning Curve in Property Investment

The speaker reflects on the learning process in property investment, comparing it to buying a first property where initial issues like moisture are often underestimated.

They emphasize that past experiences shape how investors approach new challenges, highlighting the importance of recognizing potential problems early on.

The discussion transitions into problem-solving strategies and invites questions about development and funding, indicating a collaborative approach to learning.

Case Study Discussion

A case study is introduced, focusing on a specific deal that involves sharing details rather than role-playing scenarios, which may not be effective for the audience.

Participants express enthusiasm for discussing an intriguing case involving complex elements likened to untangling Christmas lights.

Joint Ventures: Key Considerations

Marci emphasizes the necessity of clarity regarding roles and expectations in joint ventures (JVs), including best and worst-case scenarios.

Effective communication is highlighted as crucial; written agreements help mitigate emotional decision-making during challenging times.

Risk Management in Joint Ventures

Marci advises against entering JVs without a high risk appetite, suggesting individuals should gain experience independently before partnering with others.

She stresses the importance of managing both personal emotions and those of partners when navigating joint ventures.

Real Estate Development Insights

Ross shares insights from a real estate project involving subdividing land; he discusses unexpected challenges such as boundary issues with neighboring properties.

The conversation reveals complexities involved in property development, emphasizing thorough due diligence before proceeding with projects.

Acquiring Adjacent Property and Development Challenges

Miscalculations in Property Boundaries

Discussion on acceptable boundary measurements, noting a significant miscalculation with a 700mm discrepancy.

Speculation about the motivations behind the incorrect placement of property boundaries by previous owners.

Acquiring the Second Site

The second site was acquired off-market through networking with real estate agents.

The seller was an older man looking to downsize, which facilitated the timing for acquisition.

Property Condition and Development Plans

The newly acquired house required maintenance but was relatively modern, built in the late '80s or '90s.

Plans to build four new houses on approximately 1000 square meters of land were discussed.

Navigating Easements and Council Regulations

An existing easement complicated development plans; a light pole's location posed challenges for driveway access.

A cost-effective solution involving engineering rather than relocating the light pole was pursued.

Project Status and Market Considerations

Current status of the project is that it is on the market without further construction planned at this time.

Discussion on whether building out would be more profitable compared to selling as house-and-land packages.

Understanding Market Dynamics in Development

Risk Appetite and Market Preferences

Importance of assessing risk appetite and financial capacity when considering development outcomes.

Noted differences in buyer preferences within Adelaide; some prefer completed homes while others favor house-and-land packages.

Targeting Different Buyer Segments

High-end buyers typically expect fully constructed homes, while mid-range buyers may appreciate customization options during construction.

Lessons Learned from Development Experiences

Reflections on Funding Strategies

Participants reflect on their experiences; one suggests securing funding earlier in the process could have been beneficial.

Emphasis on leveraging financial resources more effectively to enhance development opportunities.

Understanding Tax Obligations and Borrowing Capacity

The Impact of Minimizing Taxes on Business Growth

A client raised concerns about minimizing tax obligations, highlighting that while saving on taxes is beneficial, it can negatively affect borrowing capacity due to lower reported income.

The speaker reflects on their old mindset of delaying tax returns until the accountant's deadline, which has led to complications in securing major financing for new projects.

Lessons Learned from Financial Management

The speaker expresses regret over not leveraging financial resources sooner and emphasizes the importance of paying oneself adequately rather than overly focusing on minimizing taxes.

When asked about mistakes, the speaker acknowledges a desire to have started property development earlier, realizing now that there are opportunities within their existing portfolio.

Exploring Development Projects and Their Challenges

Insights into Property Development

The discussion shifts towards sharing knowledge gained from various development projects, emphasizing the value of experience in navigating challenges.

Participants encourage listeners to engage with their social media platforms for more insights and updates regarding property development.

Key Considerations in Development Deals

A critical question arises about why some developments fail despite seeming promising; this leads to discussions around common pitfalls in property development.

Overconfidence in resale values and construction costs is identified as a significant risk factor that can derail projects. Proper due diligence is essential for successful outcomes.

Due Diligence: Essential for Successful Developments

Importance of Thorough Research

Emphasizing due diligence, participants discuss how understanding local regulations (e.g., bushfire resistance requirements) can impact project feasibility.

They highlight that unexpected factors like environmental overlays or compliance issues can significantly affect timelines and costs during development.

This structured approach provides a clear overview of key discussions surrounding tax obligations, financial management strategies, insights into property development challenges, and the necessity of thorough research before undertaking any real estate projects.

Understanding Risks in Development

The Importance of Risk Assessment

Understanding the risks associated with development is crucial, similar to conducting a pre-inspection when buying property for investment. It’s essential to identify and comprehend various risk factors involved.

A method proposed by Steve Ignite involves naming the risks, quantifying them, and assessing their potential costs. This structured approach helps in making informed decisions about whether to proceed with a project or not.

The phrase "name it, number it, and numb it" encapsulates the process of identifying risks clearly and determining their impact on the overall project viability.

By understanding what each risk entails, stakeholders can better prepare for potential challenges during development phases.

Ultimately, this systematic approach aids in deciding whether to move forward with a project based on an informed assessment of its associated risks.