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Strategy check

Discussion in 'General Property Chat' started by JessicaP, 3rd Feb, 2016.

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  1. JessicaP

    JessicaP Well-Known Member

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    Hi all, another strategy thread :)

    Just working through some stuff and thought I would tap into the PC brains trust.

    We have been building a business for the past few years with the key aim of getting into real estate, which has been successful. Company is making ~$100K per year and banks are happy to lend to us. The next stage is to step out of that business (probably by selling it, but there are other options we are exploring) and start making a "wage" from real estate. This is how we plan on doing it:

    Currently we are moving houses from cities and placing them on regional town blocks. We aim to be able to pull $100-150K equity out of each project (which is what has been happening - if you want actual project figures let me know and I'll post them), with the potential to pull up to $250K equity on some projects due to further developing (subdividing) the land.

    For each new project we need around $80-$100K to complete. Based on these figures, we could pull the remainder equity out as a wage (say $20K++ per project) - if we aim to complete, on average, 4 projects per year we would then be making $80K per year through real estate. Subsidising that with another business idea we have would get us up past the $100K mark pretty quick ensuring the banks still like us.

    We have been planning this for a while and so have structured the current business so that if we sell it we would only be selling the "trading as" entity and keeping the actual company with the ability for Company A (the real estate company - already established) to pay Company B (the entity employed to project manage and complete the project trade/design wise) therefore ensuring the bank that serviceability for loans is still there.

    Anyone see any gaping holes I've missed?
     
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  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You would be selling the business in this case - name, intellectual property, good will etc. if the company is no longer operating a business then the lenders will not likely lend to you if they know this. Company B may show income but the lenders will generally want 2 years history.

    The lenders will also want to look at all the companies you are directors of and possibly all that you are shareholders of/
     
  3. JessicaP

    JessicaP Well-Known Member

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    The company would be operating a business - a construction/project management business (which is the same industry). If it is the same industry (just different "clients") this shouldn't matter to the banks?
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    That shouldn't matter, but where is company A getting the money to pay company B?
     
  5. Elives

    Elives Well-Known Member

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    are you selling these regional properties? you say you're making 100k per year. but above you say you're just doing equity pulls i'm confused if this is 100k cash per year you make or 100k equity?
     
  6. JessicaP

    JessicaP Well-Known Member

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    The equity.

    So from our current position - we have a house that will be ready to rent in about 4 weeks. Land cost us $150K (loan of $120K), house to completion cost $90K. End val $300K - able to pull out $144K equity (this bit is Company A). Next project: Land - $0 (subdivided block off current project), house to completion $90K, subdivision costs $20K leaves $34K that can be paid to Company B for the project management/completion and so on and so forth.
     
  7. JessicaP

    JessicaP Well-Known Member

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    Not selling - holding, all cashflow positive.

    The $100K per year we are currently making is in a different business. The next step is to replace that $100K per year with real estate income. Hope I'm making sense.
     
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  8. Cactus

    Cactus Well-Known Member

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    A friend of mine plans to do this exact model on some land he owns in Portland. If be interested in further break up of your house costs if you can provide. Thanks
     
  9. JessicaP

    JessicaP Well-Known Member

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    1st project in Orange

    Land: $45,000
    Legals et al. : $8,285
    House move: $52,050
    Finish (incl. connections etc): $13,700
    Total in: $119,035
    Bank valued at $185,000

    Loan received against the land: $36,000
    Top up equity loan received (for reinvesting): $110,000
    Currently renting at $250 per week.
    This property is currently cash flow positive even with the equity withdrawal which is financing the next project.

    2nd project in Castlemaine:
    Land: $89,000
    Legals: $7,500
    House move: $55,000
    Finish: 16,800
    Total in: $168,300
    Bank valued at $260,000
    Loan against the land: $79,000
    Top up loan: $125,000
    Currently rented at $310 per week.

    The next few places will be interesting because we are in the same area as project 2 - hoping to get a val of ~ $300K due to the size and quality of the building and the next couple of houses after that will be heavily positive given the land only ended up costing us $50K per block (plus subdivision fees). Similar size blocks in the area are around $120K.

    Key is to work with a house mover - not a moving company (saves you thousands) and to do the finish yourself. Business partner is a registered builder which is a legal requirement in Vic.
     
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  10. Random Username

    Random Username Well-Known Member

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    What about the contributions and donations to councils etc.?

    Things like head works for water boards and power companies, or are these included in the "house move" figure?
     
  11. Cactus

    Cactus Well-Known Member

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    Thank you for sharing your figures!
     
  12. Cactus

    Cactus Well-Known Member

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    When you say you have to be a reg builder in VIC, you mean you need a licensed builder to carry out all siting and making good and a building surveyor to accept the house has been sited and connected to utilities properly and is safe for occupation. Is that right?

    So in your case your saving some money cause you have a builder as a partner. And you bring the deals and the finance. A good partnership arrangement.

    I should have got my db-u when I had the chance, now I would have to study like crazy and I could prob only get db-m.
     
  13. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    So it is not really income, but you want to make it income for serviceability?

    This won't work because they will look at company A which will so no income, except rent perhaps, yet company A paying company B money which will be an expense to A and income to B. So A will be paying tax on income it hasn't earned yet and the lender will see a loss in A and a gain in B which cancel each other out.
     
  14. JessicaP

    JessicaP Well-Known Member

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    These figures are included in the finish off figures. We haven't had to do council contributions yet - doing our first subdivision now so might be different.

    The only thing these figures don't contain is the $5000 bond we pay (and then get back when the CofO is granted).
     
  15. JessicaP

    JessicaP Well-Known Member

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    Yep, that's right. Most of the trades we work with have limited licenses so getting the unlimited license has been important. Partner isn't a builder - and has had to do lots of study. But there aren't really any reasons why you couldn't get a DB-U - only time and effort ;)
     
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