Agri Land of 6.3 acres with 1.3 acres converted and approved to build 17 units 3-storey shop house

Agri Land of 6.3 acres with 1.3 acres converted and approved to build 17 units 3-storey shop house

Project Cost: RM 5,500,000.00

Amount Invested : RM 500,000

Amount Required : RM3,500,000

Knowledge / Experience Required:
strategy
finance
sale & marketing

Proposed Investor’s Role: full time

Industry: real estate

Project Stage:
early expansion
seed
start-up

EXECUTIVE SUMMARY:

Company History:

*Agri Land of 6.3 acres with 1.3 acres converted and approved to build 17 units 3-storey shop house
*I have been an International Sales/Marketing Manager for a US firm since 1996
*First time into own business start up which is not a problem
*Wish to develop this land along Kuala Krai – Kota Bharu main road into a mixed development giving a total GDV of RM 19 million (9.35+ 9.65 million)in 4 years
*Will rope in 2 children with Business degree and Finance/Banking degree when the project takes off

Product / Service Description:

*To develop a 6.3 acres land into a mixed development
*Had got approval from MD Kuala Krai for a 17 units 3 storey shophouses
*1.3 acres are approved for the shop houses
*4 acres left planned for residential 18 DSTerrace @310K, 10 DS Semis @430K and DS 8 Bungalows @560K for a total cost of 8 million
*GDV for residential is RM10 million
*Profit will be about 40% to 80%.

Business Opportunity:

* Freehold Land is scarce in Kelantan and swiftlets are abundance
*Shop houses are being converted into Birds’ Nest Homes in Kelantan
*Kuala Krai has highest number of swiftlets roosting and more are coming due to proximity to mountains and abundance of insects specially for swiftlets
* Though slow in development, the businesses are in infancy and growth in 2 to 5 then 6 to 10 years is exponential
* Real estate in South Kelantan will run up to RM 1 billion in the next 5 years where 2000 shop house are built and 4000 more residential houses are been applied since 2012….

Revenue Model:

* Gross Development Value is about RM9,350,000
*Gross Profit around RM3,950,000.00 after RM5,400,000
*Giving a ROI at 73% on cost / 42.5% on sales
*Land, roads and building cost is about RM4,700,000 and Public Utilities about RM700,000
*To sell the shop houses off-the-plan to individuals with commercial banks financing the buyers

Management Team:

Gen. Manager: Richard Tan- International Sales and Marketing for 18 years
Financial Controller: Jessamine Chong- Handling accounts and pay for a multinational for over 20 years
Administration: Janice Tan – has 2 years work experience in Human Resources and Recruitment
Sales: Victor Tan – Currently in University South Australia – Will assist Richard Tan in Sales & Marketing
Technical Manager: Richard Tan
Site Manager: To employ a new personnel
Site Sup Raymond Tan- A technician with experience in plaster ceiling and mechanical works

Current Status:

*I am a commission based sales agent and consultant for Bradford White Company, Chicago USA.
* Earning about RM100,000 per year but travels and hotels takes about 20% from the sum.
*The countries I sell steam boilers, water heaters and hot water boilers are: Singapore, Philippines, Thailand and Indonesia.
*Working for people has its upside but not giving the profit satisfaction as compare to business development

Funding Milestone: Basing Total Dev Cost of Money Out over 3 Years @ RM5,400,000

1. Year One—1st Month to 12th Month
Seed fund and – about RM300K to cover the management employees salaries, company vehicles usage, utilities, Insurance, site workers and licence.
Office equipment, chairs, lightings, tables and boards around 20K
Erection of Site Office – About 70K
Land and road clearance – 650K
Foundation and ground beam- 550K
Level Ground and Level 1 work – 950K

*Year Two– salaries and office expenses and others 300K
1st to 6th month
Work on Level 2 & Level 3 –950K
7th to 12th month work on Level 3 and finishing -950K

Year 3 —
Salaries and office usages – 320K
Finishing -340K

Total for 3 years:5,400,000.00

Business Valuation:

#The Investor/s can take over the development project wholly and will OWN the 17 shop houses outright. The owner will take cash of RM 1,300,000.00 when signing over the land title
# The Owner and Investor can go on JV on 30:70 basis, i.e. the owner takes 5.1 units @ 4 inter and 1 corner unit shop houses while the Investor own the 12 units outright. The Investor development cost at RM55/ft for each unit will be RM374,000 i.e. excluding the office and employees costs
# Selling each unit at say average 550,000 will bring in RM6,600,000
#Owner is also happy to get investor to developing 7 units of the frontal row along the main road. The costs and the terms are similar ratio to work on.

Expected Return On Investment:

#Expected ROI on Sales if Investor develop on his/her own is 42%
# Expected ROI on Cost of construction is 73%
* ROI on Sales if taking the 17 units on his/her own is 38%
*ROI on Costs is 49% to 53%, i.e. 12 units own and 5 units to owner

Investment Risk and Mitigation:

*In all investments there are risks and gains. Just like me buying this piece of land and negotiating for the neighbouring lot for I see the potential of growth
*Real estate is no different as the market may be dictated by trends, government policies, importing countries, politics and even bad news like bird flu (even though it is not affected the Swiftlets) and stability of the country.
ROI on costs is determining factor as in this case we are looking at return of at around 16% to 21% per year.
Shophouses are a realty which is a long term investment and capital gains are not always the rosy factor.
Shophouses being commercial could be turned into hotels, small shopping malls, entertainment outlets beside the usual cars & motorcycles shops and showrooms.
It is a calculated risk but the upside is very high to let it go.

Exit Strategies:

@Is the Investor is looking at capital gains, long term investments or plans for other expansion?
@If for capital gains, there is no guarantee as at worst, the investors will recoup the money.
@The maximum value of each shop house is about RM374,000 on JV and RM350,000 when doing the whole project on his own
@If for long term, this project has the opportunity to take off as owner wants to build residential homes for a GDV of over RM 10 Million and owner will surely continue the partnership to continue with investor
@Expansion of development will be the battle cry as owner children will take over the business in the next 5 years.

CONTACT INFORMATION

Richard Tan ( tandick@gmail.com)
Company Name: Richmond Capital Sdn Bhd
Postal Address : A-3A-3A, Villa Orkid Condominium,
Bukit Pelangi Utama
State : WP. K.L
Post Code : 51200
Country : Malaysia
Telephone : 60122117613
Mobile: 60122117613

 

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