12 Apartments Development - Accounting advice

H

hb40

Hi,

I have approval to build a 12 apartment block in Melbourne.

Even though it's small in size compared to the big boys, I've never done this level development myself in the past :)

So all advice is welcomed.

My biggest hurdle right now is around the accounting and how to structure it to get financed and to maximise my profit.

Some general questions that I'd appreciate some guidance on:

- Given the risk with this kind of development I assume I should do it under a company? Is there a clever structure that would be beneficial for this kind of development/investment?

- Assuming the bank makes me sell the majority of the apartments off the plan to get financed, what are the tax implications once I sell them? Typically I assume I'd have to pay 25% (minus the GST rebate), or if it's via a company I set up then it would be company tax level which is only incurred once I distribute the profits to the company owners?

- What are the various accounting related services/outputs that I should be sorting out? e.g. A project profit projection sheet by an accountant? a financial structure advice by an accountant?

- Can anyone recommend an accountant that would be suitable for this kind of project (12 apartments)? ideally in Melb but if they're good I'd consider using someone interstate.

- Any other financial / accounting related gotchas that I should be aware of? :) It's all easy in hindsight with these kind of projects!

Many thanks in advance
 
- It is too late for a company structure unless you want to transfer the land to a company and pay stamp duty on that.
- When you sell off the plan (pre-sell), this will be business income so you do not get capital gains discounts....so the maximum tax is actually 45%, not 25%. Companies pay tax FIRST, then distribute profits to shareholders. Trusts distribute first, then shareholders pay tax in their personal capacity. Did you not consider this??
- Like any other business, keep records of expenses....

As for financing structure etc, the banks don't really care what type of entity you use as it will be a commercial deal anyway. Usually developers (like myself) use trusts to develop because it allows flexibility of incomes.
 
I disagree that it is too late to bring a company/trust into the mix. A new development entity could be used to develop your land. They dont need to be in the same entity. Many developers do this. Seek someone who has done this before.
 
great

hey many thanks for the tips. I'll contact James as recommended.

Any other tips and potential gotchas appreciated :)

e.g. subdividing pre build to save on subdivision costs...?
 
thanks

Thanks Aaron.

Are there any specific financial/accounting documents that I should get the selected accountant to put together for me?

I assume some would include:

- Spend schedule
- Financial forecast (post build)
- Tax related planning?
- ...?

thanks
 
hi HB, you also need a really experienced project manager to help you negotiate the mess with council, DA, CC's etc.

I worked with a guy on a very complex residential build (400Sqm in a pain-in-the-neck council with lots of local hippies to fight) who helped me through it.

His speciality is $20mil+ commercial developments, but he slummed it to do my job and was a rock star.

PM me if you want his contact details, he's at least worth a call to and discuss what you're doing.
 
Aaron_C said:
- It is too late for a company structure unless you want to transfer the land to a company and pay stamp duty on that.
- When you sell off the plan (pre-sell), this will be business income so you do not get capital gains discounts....so the maximum tax is actually 45%, not 25%. Companies pay tax FIRST, then distribute profits to shareholders. Trusts distribute first, then shareholders pay tax in their personal capacity. Did you not consider this??
- Like any other business, keep records of expenses....

As for financing structure etc, the banks don't really care what type of entity you use as it will be a commercial deal anyway. Usually developers (like myself) use trusts to develop because it allows flexibility of incomes.
Click to expand...

Agree with Aaron that a Trust structure would be best suited for something like this. We are doing something similar in scale to what you're thinking of doing and we were able to sign the contract "XXX and or Nominees" and then rushed to the Accountant to set up our new Trust to ensure it was in place before settlement. So it might not be too late provided you haven't already settled on it.

In terms of Finance, not sure what your financial position is but if you're like Us and want to not mess around with all the headaches of dealing with a Bank on a deal like this i would highly recommend a private lender. Yes we're paying a premium (11.75%) for the privilege but there's hardly any paperwork, the deal is not based on your financials but the deal itself (similar to commercial) and no presale requirements etc. Its been such a smooth process. Obviously only consider this option if you are able to financially afford going the higher rate because it does get very expensive when you're talking about 11.75%+ on $2M+ loans.

Good luck :)
 
hey

hey great tip about the private lender.

I've pmed you for their name/contact. Feel free to post it here if you wish :)

It's a high interest rate but if it's near 100% funding of the project then the numbers might look very good. Especially if the interest repayments are tax deductable or something?

Thanks
 
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