Investment Finance & Strategy

not sure if this is the right place in the forum to post.

We have about $250-300,000 equity in our place currently and I am interested in releasing that to invest. The strategy we are looking at is to get an ABN, register as a developer and then buy new release land in estates, then we would use a builder (eg. McDonald Jones) to build the initial part of the house, complete the other parts such as upgrades, driveway etc ourselves and then sell the complete product to someone wishing to purchase a house and land package.

Firstly what's the best way to finance this? Secondly having never built before, what would be the process and what sort of costs so we anticipate? I know to allow for the upgrades and Basix but anything else?

Any legal implications to be aware of?

Thanks in advance for the assistance.

 

Choose another strategy.

Most new estates are developed by large companies, who very rarely sell under market value.
Large project builders won't build for less than cost either.
Finally, the people buying your end product, why wouldn't they just build themselves?

 

Heaps!

This is like saying I want to perform an operation, is there any medical implications to be aware of.

 

I was hoping to make a profit by not paying the builders margin. Plus in Sydney at the moment property is crazy. I had a friend who made $150k in equity by the time they finished building which is why I thought it'd be a good strategy. I'm not saying to buy any old land but I was thinking first release land releases in popular areas.

 

Why risk what you have for something that has a lot more downside risk than upside?

To be honest, your friend probably only generated 20-40k of that equity himself via doing the owner builder bits, the balance of equity is simply from the boom at present. I would be careful not to confuse the two!
When the cycle comes off the boil it will be increasingly difficult to turn a decent dollar on this type of thing.

I had a mare catch a 1m Murray cod, doesn't mean I'm going to be able to go and replicate his feat.

But by all means if you had done a significant amount of due diligence, know your numbers inside out, then go ahead.
But if your mate is making $150k per site, don't you think the foremen and site supervisors of these land developments are onto the same thing?

 

Have to agree with the others that this is not at all a good strategy.
To get your friends profit Into perspective you need to be sure of all of the following:

• Costs to buy the land including stamps
• All construction costs

That will give you a base figure but then work out the timeframe of the exercise. If the whole thing took two years then as grey ghost suggested how much of that was simply market growth??
You could make more simply by lending using the equity you have, having little cashflow and building stress issues and have the EXACT same equity position.

What then potentially gets worse for your strategy over a simple buy and hold is does it having a selling component? If so then add in exit costs and finally if tryng to do it as a developer then how will the ATO assess it? Chances are buy buy 50% CGT discount.

 

bye bye!
But good point.

 

You will encounter the following tax issues
- GST
- GST may be claimed on the build etc
- Need to retain diligent records
- Inability to use the margin scheme (may lose 1/3 of profit IMO) to lower GST and increase profit
- Ordinary income tax applies
- No possibility of using the main residence exemption even if you do live in it

You may wish to look at my developer toolkit which includes a comprehensive guide

 

There's a lot of people in Sydney who made $150k over the last two years, who also got a rental income and negative gearing benifits. Finance is dificult for a house that's not complete. You would basically need to find the entire build with cash, as a lender isn't going to be happy funding a build to lock up only.

 

haha im trying to turn my inability to spell into something witty but I got nothing.

 

Thank you everyone for replying. It's been really helpful and reading through I believe my friend may have not disclosed everything so I appreciate the time everyone took to respond and guide me. We don't have experience in developing and were interested as Hubbie is a tradie and can do a lot of work himself. We've only ever renovated so our experience has been there.