Case Study - Mr & Mrs Smith

Case study 2:

A development contains 20% developer’s profit
This is earned as developer funds the building.

You, via the prospectus, fund the building.

You earn the 20% developer’s profit tax-free that’s if you don’t sell of course.

Land $2.4 M build cost $8 M fees/charges ($0.4m $2m profit) = $12.8M total

Mrs & Mrs Smith were to Joint Venture Club.

Unit is $480K @ 60% JV fee           =   $288K is paid into the prospectus.

  1. Completion is 12 months JV profit =     $  96K = ⅓ return on $288K paid in
  2. To buy unit, they only need to borrow      $ 96K

    $480Kunit is owned by Mr & Mrs Smith
 

Outlay summary:

$288K → prospectus $96K Loan @ settlement = $384K

Q.      Why JV is limited to 30% of units?
 
A.      If all were bought by JV, this would leave $0 for Club and Club Builder.

Q.      Who would do all the work? 
A.      30% only will be JV.  70% will be held for sale in 12 months at possibly higher prices.  JV partners get a genuine developer’s profit.