There are many potential investors in the Perth market who have the appropriate land to develop, however lack the capital to be able to finance the project alone.
A joint venture is an attractive option for both client and builder when the situation is right. That is, the land is free hold i.e. the client has no mortgage on the land and the client cannot fund the project on their own.
In this situation, Vision One Projects can enter into an agreement with the client whereby we will deliver the build component of the project for an equity share of the profits. This is a simple calculation based on the value of the land and cost of the build.
Let’s look at a simple example:
You own a block of land that is currently worth $400,000 and would like to enter into a joint venture development project to build a triplex. The cost to build each of the 3 units is $200,000.
- Land Value (held by the client): $400,000
- Build Cost (funded by Vision One Projects): $600,000
- Total Project Value: $1,000,000
In this example the build cost is 60% of the total project value and the land component is 40%. So in this instance Vision One Projects would receive 60% of the revenue and the client (land owner) would take 40%.
At the end of the project each unit sells for $450,000, giving a total revenue of $1,350,000.
- Total Revenue: $1,350,000
- Vision One Projects: $810,000 (60%)
- Client: $540,000 (40%)
The attraction for the client to enter into a joint venture is the ability to unlock the equity in their land with the added security of dealing with a trustworthy builder who has a vested interest in delivering a product that will appeal to buyers.
If you would like more information on entering into a joint venture property development then we welcome you to get in touch.