At a recent training program I ran one of the students asked how to make money in development when you do not have any money. I was surprised. The answer is so obvious it's not funny; yet people everywhere ask this question.
Let's take a look at a hypothetical situation. You've done your research and identified a specific demand in your suburb, for say units. There is a great site near where you are renting; a nice little 6 pack will fit on it and it's zoned ready to go. It's going to make about 35% profit on cost. You have $ 5,000 to your name and a $ 15,000 credit card debt. Your car is slowly falling apart and you're working for a consultancy firm in the industry. What do you do?
Some say say take the $ 5,000 and hit the casino or the track but that would be monumentally stupid. There are so many options available to you it really is not funny.
Hang on, what was that word; "option"? That's your first point of call. Maybe you could option the property? OK, so what does that mean? Basically it means signing a contract to purchase the property, but not now, later, much later.
You have $ 5,000; you can pay a lawyer to prepare an option agreement for you and to pay a $ 1,000 option fee to the owner. Would the owner accept a $ 1,000 option fee? That depends on so many things but if you can negotiate this you have a development site; if you can not then you have nothing; the choice is yours. What would you do?
But before you go too far down the option track you need to find out if the property owner is willing to dispose of their property in the future. If not then forget about an option agreement.
Let's say that the property owner knows their property can be developed for a hefty profit and refuse to option it but still want to talk to you. You're wondering why, but they are waiting for you to make an alternate offer; a joint venture arrangement perhaps?
Think about it; you have a development site without having to pay for it. But you have to share your profit. What would you do? It's very simple yet again is not it? Get your lawyer to draft the development agreement.
Congratulations; you now have a development site for basically no cost but only one small problem; you do not have any money to develop it. Hmmm, what now?
A couple of alternatives come to mind. First, you could sell the development rights (assuming your agreement allows you to do this) and pocket some cash for your efforts. Second you could do a joint venture with a developer. Now that you are in control of the site there will be many people who will want to work with you.
My favorite book is "Think and Grow Rich" by Napoleon Hill. All you have to do is "think". Happy thinking!