What is the option land and how it works to grow your developing company?
Some of the medium major developers have secured their steady growth through options to purchase a land through a convey for the right piece of property.
An option agreement is when a Developer reaches a landowner and they both make an agreement over the piece of land.
One of the agreements could be to grant to the developer the exclusive right for a defined period of time to buy a property usually at a fixed price. This agreement usually implicates a fee payment to secure the deal.
During the agreed term, the property will not be able to be sold the developer then might exercise his option to buy the property or let the option expire.
There are various forms of options depending on the agreed terms.
Option land brings the benefit to the developers to make a land banking strategy and mitigate their risk in case the market or the conditions are not favourable for the developer, that’s why they pay for this type of agreements.
This also gives the opportunity to the developer to identify whether if the land is subject to a subdivision, which would increase the value drastically, another benefit is that it brings clarity to the investors in terms of having the time to make the proper benefits analysis. It is important that you make yourself aware of what are the council regulation for the potential subdivisions on the specific land, e.g. frontage, lot sizes, access, etc.
If you are the land finder create your own network of local agents nearby to include them in your land hunting,
You can also use online resources like
• Corel Reports
• Industry reports.
You can also look for some assistance from the local council as most of the cities have their own land and development office that sometimes offers free services such as mapping service
It is important that you include in your cash flow, costs and projections of some investments such as:
• Brand creation.
• Presell promotion for the real estate development.
• The financial cost of the plan.
• A plan of action if the subdivision does not work?
It is important that you keep in mind the size of the project it is important that you have the right fit for that land whether it becomes a huge project which will require a lot of equity, bank finance, and some other funds. But also consider if the project has the potential for the right ROI considering the setup costs that we just mention on the bullet points.
Another thing is to understand that you might come across a small land and maybe it is the kind of project on which basically you would split it into two lots, which might not be so lucrative, but it could be a secure move to secure a bank loan for the size of the project and optimize to increase your revenue.
Let’s review some of the benefits of doing option land subdivisions that is one of the best strategies in the property investing strategies, let see some of the reasons.
It is simple no matter if you are doing it through an intermediate investor as well as a beginner but don’t forget to get some support team like Empire Leads to help you analyze the whole project.
This strategy requires a lot of support from your town planner to effectively do most of the work, which means that all of the hassles will be on his shoulders and not on yours.
The risk in this option is not so high as you might exit out of it in many ways; also the Australian regulation allows you to make a variety of project with high returns.
Keep in mind that the area of the subdivision is a key element to make it right and analyze different variables such as the market prices in the area and the segment you will attack, and make sure you make some numbers before making your decision.
Make up your due diligence and review the financial viability, through this analysis you will be able to see compare different sites quantitatively.
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