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Sell or hold at completion

Discussion in 'Development' started by Bitsmisin, 13th Aug, 2015.

  1. Bitsmisin

    Bitsmisin Member

    Joined:
    11th Aug, 2015
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    Location:
    Perth
    I thought I would post my first topic (long time reader). Looking for opinions on the following situation but have talked to many professionals so far:

    Own PPOR outright.

    Developed triplex about 4 years ago, currently cash flow neutral at 80% LVR (refinanced recently to pay for DA works)

    Top tax bracket income, solid job (one income, family of 5), cash reserves.

    Have block with DA for 5 apartments and another block with DA for 8 apartments.

    All property in own name, not GST registered or in a company (yes next purchase should be in a company)

    I can develop 5 apartments now without presale and have started working drawings, but the other 8 may require more funds.

    At completion of the 5, should I:

    · Sell all 5 apartments, cop the GST hit but release funds.

    · Or sell all 3 villas (soon at the 5 year mark) and keep the 5 apartments for 5 years.

    · Both would release similar equity to start the 8, again hopefully without presales.

    I am comfortable with owning all 13 (income, max depreciation, easier to control, possibly discount operating costs, lower end of rental market, not governed by market at completion) and slowly selling them at the 5 year mark onwards to get them out of my name. Any further development plans would be through a company but I would want a 2 year break after this to be honest.

    I haven’t mentioned numbers yet but seeing ideas first.
    Thanks.
     
  2. Perthguy

    Perthguy Well-Known Member

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    I don't know you situation but if I were deciding for myself, I would look at my goals, what strategies I need to achieve those goals, whether keeping or selling would help achieve my goals and also consider capital growth. Tax strategies are something else to consider - will you be better off (after 5 years), selling the triplex in one financial year or spreading the sale over 3 financial years.

    The other thing to consider is ATO treatment of the build and sale. If it was considered you built the triplex to sell for a profit, that is one kind of tax treatment. If it was considered you built the triplex to rent for income, and then subsequently sold for some reason, there may be a different tax treatment. I have no idea what the tax implications of this would be, but it is worth considering futher.
     
    Leo2413 likes this.
  3. Azazel

    Azazel Well-Known Member

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  4. Perthguy

    Perthguy Well-Known Member

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    https://www.ato.gov.au/Business/GST...t-to)/Input-taxed-sales/Residential-premises/
     
  5. mrdobalina

    mrdobalina Well-Known Member

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    Can you do an equity release (line of credit) instead of selling? This could provide the funds for the 8 apartments.
     
    Leo2413 likes this.
  6. Ace in the Hole

    Ace in the Hole Well-Known Member Premium Member

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    I'd say hold if you can.
    High income with high depreciation is a good combination.
    With cash reserves, if you can afford to hold, then why not.

    We did this a few years ago in Brisbane.
    Built 5 townhouses, kept all, refinanced.
    Built another 6 right away, concurrently actually.
    Kept all again and refinanced to draw cash out again.

    High rents, never vacant for the past few years and high depreciation.
    Works well.

    May consider selling some after the 5 year GST window passes, but don't really need to unless a huge deal comes along.
     
    mrdobalina, OC1 and Leo2413 like this.
  7. Bitsmisin

    Bitsmisin Member

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    Perth
    Thanks all, good to know someone else has done similar. Selling in different years won't have a big impact as I am still in the top tax bracket and not near retirement. Was thinking of selling for the CGT to offset the year or two of interest payments during the development construction with no rent. Just because it will be a commercial loan, doesn't mean you have to add the interest to the commercial loan amount right?
     
  8. Richard Williams

    Richard Williams Buyers Agent - Southeast QLD Business Member

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    Loganholme, Brisbane
    Is there no GST payable if the sale is 5 years after constriction?
     
  9. Scott No Mates

    Scott No Mates Well-Known Member

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    Get tax advice about registering for gst. If push comes to shove you can sell and claim the gst credits. It should improve your bottom line if you've counted gst already.
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You have paid off the main residence loan and are on a good income. Do you need a lump sum? Or do you need income?

    I would be inclined to keep for now.