Do full-time developers hold stock?

[MTR]

Hi all

For those who develop full-time I was wondering how it works for you, do you hold any stock, sell most?? Trying to fund lifestyle while developing would think would be a juggling act.

I know someone who has been developing in Perth - townhouses in areas such as Yokine, Balcatta, Osborne Park, this is a builder who has been doing this for over 25 years. I expected he would have had an amazing property portfolio, I just found out he holds nothing except his family home.

To make matters worse when GFC came along and the bank policy changed he has struggled to secure loans for developments.

What is the point of developing if you do not hold any stock??

MTR

 

[nhg]

What is the point of developing if you do not hold any stock??

MTR

Low risk, maximum profit?

I know a few developers, most don't hold stock. They see their business as building and selling.

One rents an apartment near darling harbour for $3k/week. Has a few million in land ready to be developed. So doesn't even own his own home.

 

[Ausprop]

why hold something that you can replace for less?

 

[sanj]

I definitely intend to hold some as a buffer for quiet/tough times.

 

[oc1]

why hold something that you can replace for less?

Why not do the work once and get paid forever?

Oscar

 

[MTR]

Why not do the work once and get paid forever?

Oscar

IMO a developer is someone who has created a job, and possibly a very well paid job.
So perhaps a developer/investor is someone who also strategises and creates income streams from projects and repeats this process. I think that makes sense

MTR

 

[John_]

Build/Sell and repeat, why? less headache more cash flow/bigger deals.

 

[Peter_Tersteeg]

Development is not an investment, it's a business. There is a difference between the two.

Certainly some developers do hold some of what they build, but only a small percentage of it. They make most of their money from turnover.

In business money is made by finding the client, providing the goods or services, getting paid for it, then starting again. It's a bit like a spinning wheel and the faster you can make that wheel spin, the more money you make.

 

[Ausprop]

Why not do the work once and get paid forever?

Oscar

because even at developers cost they usually lose money which pretty much sums up the asset class (resi IP)

 

[sanj]

Ive personally seen a developer get taken out by gfc, lost around 150 or 200m worth of property but have a few to fall back on and live off despite bankruptcy. I intend to do the same

 

[Ausprop]

Ive personally seen a developer get taken out by gfc, lost around 150 or 200m worth of property but have a few to fall back on and live off despite bankruptcy. I intend to do the same

pretty tough to go from that level of wealth to a common person. still beats going broke in the true sense. Dev is high risk, which is why you would never want to be fully exposed.

 

[Savanna100]

I have heard of some that hold stock but not in their own name. Building is a fraught business and some may think that its best not to be a financial target.

 

[GreenMedallion]

Development is not an investment, it's a business. There is a difference between the two.

Certainly some developers do hold some of what they build, but only a small percentage of it. They make most of their money from turnover.

In business money is made by finding the client, providing the goods or services, getting paid for it, then starting again. It's a bit like a spinning wheel and the faster you can make that wheel spin, the more money you make.

This is what I see occur also. The big developers don't hold anything as they are in the business of developing and selling. It is only the Mum & Dad and small developers that seem to hold.

 

[sanj]

pretty tough to go from that level of wealth to a common person. still beats going broke in the true sense. Dev is high risk, which is why you would never want to be fully exposed.

Not really common person, he fell back onto some of his free carry properties. Still has some long term landbanks too but vast majority wiped out. He told me his retained properties saved him, im inclined to agree

 

[nhg]

Not really common person, he fell back onto some of his free carry properties. Still has some long term landbanks too but vast majority wiped out. He told me his retained properties saved him, im inclined to agree

I think the biggest problem is when developers keep going bigger and bigger and don’t leave themselves room to breathe.

It works well when you’re developing in Queensland during the 1980’s, not so well during a recession tho.

 

[oc1]

It's a great job/industry to get into as you can operate as a business and turn some of your stock into investments buy holding onto your stock. I'd recommend paying down loans if it is a strategy you employ as you don't want to get caught out at the end of the property cycle. That also goes for any property investor. Low LVR = low risk.

Ultimately, there's no right or wrong. Do what suits you at the time. Having a clear long term strategy helps. You may, for example, develop and sell everything so that you amass a large cash base to buy a commercial property with a higher yield than resi property. Or you may sell some and keep some, gradually paying down the debt. Whatever you do just don't blow what you make. Just because you are a builder/developer doesn't mean you have good money habits. Plenty of developers and builders are still in the same financial position over years despite a boom over the last decade. Maybe they should have held some, hey!

Oscar

 

[Ausprop]

the tax situation gets a bit messy too - both GST and income/CGT

 

[RPI]

the tax situation gets a bit messy too - both GST and income/CGT

Can be sorted if you know you want to keep some for investment the way in. Use sep entities for each part inv v developer, otherwise you may just have some long held trading stock.

 

[Ausprop]

Can be sorted if you know you want to keep some for investment the way in. Use sep entities for each part inv v developer, otherwise you may just have some long held trading stock.

that's right - and you will need to remit GST for your stock that you hold and will never be eligible for CGT concesions, unless it isn't held on the stock account from the getgo (at least that is my understanding)

 

[westminster]

that's right - and you will need to remit GST for your stock that you hold and will never be eligible for CGT concesions, unless it isn't held on the stock account from the getgo (at least that is my understanding)

The last 2 posts just went "blah blah blah fark me I have no idea blah blah I need to spend some serious time with my accountant blah blah WTF blah blah "

Edit: when I told my accountant my plans he asked me hold or sell? and I said hold and he said 'ok then but do it for more than 5yrs or you are liable for GST'. So I assume he's doing his end but I probably need to understand that more. It's good to make informed decisions