Becoming a property developer?

J

JohnnyBoy

Hi guys, new to the forums. Well actually, I had joined up a few years ago and was active for a while, but I have forgotten my username and password, so I'm starting again. :)

Been a little bit quiete on the investment front, but I would just like to ask how does one become a Property Developer. I've read a few things on the net and I've tried to do a search here with not much luck.

Could anybody be so kind to point me in the right direction?

Who is currently doing this and have you been successful? I'm currently working full time, but I'm getting sick of my current industry and wouldn't mind doing something different.

Thank you.

Regards,
John.
 
Hi John,

I'm in a similar position to you. I can't wait to start developing property full time. I'm currently spending time getting to know council DA's and LEP for areas i'm interested in. This is a good place to start as it lets you know what type of property you are looking for. I think for my first development I will focus on gettinig the DA approved through council and then on sell it approved to a builder or if the timing is right get some mates her build to look at doing it.

I'll be interested in what other forumites think about this topic as it is also of great interest to me.
 
IMO - because the tax system punishes developers so heavily vs investors, I believe that unless you are doing say 40+ units a year you are better off keeping a day job and being a passive investor. Development is capital consuming, risky and stressful. can be very rewarding too tho.
 
The other thing I am looking at exploring is that of what the "Reno Kings" are famous for doing. Ie, buying a property, renovating, then selling. This I'd do with friend who is a builder by trade and make it my full time job.

Does the tax system also heavily punish these projects? If not, let's say you did 5 reno's a year and made $50K on each one. That's $250k per year divided by 2 people, would give you a gross income of $125K each. That's not too bad providing you are willing and able to work hard.

I know it won't be easy needing to continuosly find the right property in the right area every couple of months, etc, etc, but it could be possible yeah?

Does this sound realistic to those in the know?
 
JohnnyBoy said:
The other thing I am looking at exploring is that of what the "Reno Kings" are famous for doing. Ie, buying a property, renovating, then selling. This I'd do with friend who is a builder by trade and make it my full time job.

Does the tax system also heavily punish these projects? If not, let's say you did 5 reno's a year and made $50K on each one. That's $250k per year divided by 2 people, would give you a gross income of $125K each. That's not too bad providing you are willing and able to work hard.

I know it won't be easy needing to continuosly find the right property in the right area every couple of months, etc, etc, but it could be possible yeah?

Does this sound realistic to those in the know?
Click to expand...

Honestly, no, not for a first timer.

Why not try and do it while you are still working FT; do some reno work yourself on w/es and contract out the rest. See how you go, learn a lot, then decide if you can do it fulltime.

Chucking in a FT job to become a developer when you are a novice is a very risky venture.
 
Twitch said:
Chucking in a FT job to become a developer when you are a novice is a very risky venture.
Click to expand...

And very foolish. It ain't easy thats for sure and it will take you years to build up the knowledge and the courage to go full steam ahead. Do one while you work and take it from there.

Oscar
 
Fair enough. I bit of experience renovating my own home a few years ago, and I'm pretty good with the tools. It's just that if I did this full time, I'd be able to knock off more houses, rather than doing it on weekends which would mean less homes.

Nevertheless, doing it on an after hours and weekend basis is a a good idea.

I'd also like to know what sorts of tax complications I could get myself into if I did 5 or 6 of these a year. Obviously, I'd need to pay CGT, but what else does the Government tax you for if you're doing a few of these on a yearly basis?
 
the tax is pretty straight forward... CGT no longer applies and it is assessed at normal tax rates. in simplistic terms, 1/11th of the profit would need to be paid as GST (withthe 10/11ths being assessed as income)
 
JohnnyBoy said:
I'd also like to know what sorts of tax complications I could get myself into if I did 5 or 6 of these a year. Obviously, I'd need to pay CGT, but what else does the Government tax you for if you're doing a few of these on a yearly basis?
Click to expand...

As Ausprop said, the key point is that it will NOT be capital gains (where you get the 50% concession). It will be considered ordinary income (no concessions) and you have GST issues as well.
Alex
 
Ausprop said:
the tax is pretty straight forward... CGT no longer applies and it is assessed at normal tax rates. in simplistic terms, 1/11th of the profit would need to be paid as GST (withthe 10/11ths being assessed as income)
Click to expand...

You also claim back GST credits on construction items if you decide to sell.. And its profit - land cost = GST liability

Grab the Ron Forlee books, they are a good start.

Start simpler with something like a duplex or a house and land perhaps?
 
i would definitely say keep your job and do what you can when you can and contract the rest.

you quitting your job to do it doesn't help the process much.

instead you have to be dedicated to have before work and after work meetings with tradies, roll up your sleeves at night time to do the painting or whatever it is you plan to do and become very good at project management.

because trust me if you're no good at project management it won't matter if you have a full time job or not, it will be a mess. Project management and organisation is the key to this.

If you want to do 5 a year you'll need some decent equity to put up, especially if you have no income to show the bank.

and what's the strategy if you can't sell at a required price. Rent it out and lock up your equity while it is still potentially negatively geared?

banks love and income and unless you've got multi millions available in equity they're not as nice once the income is gone.

if you are definite about it look at working part time instead - a foot in both doors keeping the bank happy.
 
We had 6 investment properties and about $800,000 in equity before tackling developments.
Holding costs blew the budget out of propoprtion for our first one both on the buiding and the council side.
Canning the project mid way would have cost us a $60,000 loss! We made sure we were in a position to not be devistated by that loss before begining the development (although it would not have been a happy ending, we could have picked up again!)
we carried it through and made a profit in the end but it could have gone either way.
Like share trading, work out what you can afford to lose before venturing into it. with great rewards comes great risk.
 
development is the way to go

Read many of the comments and most are incorrect (went through them quickly and apologise if i misunderstood any)

a) Tax system hits developers hard - (true i think out tax system is crap but the reality is as a single investor its by far worst compared to developers if you ask them pay 0 in tax), further more we borrow from the tax office at 0% interest for unlimited term.

How? best explained through example...

assuming you operate under a simple structure say PTY LTD say "acme pty ltd"

1. you buy land $100k value under acme pty ltd.

2. you develop $200k (you claim the GST on drawdowns, tax free money until the end i.e. when you sell)

3. you sell the property say total $400k i.e. $100k profit, you pay back the gst plus some and pay 30% on the profit as its inventory i.e. no CG.

4. you reinvest the profit onto your next project ensure you time selling to (just after June 30) so you have 1 year to expense the profit. -- hard you say, if your a developer this is a must or else you will kiss good bye to your profit (30%).

5. repeat the above process forever.

you will expand quick that you could EVER under an individual....


ok im tired now ill continue some other time..

Adios

OH had to comment on the 40 unit minimum for wothwhile.. do you have any idea how big of a development 40 units is? we are talking 4-5 storey, MAJOR development, cammon there are smaller developers out there building 4 townhouses, 8, 12, 16...

40 units??????? land value alone will be in the millions... this is the same as saying to a sole personal investor dont bother starting to look for your first investment unless you have atleast $1 million dollars.. i think its overkill...

and its not the number of units anyways... if the IRR is > 20% doesnt matter how big... i prefer an IRR on a 4 townhouse dev than a 2% return on a 20million dollar project.

(before you talk about dollar returns developers dont care about this as its IRR we care about given the long time-frames we need to account for NPV).

anyways happy huntings.. and i apologise if i came strong but 40 untis is blasphamy.
 
I am a fulltime developer, and it is not an easy slog, but well worth the efforts.

I can't give anyone any tips on how to become a property developer other than to say start off small and work your way up with each project.

Get yourself a very good accountant and solicitor, and a very good team of consultants behind you.

There are a few developers on the forum; try reading anything written by Michael Yardney or Beech (i think) and there are a couple of posts from me to, and just ask ask ask.
 
Tax: thats fine if you dont mind the profits stuck in a company. If you cant manage to expense your profits indefinitely the PAYG instalments will soon shoot your cash flow. IMO i cant see how you can get ahead too easily by the time you have paid your 1/11th GST and ok say 30% corp tax that will one day have to find a home.

40 was pulled out of the air - based on typical 3x2 singel level villas. wouldnt touch multi storey... once again just me. I certainly wouldn't stuff around being a developer for under 10 units a year - you would be better to build and hold. lookign back on the first 5 unit townhouse project I did - I could have refid it, sat back and done nothing for a couple of years and had the same bottom line as going out and selling and doing the next 2 projects. Hence my argument that you need economies of scale otherwise you may as well just be an accumulator
 
Hi all
I met a very interesting chinese developer that had a very interesting comparison between a developer and a gambler
they are the same.
a developer takes a project
they have a good idea what they will sell for and what there costs are
but its all in the future and a gambler does the same
he assesses a table or a pack of cards and works out how the cards will come out.
both if they do it long enough learn how to play
and neither would pack in their jobs to do it full time until you are good at it.
developing is gambling and I am not a card or casino gambler
but yes I have to gamble to take on a project I mitigate my risk but its still gambling.
there is no such thing as no risk business and this goes for developing.
I agree with tcocaro that profit margin are very important not only for the developer but the lender also and 20% is the min.
and the way or structure you use to hold is in some cases is the most important.
a ten percent increase in costs and the wrong structure can see you going backwards very quick and developing can be the quickest and easiest way to lose money.
40 units a year is alot at 20% margin that 4mil in profit per year and to do that as a novice or for that matter a developer is going some
plus 40 units is going to take about 2 to 3 years ( allowing for cc and sell down at the end)
so if you have the money to live for 3 years with nothing comming in
and you have the get up and go to take on a 14 mil loan
(thats land and construct for 40 units in sydney roughly) and a lender that will lend it to you
then 40 is a good number but for me a duplex is alot better and keeping your job would be the way to go.
this is not to say that you can't make money out of developing because you can and you do
you just have to start as another chinese saying says the longest journey is started with the first few steps and 40 units is not a step, its not a run, its a Fi ferrari with you attached to a rope on its bumper.
my .002
 
Tcocaro

As you seem to be recommending that Johnny boy should plunge straight in , I was wondering if that's the approach you took , or did you start gradually and build up .

If you did plunge straight in ?

What sort of back ground did you have prior to doing this ?

Were you working within the building industry prior to starting ?

Cliff
 
Last edited:
Giving up FT work is "Foolish" & "Risky"??? That's one side of the argument.

You could loose everything you have worked for but then the trade off can be pretty rewarding.

Worst thing that can happen is you have to start again with a heap of new knowledge, best thing is you get everything you want... and more.

12 months ago (June 2006) I started to put together a 4 unit site in Mandurah (currently under construction), October I put a contract on a $4mil site in Brisbane with view to build 81 units, settled site in March 2007 (lodged the DA 2 weeks ago). Yesterday I had a tender accepted for 102 lot site at the Gold Coast (already has DA). Total project values in GRV $108mil. (Albeit in various stages)

Huge risks, lots of sleepless nights. Headaches getting finance, keeping consultants focused and keeping to budget.

Wouldn't have it any other way.

I am risking it all, it could still go either way but I'm having a hell of a go at.

Mark
 
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