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Investment Finance & Strategy

Discussion in 'Property Finance' started by Bare_Essentials, 14th Jun, 2016.

  1. Bare_Essentials

    Bare_Essentials Member

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    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.
     
  2. tobe

    tobe Well-Known Member

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    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?
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Heaps!

    This is like saying I want to perform an operation, is there any medical implications to be aware of.
     
    York likes this.
  4. Bare_Essentials

    Bare_Essentials Member

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    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.
     
  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    My mentors taught me that hope is not a strategy.

    on the surface the only items that wont have a builders margin will be the works you are completing yourself.

    im not saying it cant work( depending on the profit you expect) im saying get your expectations sorted.

    Finance in theory would be the easiest bit

    ta
    rolf
     
    MsAli likes this.
  6. Greyghost

    Greyghost Well-Known Member

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    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?
     
    albanga likes this.
  7. albanga

    albanga Well-Known Member

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    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.
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    bye bye!
    But good point.
     
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  9. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    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
     

    Attached Files:

  10. tobe

    tobe Well-Known Member

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    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.
     
  11. albanga

    albanga Well-Known Member

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    haha im trying to turn my inability to spell into something witty but I got nothing.
     
    Tranquilo likes this.
  12. Bare_Essentials

    Bare_Essentials Member

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    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.