Becoming a property developer?

[Mark C]

some interesting points here..may i just say that Mark C becomes nominated for the "balls of steel award"? how did you go from 4 units to high rise in the gold coast and beyond??
my only piece of advice is to start small..it gives you a chance to get your toes wet before diving in..build up your wealth by accumulating your units your developing..sell off what you need to, to pay off the debt.. then it just snowballs from there..
anyway it worked for me..

Balls of steel.. Ha Ha He He That’s a crackup.

I have to clarify the development on the Gold Coast is a 102 lot community title. Mix of 58 stand alone houses and 44 duplexes. I go unconditional on the site 4:30pm this afternoon (fingers crossed). I will provide more detail later on this one.

At this stage I don't intend on getting involved with high rise, seems too boring just replicating floor after floor.

Sue78 raises an excellent point, why do these things?

For me I like challenges, I like pushing myself, I love being creative. I have been able to accomplish things I never thought possible. Not knowing the answers to do something is no reason not to do it.

eg. I put a contract on a house last year, at the time I neither had the finances to pay the deposit or the cashflow to service the loan. I had 6 months to settle, ie. I had 6 months to find enough cash for a deposit and an income to service the loan. I now live in the house and pay the loan every month.

Mark

 

[Minx]

I have some questions for developers. Do you all have a builders license and if so which one? Limited or unlimited?

From my understanding (and please correct me if i'm wrong) to de able to develop you need the license. To subdivide you need the license. To be an owner builder it can't be for profit and I believe that you only get granted the building permit once every 3 years.

My partner and I are goingto get into residential development within the next couple of years. He is currently getting his unlimited builders license (he is a carpenter).

Thanks

 

[Giulio Taranto]

you dont ned a licence to be a developer, you can contract all the tradies needed to do build the development without actually having a licence yourself.

In your case if your partner is getting a building licence, then he will be "hands on" developing(assuming he will be physically building) instead of doing the alternative.

this is my understanding anyway.

 

[Mark C]

Minx,

As GT states you don't need a license to be a developer, I use builders who already have one.

As I'm sure you’re aware getting a license is quite involved and then there is the risk you take for years (building guarantee) after the developer has made his money and moved on.

Mark

 

[Minx]

Minx,

As GT states you don't need a license to be a developer, I use builders who already have one.

As I'm sure you’re aware getting a license is quite involved and then there is the risk you take for years (building guarantee) after the developer has made his money and moved on.

Mark

My partner is a carpenter and knows all about building residential homes. We figure that if he gets the builders license I will be project manager (read he will be I do the easy stuff). I misunderstood the whole developing thing. I thought that only builders can develop.

 

[Mark C]

I misunderstood the whole developing thing. I thought that only builders can develop.

Minx,

I mean no offence to any builders here but if that where the case we would be serious trouble.

Think of it like your regular mum and dad wanting to build a new home, they employ a builder to do it who has the appropriate license. I think the difference between mum & dad and a developer is the quantity.

As a developer my profit margin substantialy more than the builder, I take on a number of risks for a good return. To me the risks associated with being the builder seem extreemly high for the return.

Mark

 

[letiha]

We are doing what Sue has done, but yes went a bit crazy and did 4 at once, i don't think i've ever cried so much when we had finance issues after the mortgage docs were signed.

What we are now looking at doing is to hold the properties as a company - mainly doing spec homes, using the same builder as we are now hopefully. Will keep the profits inside the company or maybe have a discretionary trust as a share holder. Haven't worked that out.

By doing so it allows the selling of the properties to not affect my Childcare benfit so i can keep working and not pay $600 a week child care. Mum is in her mid 50's so she might contribute the maximum to super. We will get to that later.

I see the benefit of smaller projects is that its a smaller outlay, smaller risk that is spread out.

 

[Mark C]

not affect my Childcare benfit so i can keep working

Are you saying this is the motivation behind your strategy?

I know we all have our goals and they all differ but the fundamental reason why I became involved in property was not to be a slave to money.

Property investing to me is 10% property knowledge 50% finance knowledge and 40% motivation. Motivation is a big part and is often undervalued.

PS Letiha if you purchase the property in a unit trust with corporate trustee (you can also use your FT as unit holder and share holder) you can retain the IP's for B&H purposes (write this in the unit trust setup as your purpose), then when you sell the properties you can claim a 50% reduction in capital gains tax.

 

[letiha]

It is just part of the motivation $600 a week for Childcare plus $200-250 family assistance is a fair bit. if I can't afford daycare I can't work, I don't work i can't afford to invest.

It basically the same as someone structuring there investment for tax minimisation. The plan is to keep doing B & H under personal names, at least for the moment, the spec homes would have no 50% reduction in CGT because the plan would be to sell them ASAP, I would rather pay 30% tax and not have GST implications on my other properties held in my name.

I'm also happy to keep the money in the company and not pay a divedend for a few years and keep channeling the money back into further projects and just live of the income I get from work which is plenty for my needs.

Still need to do a little bit more reading on the structure, but I know what our goals are and its just a matter of finding a structure to fit.

 

[Minx]

It is just part of the motivation $600 a week for Childcare plus $200-250 family assistance is a fair bit. if I can't afford daycare I can't work, I don't work i can't afford to invest.

It basically the same as someone structuring there investment for tax minimisation. The plan is to keep doing B & H under personal names, at least for the moment, the spec homes would have no 50% reduction in CGT because the plan would be to sell them ASAP, I would rather pay 30% tax and not have GST implications on my other properties held in my name.

I'm also happy to keep the money in the company and not pay a divedend for a few years and keep channeling the money back into further projects and just live of the income I get from work which is plenty for my needs.

Still need to do a little bit more reading on the structure, but I know what our goals are and its just a matter of finding a structure to fit.

This is kind of what my partner and I want to do except that the company pays me a wage as a project manager which means I wont have to go back to work after having kids. We will prob have two seperate companies also. One that is the "developing company" and one which is the "building company". That way the building company still pays my partner for the work he does as a chippy (to his carpentry abn). The result would mean that we get more profits as we are doing the whole project ourselves.

 

[sue78]

Property investing to me is 10% property knowledge 50% finance knowledge and 40% motivation. Motivation is a big part and is often undervalued.

That's interesting. My motivation is lower than yours probably because I find it fun aswell.

10% property knowledge!! woah to get as far as you have I would have thought that would be a big part

For me it's 40% property, market knowledge, house designs knowledge, reliable subcontractors etc etc (this is the most important coz it's where my profits come from), 30% finance (very important coz can't do much without finance), 15% motivation, 15% fun - I really enjoy doing this.

Letiha - I think you are on the right track. I did 3 houses at the same time when I first started out and I learnt so much out of it but, like you, I cried buckets too.

If you set up a trust/company, I guess you can't claim negative gearing? or can you?

 

[letiha]

Sue, thats another one of the reasons that we are happy to do the spec homes as part of a company, we are not going to use the negative geraing. Going to use that for the B & H we use personally.

I think we can negative gear if we borrow funds personally to pay for the shares in our company/trust, but were not to worried about doing it this way.

We're happy just to chuck in some cash from either the sale of one of the ones currently under construction and go from there. Have enough case there for costs etc. and just use these as normal business decudtions.

As far as staying home...hhhmmm i wish i'm only just starting my carrer, not going to waste all this time at uni yet, want to get a solid base behind me. Someone joked that the company should employ someone who is basically my nanny...hhhmmmmmm not sure if that would work or is legal either.

 

[Mark C]

That's interesting. My motivation is lower than yours probably because I find it fun aswell.

10% property knowledge!! woah to get as far as you have I would have thought that would be a big part

For me it's 40% property, market knowledge, house designs knowledge, reliable subcontractors etc etc (this is the most important coz it's where my profits come from), 30% finance (very important coz can't do much without finance), 15% motivation, 15% fun - I really enjoy doing this.

Sue,

Property is simple, buy x hold time = profit, or build and sell for more than the expenses = profit. Nothing very difficult.

Finance is on the other hand is very tricky.

Motivation keeps me solving the problems I face daily, without it I would not be able to do what I do.

I used to be tied to a day job because I was getting paid $1,000 per day, hard to walk away from and earn $0 per day in new career with $1.5mil in debt.

But as it turns out so far so good, if I hadn't freed myself from the money I was earning I would not have achieved what I have.

There are those who work at a job they hate, they are miserable but yet stay there their whole working life. Why? Are they controlled by the money they earn? What price do you put on happiness $600 per week?

At this stage I usually hear "but you don't have kids", or "it's alright for you your young" or "I couldn't do that because.....".

Motivation is what can change the outcome of what you do. If saving $600 per week is your motivation then your outcome will be different to mine.

Mark

 

[Ausprop]

what a day... picked up the mail and got the API magazine, read abit about how easy it is to be a developer. Then got a call from the builder of one of my res devys... pretty much saying that after the council consulting the neighbours for 3 weeks and them about to rubber stamp approval, directive just turns up from water corp and health dept saying no more approvals that aren't connected to ministers sewer (until now the use of biomax systems has been the norm). Enquiries with the water corp reveal they have no plans to extend the sewer in the next 5 years as they are out of funds (the WA govt must be really struggling right??), however i am welcome to cover the cost myself, estimated between $150k and $220k. So it's bight the bullet and shell up or take a loss and move on. Looks like I'll be getting more tax deductions than expected this year... who needs the joys of owning IPs when you have govt depts capable of costing of you this much??

 

[Chris.R_WA]

My condolences Ausprop...that really bites.

What LGA if you dont mind me asking?

Chris

 

[Ausprop]

busso. there has been such an outcry from resdents that there is some meeting of council on monday to consider the issue... fingers crossed. The situation, as is, effectively prevents any construction of any sort in quindalup for the next 5 years - clearly a ludicrous situation.

 

[JFisher]

Minx,

To me the risks associated with being the builder seem extreemly high for the return.

Mark

Unfortunately I have to agree; building is a mugs game and very stressful!

 

[Minx]

Unfortunately I have to agree; building is a mugs game and very stressful!

Unless your good at it of course. Not to blow my partners trumpet or anything but he constantly knocks back work and has never advertised.

A lot of his work is from resi builder/developers who do their own projects then sell. He gets ALL his work from word of mouth. Builders/developers who ONLY build in 5 suburbs in Melbourne and that is it.

There is no chance that my partner nor I would agree to build Mr Smith's plans. Too much hassle and not worth the constant phone calls and ball busting. Thats why my partner hates doing work for owner builders. They have no idea.

What i would imagine being stressful is getting my home built by a volume builder. The stories that I have heard....my partner was employed for a year or so as the fix it person. He still to this day shaked his head at how many bowed walls he came across. Mind you one would wonder how it went wrong when the frames are prefab.

Mind you when I was designing my PPOR I went to a few display homes for a look n see. Even my dad shook his head and was blown for six when he saw the quality of these display homes. Makes you wonder what your place would end up like.

 

[Mark C]

Minx,

Quality is an issue, I agree. But from the developers point of view as long as the product has been delivered on time and within budget then a few bowed walls don't make any difference.... After all it's the builder who has to pay for repairs and guarantee it all, not me.

Ausprop, what a blow. I'm running into similar issues with BCC, they want me to run a new gravity fed sewer line 4km @ 6m deep through Manly West. Estimated costs 1.5mil then they want me to pay $500K in head works to connect to it. That’s logical, obviously I'm not keen on the idea.

Mark

 

[Minx]

Minx,

Quality is an issue, I agree. But from the developers point of view as long as the product has been delivered on time and within budget then a few bowed walls don't make any difference.... After all it's the builder who has to pay for repairs and guarantee it all, not me.


Mark

Thats just one of many examples. I'm not going to get into it but my partner has bought their quality issues to my attention and let me tell you it blew me for six.