Why oDo full time developers sell everything?

I like what Westminster said, they are totally different thinking hats that you need to wear;

Builder
Developer
Investor

I have worked for builders and as soon as I mention doing a development you can see the fear in their eyes.Not sure why but if you crunch the numbers properly there isn't too much risk. Some things you can't totally control, my experience so far has been the, neighbors, finance and councils that can throw hurdles in your way, but you just don't quit.

 

Haven't read the whole thread but I don't see the issue being more than one persons capacity to manage their own finance.

Investor - Buys (i could even say lazy, does not add value other than renovation) and holds and hopes to make cg while having some cf to manage the holding cost. This person is reliant on external factors - the market going up in value due to factors which are out of their control

Developer - Buys/Builds/Subdivides/Sell - Buys land (maybe house and knocks down or retains) and builds multiple on the lot, subdivides it and sells. This person relies on making cg from the building and subdividing of the project. They are not relying on the market increasing (maybe some have this as an additional reliance) and they are in control (their actions causing cg).

Off course things do go wrong - market crashes more than developer's margin = loss for developer and vice versa = additional profit

Market moves downwards - investor's capital drops and vice versa increases.

In an economy where there has not been much positive increase or steady growth the developer would be better off.

Also a developer is a part/full time job
Investor (<10 properties) hobby/part time job

The fact that a developer has nothing to show after years of developing is their own problem with managing finances. This person would not have been able to be an investor either (unless all properties were cf+ and no deposit would be required) as their lifestyle would have had to be comprimised

 

Not sure if it's been mentioned but the profit made from selling the developments is subject to income tax (not capital gains tax) just like any other business

 

That's correct. We buy in our Trust so never pay more than 30% tax

 

Would he want to tell his neigbours his trade secrets? Analysis their lifestyle. how rich his other family members are doing in terms of their living standards. Seasoned developers know what there are doing. All businesses wants to avoid paying taxes.

 

@MTR
One developer i know run losses during GFC had to keep staff on but not put off was planning for next boom. Negotiate with land owners either to buy or option to buy at sometime later. Meanwhile go through planning stages etc.. Now he had completed multi projects in the last two years. Timing was perfect.

Small investor can still continue to make smaller profit during down time. Sydney still undersupply.

My simple definitions
Land owner - owns land
Developer - develops land own by owner either joint venture so no money tied up in the land while waiting for all stages to complete. At end of project land owner gets a quota of property developed. Developer bears the full cost of construction so should sell some property to recover costs. Smart developer would sell enough to cover all cost only n keep the rest for cash flow. Sell when cash is needed or keep them as assets for security for the next project. Now u see its all about tax. Or rather not pay tax. Thats what i will do but i m not likEly to b a developer not even a duplex. My chance to do this had been forfeited raising my son...money guzzler.

 

This changes the goal posts. All of a sudden your an investor and you'll pay capital gains tax when you sell the ones you've held onto ....and probably without the 50% discount as most developers purchase development sites in a company.
One reason why developers sell the everything is the same reason why book stores want to sell all their books and car yards want to sell all their cars, it's their trading stock. No point having books left on the shelf or cars left in the yard.
Most of the big developers I deal with have large backers so it's not always the developers choice.

 

I don't mind having a property "left" on the shelf; they tend to go up in value

 

And give cashflow too

 

Pity for those that can't get finance, forcing them to always sell in order to move forward. That would suck.

 

Unfortunately for developers an increase in value or small amount of cash flow doesn't pay the bills.

The benefits of long term hold and capital gain can be discussed all night but the OP asked 'why do developers sell everything'

 

Back to the topic at hand.

Have 4 clients doing 6-10 townhouses, so smaller developers. Individuals or partnerships mainly. Most of them will be selling all except 1 or 2 for renting out.

Larger developers operating as a business I deal with tend to sell everything off especially in subdivisions.

 

Thanks for returning to topic. May I ask, do you generally find it's a percentage thing, or people mostly keep 1-2 regardless of the total?

 

I always like the "do the work once got paid forever" motto ie keep one now and then. Best of both worlds and most developers I know do this too.

 

I do whatever it takes to make money

When markets Change you may need to hold all, similar to Your Epping project, this may happen to me, we don't know, markets are turning


mtr

 

Yes and no. Can always draw on the equity for the next project or to supplement your income. I was more referring to the fact that comparing property stock to books or cars isn't comparing apples with apples. But I do get your point.

 

If it's a business then regardless of scale then everything gets sold. If it's an investment mechanism them something will be kept.

The one development where this is less likely is for individuals doing a smallish subdivision. Then most simply sell off all lots, maybe keeping one to live in.

 

at the end of the day there are so many variables which will determine which way to go, there is no right or wrong IMO

market conditions vs profit after tax and more

 

They don't. The developer behind my Cloverdale property built 12 apartments and kept 2. He told me he keeps some of each development and has a solid porfolio now. So I guess the answer to @MTR is, not all developers sell everything.

 

Pretty much all the ones I deal with do, but most are not individual developers. They're all doing multiple 50-150 unit developments. These guys (generally) sell everything.