For Developers: How Does Opes Stop Contracts Falling Over During Due Diligence?

LM b W

Laine Moger

Journalist and Property Educator for 6 Years
Introduction

Developers need unconditional contracts. If you don’t pre-sell 50-90% before building starts, the bank’s not going to give you money to complete the project.

So there’s no point rejoicing that X amount of properties have been sold off-the-plans if 75% of contracts fall off during due diligence.

Contracts that fall over cause two issues for developers:

  1. It slows the project down – if a purchaser ties up a property under contract for 2 weeks and falls over, then that’s 2 weeks you could have spent with someone who would have purchased.
  2. It costs money – every time you put another property under contract with a purchaser you need to pay the lawyers.

In this article, you’ll learn what Opes Partners does to minimise the number of contracts that fall over during due diligence, so you can get spades in the ground more quickly for your project.

Reason #1

Reason #1 – We Only Work With Educated Investors

The one thing we do best at Opes is create educated investors. Not only are investors less emotional in their purchasing decisions (so less likely to drop off), but educated investors will only put a property under contract if they are serious about purchasing.

We create this community of educated investors in several ways:

When investors come through our property coaching process, we use our in-house software, My Wealth Plan, to create a detailed property investment plan for them.

We help them determine which properties are the right fit for their situation and the areas that will suit them based on their ability to borrow and their current portfolio.

By the time an investor first looks at properties with us they know:

How much they can borrow; the right strategy for them; and the properties that will fit with that strategy.

That means they are in the position to make an investment decision.

Reason #2

Reason #2 – Investors Work With Financial Advisers To Project Manage Them Through Due Diligence

When an investor works with Opes during due diligence they work with a Property Partner (more often than not, a financial adviser) and a Customer Relationship Manager to guide them through.

This team works closely with the investor to make sure they’re completing the necessary tasks so due diligence is successful.

83% of investors that one of our property partners helped went unconditional between July 2020 - December 2020. That compares with an industry average of only 30-50%. As a whole, 67% of the investors we work with at Opes go unconditional on a contract.

This is because we work with investors who want to grow their property portfolios, and we only work with developers who build high quality investment stock. We then hold our investors’ hands through due diligence to ensure their success.

Reason #3

Reason #3 – Investors Work With Professionals Who Understand Turnkey Properties

Investing in off-the-plans turnkey properties is different from buying an existing property off the open market.

That’s why our investors tend to work with selected professionals during due diligence who understand new-builds. We have several preferred mortgage brokers, lawyers, accountants and insurance brokers.

For instance, all the lawyers on our top 5 solicitors list understand turnkey contracts and can advise their investors accordingly. We’ve found that lawyers who don’t specialise in new-builds tend to give poorer advice to investors, which leads to higher drop-off.

Reduced drop-offs benefit both parties in the transaction. The investor is only spending time and money doing due diligence on properties he or she can realistically achieve to own, and the developer does not have to worry about contracts falling through because of financial issues.

Reason #4

Reason #4 – Our Investors Take the Emotion Out Of the Decision

Developers will be familiar with some of the problems or headaches that can arise from buyers being too “hands-on” when it comes to new-builds.

For example, if a buyer makes regular site visits, changes their minds often, wants changes to the building, or questions the build’s progress more than what’s reasonable.

You can understand an investor wanting to have confidence in the build, of course, but an investor who oversteps the mark can greatly slow down progress.

Engaging Opes removes this hassle for two reasons:

  1. Opes becomes the conduit between investor and developer, so you as a developer have fewer people to deal with. (One developer we spoke to says this factor alone makes working with Opes worth it)
  2. But, more importantly, our investors take emotion out of the decision.

Even experienced investors are prone to making emotionally charged decisions. That’s why we constantly work with investors to remind them that their investment is made for financial reasons and they need to make decisions based on the numbers.

For example, let’s say an investor decides he wants a newer or better-looking kitchen than originally planned.

More often than not such a decision would not result in higher rents on the other side of the build. So, spending the extra cash would not be worthwhile and could be more trouble than it’s worth.

Our Property Partners can advise against the investor spending that extra cash. This streamlines the process for both parties.

Benefits

Does This Really Make a Difference?

A developer Opes works with says the lower drop-off is a “big plus”.

Yes, he pays higher fees for working with Opes (compared with having a team in-house), but it lowers overheads greatly. It evens out to be about the same in the long run.

He says investors are being “vetted” in a sense. So, the very fact they are signing the contract means they can afford it. “It’s a big reassurance.”

LM b W

Laine Moger

Laine Moger has been a journalist and reporter for the last 6 years. She previously worked for Stuff, The North Shore Times and Radio NZ. She has a Bachelor of Communications (Honours) from Massey University and a Diploma of Journalism from the London School of Journalism.