Development profit margin example

Complete development newbie here, but have been around the property game for a while now.

Can someone help me reverse engineer this development and work out a ballpark profit? Would this be considered a mid to high spec build? Anyone care to estimate what the build cost would have been? Assume 15% market growth in that 13 months.

6A / 6B Harley Street Sylvania NSW

Bought Feb 2020 $1.375m
6 Harley Street, Sylvania | Property History & Address Research | Domain

Sold March/April 2021 $1.8m x 2 - $3.6m
Sold 6A Harley Street, Sylvania NSW 2224 on 13 Apr 2021 - 2016910820 | Domain
Sold 6B Harley Street, Sylvania NSW 2224 on 26 Mar 2021 - 2016828825 | Domain

 

Looks like there timing was impeccable
But I would assume
Acquisition costs including taxes 1.45
Build costs approx 1.2-1.3 minimum double brick construction heavy build although didn’t have a pool
Interest and holding cost at least 50k
Agents costs 40-50k
Add GST on the sale of both as sold as new
Add CGT....
Still a pretty good result, but benefited significantly by the upside of the market. I also went through these and viewed.
Are you building or looking in the area to do something similar?

 

Thanks for the reply. So about $450k before CGT. But have benefited from the market lifting 15% also.

I’m looking for a PPOR in the Shire and came across a duplex block so was curious whether the numbers stack up or if I should not worry about it and let my IPs just do their thing over time and concentrate on my day job.

 

And how does gst impact profit? You dont add gst. You deduct it? There isnt cgt in a development.

 

Lol
Thats not double brick just rendered single brick (would loose a lot of width if double brick)
Would say construction as 8-900k
Even at a 1.05 mil including agents costs and all other costs they would have made 1.1 mil

Had they used margin scheme GST should be around 100k (will be slightly more as not everything is credited) and will pay income tax marginal rate of the entity afterwards. Either way income tax should not be discussed as usually people do not go around saying how much money their salary is after tax.

As long as you have proper tax planning (even if not the best plan) tax should be the least of worries. In most cases if your paying tax you should be happy as the project was a profit

 

Are you a builder? Would be interested in some local pricing if you are interested, have one within the area this was built.

 

No, im not a builder but do usually have something being built.

Positive is I think the area is good for knockdown duplexes (not a lot of Sydney is either financially or practically but the shires def at the sweet point). Even a project spec would do ok as its part building part location. Sometimes this is easier for first timers (or non artistic people like me).

Before you go any further make sure your lands large enough with right frontage and then can stormwater drain to the road of if you have access to an easement. If not this will be your major hurdle.

 

Thanks for the heads up, got a DA going in shortly. Exciting times.
Hope your doing well out of it.

 

The duplex at 6 Harley St were sold are higher price than most freestanding house on around 500 600 sqm block (but bit older type), is it normal for new duplex to sell for more than an old house ?

 

In this area a duplex usually achieves more than an old house

 

The sales blurb says ‘double brick’.

 

Doing some back of envelope calcs for subdivision in my area (Bayside Melbourne) I've been coming to the conclusion that just splitting land with building permit would give the greatest ROI especially considering the time frame.

It seems to me that building dwellings would potentially be marginal increase to profit or at least a fair portion of additional profit would be going to the builder.

Currently sitting on 720m2 with 18m frontage north side of street.
Exit strategy has always been via a subdivision and had assumed we'd be maximizing the usage with a double storey and high-end fit-out.

 

Make sure GST and taxes are part of the calcs. Vacant land sales cant use a main residence exemption at all

Sometimes selling the unsubdivided and unchanged land with a DA means the sale is not subject to GST (as its existing resi and not vacant land) and also can be a discount gain rather than isolated profit making which gets no 50% discount. Slightly less hassle inexchange for a minor sale price reduction but it is "ready to develop" for a buyer.

 

So just sell it as existing house with a DA?

I presume that would really need to be a maximised plan (double storey etc) rather than a minimal approach which may be the easiest path if actually dividing and selling individually. So the buyer doesn't need to reapply for what they actually want to build.

 

This is a 30%+ margin, probably 35%+, + builder margin if owner builder. Developer would have done well and made ~$850-$1.1 after GST. Sites like these will cost much much more in todays market though.

I think build will be a fair bit lower than $1mill (high ceilings, extra windows would add to cost...if double brick than likely above).

Really high level feaso.

 

For this kind of duplex development and sale, can someone help compare scenarios of doing it under personal name or a company in terms of profits? Seems like neither scenario will result in CGT exemption, but with incurring GST. Yes I'm also a newbie in terms of development.

 

talk to an accountant. Company would pay tax at a company rate and individual would pay at individual rates. Profit before tax is still profit before tax and cant see why the owners name would change that. But a company may have advantages after tax. Hard to say without seeing your full financials for that year (or projected financials)

If your developing to sell both a company and individual will have to pay GST (and if reporting correcting claim credits as you spend)

 

Development profit in a company is only part of the story. If the owner takes any profit out of the company its a dividend and subject to further tax.

Our developer toolkit explains more. A company can be beneficial to allow minimal tax on dev and then allow the profit to roll into the next. Individual ownership has some problems since all profit may land on the one person; A trust can sometimes assist splitting profit etc.

 

It should be the exact same profit - generally - before tax.