New trends in real estate project financing; new opportunities for contractors and financiers

New ideas create better quality of life and wealth

Rizal Philippines
June 9, 2017

I just had a trip to a Region I municipality.  It is a first class municipality with 130,000 population making it eligible for a real estate project.  The deal was if I say the site is suitable for the real estate project, the financier will buy the land, we enter in a joint venture.   All I had to do was say it is great for the project:   it will sell, and deliver cash flow and ROI to the lot buyer.  However, since location is the prime consideration for that type of project, (the two sites are 7 km from the town proper) I said no.   However, they pointed to me an alternative Plan C site which is flat, (does not need much development cost) and much nearer (only 3 km to the town proper)

Later during the day I met a politician contractor.  I thanked him for us working together for the last 10 years.  He supplied us with heavy equipment and transit mixed concrete (We currently have a million peso supply agreement)  And I gave him two suggestions:   to be co developer (ie that he will do the construction) and have a share of cash flow as developer say 10 to 20% of the amount for sharing.   (say 50 -50% jv, they will get 10 to 20% of our 50% in effect from 80 - 20% to 70 - 30%)

We typically talk of the usual equity by the developer and bank loans.  It need not be the case.  Some people with money look for better returns by being the land owner, and co developer.   The co developer, typically a contractor, may forego payment but be reassured of a recurring cash flow or income

I even encouraged him to go into a real estate project in his town for the same project since he can not be a local LGU exec forever.  He needs recurring income (say monthly cash flow) as what his friend of similar position did in our project.   His family (he is now deceased, a victim of political violence) gets nearly a million pesos cash flow a month That is a lot for a legitimate project where their only investment is the land

It may mean less income for the sponsor (us for instance) but we can shorten the gestation period of the project, lessen the work, equity on our part, (even less manpower for construction) we can sell faster early on and concentrate on our core competency:  the selling and marketing part. And beautifying the project (the product) presentation (COBS)

Creative financing schemes for an entrepreneur/businessman, investment ideas

New ideas create better quality of life and wealth

Rizal Philippines
May 6, 2017

An entrepreneur according to Simmons is someone who creates something from practically nothing.  HB defines an entrepreneur who has none or little resources at his/her disposal.

Having that in mind I realize that many of our projects/businesses were precisely that:   katas ng hard work and imagination.    Or bled out of stone.

Financing 

I was discussing with a company president, on a still pro bono basis about how he can finance his project when they are practically broke.   He was glad, the land will be used by them by a wealthy land owner, for practically no cash out.  Now how does he develop the project?

Well, he made kuwento that from his former employer. using their extensive network, they made fire sale in cash or cash within the year, to friends (and even screened who gets the offer ) friends at 50% of the listed price.   Then they sell the said investment to regular buyers  Well I told him he should do that since the banks will not lend to his proposed project.

Then the next phase will be to offer the project, after having brochures and scale models, and having made small developments on the project,  at say 10 to 15 % higher than the initial offering at cash or near cash basis (paid within the year) at launch date

Then the third phase would be to offer the project to the public at zero interest x number of years to pay with generous com to the sellers

Investment

We cant rely on the capital or money market for good returns.  The highest last week was 5.5 bond 7 years by SMIC.  Returns still range from 1/4 of 1% on savings, up to 3% on savings deposit and that is it.

Good investment can be made on your own products (especially if you are in real estate)

1.  Buy back of properties, by having right of first refusal in the contract.  You can buy back at a discount if the buyers/seller is in need of money;  Then resell to third parties at regular or higher price

2. Instant loans for those who need liquidity

3. Buy your own inventory at the fire sale, or encourage subsidiaries to do so.

4.  For the maintenance fund, the simple strategies can work:

     1.  Use the funds to buy out your partner;    make it big so that you can use this as MA later on

     2.  Discount the AR from the customers (offer discounts to customer if they cash out before the end of the term.

    3.  Buy your next investment using installment as buyers buy your product.  That is the only way you can even out your cash flows and come out ahead.