Why oDo full time developers sell everything?

I think that's one of the major points there.

Joint Ventures and large apartment developments will tend sell all.

Individual developers will have the option to keep some.

Low income/tiny developers (like duplexes, retains etc under $700k) are often keeping them and using rent to increase serviceability and using LOC for next project.

 

Top end developers will sell everything as there is no one individual that will benefit by keeping stock as assets.

Mid tier to smaller end developers will keep or sell to family members or transfer to trusts. I have seen many developers that claim they don't make money on their projects but if you have access to RpData you will know they don't sell all they build.

The end game is they don't want to pay taxes or very little holding property for rental and also CG which in fact is their gain/profit on the project. They dont sell they dont pay taxes but wealth continues to grow. Company dont get 50% CG discount so property still get taxed at company rate whenever they sell whether held for more than 12 months or 6 years or for longer.

Why people dont keep some is not true story I dont buy it? new start developers will sell all but seasoned developer as I said before knows what there are doing.

 

Never had this problem to date, but there are always ways to move forward such as joint ventures, nothing wrong with this, but of course you split the profits, ie 30% becomes 15%, also I would always sell in this scenario otherwise too complicated

mtr

 

Like everyone has already covered, I think it really depends on the person's strategy. If a person sees development as a business, keeping houses would be seen as a kind of inventory, which is a type of waste (wormpit, i stands for inventory).

Since all the values have been maximise in the development, the remaining upside would only be driven by market growth and outlook which he can't control. It would be better to just keep rolling the capital onwards to do bigger projects, especially in this market where the future downside is greater than upside.

 

If I was a developer, I reckon I would be looking to keep one townhouse/apartment/unit out of every project.

 

I know a developer who will build 5, sell 4 to pay off all debt on 1 and keep it. Then keep doing similar developments. Personally I don't like that set up much but it works for his goals.

 

Professional developers sell as they make profit on building and selling. They cant make profit if they don't sell. But they don't want to throw them away if market turn. There can be timing issues. Harry Triguboff founded Mirvac to HOLD apartments he didn't want to dump on the market or to wait out downturns. One of Australia's largest landlords !!

There is no one rule.

In the example Leo gives yes its very common....However in 10 years time (example) CGT will NOT apply to the sale. Developers cannot wash the profit making intention off - ever. The general strategy is to defer, defer, defer by not selling. But one days someone gets thumped. That's why trust strategies may be practical if property accumulation is a issue. Some smart ones also look at super strategies.

 

Sold all my developments last year
Yes, got $80,000 gst bill.....ouch

My accountant has mentioned SMSF as another option, will be seeking further clarification on this.

Paul, What are the major benefits if you care to share?


MTR

 

Major benefit being that SMSF's have 15% tax rate.

PS - did you look into margin scheme for your other development?

 

yes using margin scheme and buying in trust and have a project management company, all in effort to help reduce tax.

problem with SMSF is you cannot leverage?. at least I don't think so

 

Good stuff

Yup - They can borrow for houses but not to reno or develop is my understanding. They also can't do reval / equity pulls. Check with a finance guy though.

 

https://static1.squarespace.com/sta...aa09e97e9079/1410161082175/TEN+SMSF+Paper.pdf

 

No Hard Rule - Correct.
Depending on the timing and what is coming up/economy/tax liability etc etc., I will hold 10% of what i develop.
Keeping has same advantage as selling sometimes.
if sales comms are high and market value is not being reached, its better to hold and draw LOC against it. (you save 5-6% sales comms, 10% GST, company tax, etc..)
Keeping in the developing entity, i can draw against it to get 60-70% and have the rent income to service it and no profit to pay tax on in the wrong year.
A few yrs ago i was doing 6 packs and had to sell all to pay the loans and credit cards (which had given me income for a year).. now building 50-60 units per year , able to keep a few each project.

 

There are many variables in this, that could determine a developers strategy. Where is the development located i.e. rental demand? What is the rental yield? What are the current market conditions? etc. etc.

I personally know a developer (two brothers) that own hundreds of units in blue chip areas. This supplies the company with income of $100k+ a week. It took them almost a decade of living below their means to get there, but now that they have that sort of cash flow it enables them to fund their own developments, giving them a big edge when acquiring land. Now they sell almost all their developments.

Just look at High Rise Harry. He built 1000's of serviced apartments to provide him with the means to fund his own developments (he paid 250 million CASH for the block at Mascot). His strategy is pretty clear. Build units and sell when the market is hot. But when the market is soft, build serviced apartments and hold.

 

This is pretty good idea, selling for the growth and building apartments for cash flow.

The beauty with developing is if you get it right it can give you great returns either way.

MTR

 

So, no hoarders in developers? as in, build, hold and never sell

 

I know one who keeps some of every development. But none who only build, hold and never sell.

 

I don't know anyone who keeps everything on this forum.
My next project in Melb plan to sell 2 and keep 2, but then again I could change my mind

What is your plan with your development site?

MTR

 

Your developments are awesome by the way MTR congrats, great job - very attractive and should sell/rent reasonably quickly, meant to tell you this ages ago.

Doing well to sell 2, keep 2. A lot of developers I know treat it as a cash flow business, sell all or maybe keep one in 5 but usually not 50%.

I think you should do a project in Adelaide next

 

thanks
Perhap when am ready will contact you. Will still continue in Melb while it's still stacking up

mtr