Development completed: sell or hold?

I am reading different strategies.

Developers selling as soon as finished, people holding the whole development or maybe selling one/two and keeping the rest.
Not talking about big developments, more the typical residential 2 to 4 townhouses.

What`s your strategy?

I guess if you are around a 5% gross yield, at current rates even if you finance at 100% IO probably good to keep the whole lot, get equity out and replicate? Opposite side, if it costs you money to hold probably better to sell?

 

That depends. Could you keep and do another? Is there an opportunity cost to keeping?

Sometimes it is better to just get in and get out and keep developing as you can make much more money.

 

You might not be able to hold and replicate as your income from your job and rent may not be enough to finance another loan, banks are looking at 6 x your gross income. So if you have a salary of $150 and you pull in rent of $50 from your dev then your gross income is $200, banks will lend you $1.2m roughly max. Speak to a broker first, this will help you decide your strategy.

Hence why some developers sell all or some of the units in order to finance the next deal. There could be other factors of course to selling such as like Terry said the profits are instant and if high enough may warrant selling immediately.

It all depends on what you want to achieve.

Of course if you keep the units for one year you could be eligible for the CGT discount, but speak to your accountant about this.

Dave

 

I hold all my developments. I do not develop if I cannot hold.

Once the development is finished, you can refinance 80% of end value, you are taking out 100% of your personal money, to be used for the next project.

Serviceability will increased, due to new rents.

By holding the projects, even costs go up or you have to pay builders margin and project management fee. Still worth having a team on your side.

Right now, I am building 6 townhouses in 2 areas, I am holding all of them. and based on future realized rents, I am going to borrow to buy a site.

The beauty of holding is: in a couple of projects, you will become a high net worth client to banks.

High network clients are assessed differently by different banks.

 

If they are good properties and you done well. I would keep them.

No, GST and Capital gain to be paid.

By holding them you are a multi-millionaire and they will keep growing in value. I will post my latest projects, so, you know people out there are holding.

 

This one I have finished 3 years ago and still holding it. Its positive cash flow and refinance and got all my money back.

 

Four townhouse development, finished last year and still holding and refinanced 100% of the money back.

 

Finishing 4 townhouses, So I can hold them,

 

Starting 2 more, this month. I am going to hold them too. the list goes on.
Yes, we can hold them.

 

@Hari Yellina how do you do this without going over your servicing? Don’t just say high rents as high rents equal expensive dev with larger loans. How much debt do you have? If you have lots of debt you are not a multi millionaire, the banks own your property.

 

Asset Value - Loans = Net worth.

1) Due to my high net worth, I am into Private banking space,
2) 80% LVR, means, I got 20% still sitting there.
3) I have other investments, still waiting for development.

It is possible to hold, that's the point I was making,

and If I can keep holding them for the next 10 years. wouldn't capital growth make me 10 times over millionaire?

This thread is about Sell or Hold.

I give 10 ratings for holding developments.

 

Servicing is fine due to rents.

Its the DTI, which is a pain. But banks will overlook that for me.

 

Personally I'm a hoarder and many of my clients are because sometimes it's "cheaper" to access equity/deposit for project #2 from project #1 than sell, pay GST and pay tax to ATO.

Everyone's situation is different though and it does depend on your personal finances, strategy, risk profile and the market. If the market is shaky then some people will want to sell and pull out, if they don't qualify for a new loan they may need to sell some or all, if their SANF doesn't allow them to have 2 large loans then they may need to sell etc etc

 

Of course, that's the individual circumstances.

I like to hold them off as long as I can, It works for me.
I buy shares, I hoard them
I develop properties, I hoard them.

The strategy, I use, worked for me and a lot of people I know.

 

You're suggesting a solution that sounds unique to you, how would that help the OP?

Is your development already completed?

I dare say you should know whether you plan to sell or hold before you undergo the development IMO, that way you can get tax advice, accounting advice, and develop based on an outcome and a plan.
You then plan as a worst case scenario and see if you can handle the risk of having to hold the development if the market isn't there when you complete them.

If you plan to hold, you should think what your next step will be after it's completed, do you want to go again? Can you access enough money? Do you want to buy a PPOR? Will you still be able to?

Many questions to be asked and addressed.

 

It's not unique to me.

Most banks will not loo at high DTI. But some banks do. I just kept asking and a couple of them said yes. So, I have started my application last week.

Half of them are.
4 will complete and I can hold them, its through bank west. (3.17% construction loan)
2 Will finish in May 2021. I can hold them through Macquarie. (2.99% construction loan)

I am not selling, So, the market factor doesn't come into play.

Yes, I am in the process of applying for 2.5 million for buying development sites.

While the properties are in the process of developing, I can apply for DA for the new one I purchase.

I never own PPOR, I live in Unit, which is cheap to rent. been in the same place for 16 years. I have always rented.

Yes, I will be able to buy a PPOR anytime.

 

My questions were for the OP, as I quoted them above the questions.

 

Finance is very very important to do what I do.

You need to work closely with your brokers.

 

If you are claiming GST via your quarterly BAS during the build then you should stick to your intentions to sell but you can talk to your accountant about reversing and paying back should your circumstances change and you want to hold.

 

I am very confused...... does this mean its easy peasy to source construction finance with Macquarie as they look at the deal, not servicing?