Why oDo full time developers sell everything?

I know what you mean mate and I used to think that long time ago @Azazel . That people who work hard will be financially successful. I stopped believing that long ago mate.

Generally, a lot of people do work hard. And they are either stagnant or go backwards with their finances as time goes on.

Its really, what are you working hard ON that makes the difference, imo. And then, there are people who just want to make an income and no more. Perhaps hes one of them.

 

So true Leo. I believe one has to work smarter rather than harder to create real wealth.

 

I used to be one of those believing if I work hard I'll definitely get wealthy. It's really like a matrix cause parents/system teach us to do so and that it's the one right way .

Luckily, I'm not one of those anymore.

 

@MTR I have no clue but I am inspired by the fact that you have become a full time developer. Something I aspire towards. nice work!

 

From my side of the fence I am more a hoarder (aka investor) as I do the developments to get a 'wholesale' price on things to make yield good. The rent then goes towards serviceability for another development.

It depends on strategy:
- do you need to sell all to get a lump sum to move onto a higher grade/better development
- do you need to sell to have SANF
- do you need to sell to diversify to another asset class
- do you need to sell to produce your annual income
- do you need to sell because you don't like debt

But it's individual to each of my developments. Each of mine have a different mix of hold and sell depending on price, location and entity (SMSF, Trust or Personal Name)

 

So he needed sales proceeds for his income. Shame he was not able to reinvest a portion of the funds, or build asset base etc

 

Thanks.

The tricky thing now is how I continue to be a successful developer now that the markets are changing? If anyone knows please feel free to share

MTR

 

But that's the whole thing. He told me after running the numbers he could have kept one a year. It just never occurred to him to do so, because he, and all the builders he knew, just built and sold, built and sold. They never thought about doing anything different to what they had always done. 20 years later he regretted it, but it was 20 years too late.

 

depending on ones strategy, property Development can be treated as

• trading business (build, sell, buy next one, and get some expensive toys)
• Build, sell half & keep half

I have seen successful investor/developer doing well with option 2. it helps to reduce debt, increase yields and still have skin in the game.

even though, Harry the high rise, sold Meriton... still owns and rents 1000+ apartments.

 

I think that is the key - he always keeps something out of each development he does. Sometimes a penthouse, sometimes a whole floor in one of his highrises.
Much like the story in the book The Richest Man in Babylon - put something aside from everything you do and you will end up very wealthy.

 

+1

It makes a sense to keep some stock.

As a developer, we built the product, we know the product.. Keep it for few years, sucks the depreciation out, get max rent for being new and slowly offload it nearing retirement.

 

And I think that is the difference between being a builder who does a few projects in his name and being a developer.

The ATO of course thinks differently but in my eyes:
Builder: builds for others and himself and will generally sell his own projects to increase his income
Developer: contracts a Builder to build their projects and may use the equity gained to keep a % of end product or sell.
Investor: contracts a Builder to build their projects and will hold for various amounts of time.

The line between Investor and Developer is very blurry. Either may choose to sell, a Developer is more likely to sell on completion but also sometimes one dwelling a year to minimise tax and reduce GST.

 

From my perspective a developer is really a businessman if he sells all his stock. If he keeps some stock then he is both a businessman and an investor.

 

My aim is to keep each project for the 5+ year mark to avoid GST and maximise depreciation. Develop to buy at "wholesale" prices, avoid stamp duty and it might end up being neutral within a year or two. This leads to a 2 - 3 year cycle to buy the next project to keep two projects on the go. Only on my second so the theory is still in practice.

 

@Bitsmisin

Sounds good..

Some products are best to sell as brand new to get premium from FHB.

But as you wrote, works both way!!

 

most likely because the money is not made on holding for rent but on the capital gained from the development.

stick with what has the bigger return.

 

If it was me, and I would love to get into it in a few years I would aim to keep minimum one. If I could afford to I would keep as much as I could and balance out keeping and to keep developing. At the end of the day my aim would be to be able to live of the rental income from my portfolio

 

Many ways to skin a cat, and selling/accumulating comes down to many factors IMO, age, goals, finance etc. For me its just whatever suits my strategy, at the moment cash flow is important, especially with the APRA changes, moving forward may be different. The goal for me is for my daughters to also be involved in developing and am mindful that cash will be required for this.

The beauty of developing is you can always do another and its easy to accumulate properties if your projects are 3, 4, 5 development sites/townhouses etc.... do a couple of these successfully each year and you should be laughing.

MTR

 

Love the analogy of skinning a cat lol. But yeah you are so right. That is the plan!