More profit holding than Development

My experience with my projects in Melb( Since 2013-2014) has been that i would have made roughly the same profit if I just sold off with permits within 18 mths than to go through with the development.

What has your experience been?

Its just somewhat disheartening when you go through all the work and come out the same as the bloke next door who did nothing!!!!!

Mind you i cant really complain for I have over 10 properties that i hold!!!! Over half of these properties each made more than a typical small development. Easy money!!!!

 

Sure it's easy just to hold and wait. The money should come eventually.

You have to look at developing as a business though. In business you need a system you can replicate over and over to make money. If you can become a good developer you have a system that can work for you in a market that is going sideways. If you are making money in the flat periods you'll come out way ahead when a boom hits.

 

It depends on the property when you first purchase the title holding longterm once the rezoning compounding period comes in has worked very well for us but it also can work both way in any market..i was at a auction inner river side brisbane over 7 months ago,da in place 812 sqms block house in the centre of both blocks that property sold for 1.82 mill plus the add on entry costs and the people who bought this property where Chinese..
The property has just sat there for all that time took 5 months for the real estate sign to go down,now it's back on the market for 1-5 mill so it can and does work both ways..

 

A guy works his butt off building a business which he sells to GlobalACME corp for $30m. Another guy wins the $30m jackpot.

The first guy did something that was repeatable, learnt business/life skills, built a network of business/industry contacts and gained a reputation of success.

But yes I see your point.

I guess big profits come mainly from changing the utilisation potential of what can be built on the land (e.g. rezone, duplex, increase FSR)...

 

I have seen this before. My BIL developed 4 award winning townhouses on the Gold Coast and sold them all.

He was talking to his mate who had a very similar original property one block north. They both bought and sold at the same time. His mate made around the same profit as he did minus all the work and hassle.

I think @MTR has made good money selling with permits only? It's certainly a lot less work and hassle than developing.

 

Without doubt less work, however if I built I would have made more money, however it would have taken at least another 12-18 months where my funds are tied up, I would also be hit with GST on the build. I have funnelled the sales proceeds into other development projects. However, if I did not have any other projects I would have just built.

No right or wrong just what suits at the time and of course market conditions come into play.

 

Calling our office twice a day - then chasing architect and everyone else associated with design prices - I am sure it wasn't as easy!!

 

Land value is sky rocketing in Melbourne - I know what you are saying.

Couple of our clients sold or selling property with permits approved.

End profit is more or less same!

In nutshell, margin is on land component - not so much on build component!

(Unless you bought site at right price in 2015 -2016 )

 

I suppose you have to consider whether you would have sold it on completion or not. Had you decided to hold on completion then there is future capital gains that you are not getting if you sell with permits.

Selling with permits in Melbourne and perhaps other cities is attractive option. From recollection you do still need to be careful how this is treated in terms of tax as selling with permits is different in the eyes of the ATO than selling without permits.

In Perth things are rarely sold with permits - or sold for more like they are in Melbourne. It's considered more of a 'we bought something and now we can't afford to build it/up **** crick' type deal.

 

Yep, no market for DA, plans and permits in Perth, different beast in Melb, with right designs and market conditions they can be very lucrative

 

That's true @Westminster. There was a site near Belmont Forum on the market with approval for apartments. Numbers looked terrible to me. It looked like the wannabe developer got into trouble and had to dump it. Not good.

 

Me thinks there is no market for DA in Perth because far easier, cheaper to get these over the line and shorter time frame, investors not interested in paying for this.

As opposed to Melb, more work required, money and councils a much tougher gig. DA are gold

 

End values are not stacking up. One of my projects the land content went up 35% in 18 months but the units only went up 7-10% only during the same time. Yes i made profit more than my original projection, but still not enough to surpass the profit I would make if I just sold with plans and permits.

If i was to do feasibility buying the land now and with todays resale value, I be lucky not to lose my shirt.

 

Holding property also comes with a cost that is hidden. GST on the build becomes party creditable rather than 100% creditable. If it had been claimed it must be repaid.

 

Yet there will be developers jumping in and there is no money in the deal, I assume they are expecting to see further growth in end values, very risky business IMO

 

I think what you are doing is fantastic. In essence you are bench-marking yourself as a developer to understand your value add.

And by doing that comparison you are now asking yourself what you are doing and why you are doing it. You will then hopefully change your daily actions so that you get the desired rate of return (or acknowledge you are developing for the fun of it (?) or you want to build experience).

This is the first step in getting a family to run their investments like a business.

Awesome.

 

Agree
Also interesting I had a development project where my accountant stated I would make same amount of money if I sold block today without a DA, however it was my first building project and I wanted to learn the ropes so I built it and absolutely no regrets. No right or wrong, as long as you make money. Some developers lose money, some people don't realise this.

 

Fantastic. As long as you know why you are doing then no worries. And coming out break even on your first project is a big congrats.

And kudos to your accountant for calling you on it. So many blokes + girls are just yes men to make their clients happy. A good accountant will be gutsy enough to get you unhappy.

 

thanks, but I made around 24% gross profit on this project. What I meant is I would have achieved same gross profit without building

 

Curious how are end values holding out??