Hi, I have a development project of 4x townhouses completing in a few months. I have been advised to sell them all and take the cash. however, it looks like keeping one loan free thus cash positive, plus returning all my development expenses is a possibility. I'm curious whether there are any negatives to this approach which I cannot spot? Is it more common to cash in entirely? What do financial institutions favour when it comes to asking for another loan? Plan is to do another development. Rinse and repeat...
It depends - if income is required to service, keeping one for income might help you get the loans you need for Dev no 2. Just depends on your situation.
Thanks. What other factors are there? Income wouldn't necessarily be required to service the new loan but would defo help. Cash on the other hand would help buy more. So I guess the comparison is cash in the bank (from sale) versus cash from refinancing the held property.
Collecting the assets can certainly help as you go onward with developments as this will give extra cash flow to support the development and an equity base. There's no one right answer - it will come down to your personal circumstances as to what's the best path. Overall I don't think any one way will impact significantly in your ability to borrow, so might be worth speaking to your accountant as to whether there's a preferred pathway from a tax perspective.
Also consider the tax effect of selling all in one FY - might be more effective to spread them out. You need some specific tax advice as there may also be GST considerations and so on.
In my career I have met builders / developers about to reach retirement age who did developments and always sold everything - and had nothing to retire on. I also met those who kept something from every development they ever did and ended up very wealthy.......this has also worked for developers like Harry Triguboff who reportedly keeps a whole floor of units or a penthouse from every development he does.
Personally I prefer to hold some and sell some, The ones I sell is to reduce debt, and realize profits to use at my discretion and the ones I hold are to make sure my asset base is constantly growing. I see the development/sell as the business and the development/held assets as the investments/wealth creation.
Have you factored GST and tax into the sales ? The treatment will affect the calcs and profit that is then subject to tax. And do you understand the impact holding them will have on GST on build costs etc
Some have already been mentioned items below. But for me investing is all about what will work and how to get to the end goal in shorter time frame with less risk Some considerations GST if you sell Market conditions? where is it today.... is it starting to soften? still going gangbusters? If you hold what is the potential growth over next 3 years? How can you utilise this money to make more money? More cash in your pocket more options?? Will holding effect servicing of future loans On the flip side I love reducing debt its liberating MTR
