Do full-time developers hold stock?

[MTR]

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

After reading the various tax implications etc. I think it makes sense to hold a few.

 

[Bigtone]

Hi all

For those who develop full-time I was wondering how it works for you, do you hold any stock, sell most??


MTR

Hello MTR,

Looking at some developers that have made it big to see what the learnings may be, there are a couple in Bayside Melbourne that have both been in BRW rich under 40 list for many years. They both keep properties they develop for two reasons.

Shane Wilkinson from Pace, he tends to build apartments with commercial/shops underneath and keeps some of those and rents them out, his main reason is the cashflow makes it easier to qualify for lending as he has an income even when projects are underway. I would think that is his main reason with wealth creation a distant second reason for holding property.

Jonathan Hallinan from BPM- He does mostly residential and keeps a minimum 20% in each project but normally 25% of the stock, basically leaves his profit in the building with mortgage free properties. Has a massive portfolio, the banks love him as he has cashflow and they know a delay in a project or two won't sink him.
He has a great business model in my opinion, builds projects for himself using premium brand BPM and does buildings for other developers for $ under their name for the stock standard stuff.

So income from rental properties and contract builds and equity and wealth from keeping 20-25% on his own builds.

Much better bloke too.

Kudos to him.

Cheers

BT

 

[Ausprop]

Jonathan Hallinan from BPM- He does mostly residential and keeps a minimum 20% in each project but normally 25% of the stock, basically leaves his profit in the building with mortgage free properties. Has a massive portfolio, the banks love him as he has cashflow and they know a delay in a project or two won't sink him.

would have to be a large project or very profitable to generate enough after tax cash to own units unencumbered. great if you can do that tho. And even if you could would you want to? resi IP equity is lazy money

 

[Bigtone]

would have to be a large project or very profitable to generate enough after tax cash to own units unencumbered. great if you can do that tho. And even if you could would you want to? resi IP equity is lazy money

those assets help him make more money/equity because he can fund multiple projects at once because of the cashflow so it is not really lazy, the banks lend him more because they have comfort.

20% margin on a project is not so hard , does not have to be a big project to make 20% .

If he builds that resi base to $100m with a 4% net yield its not such a bad yearly pension, very very low risk

 

[oc1]

would have to be a large project or very profitable to generate enough after tax cash to own units unencumbered. great if you can do that tho. And even if you could would you want to? resi IP equity is lazy money

Ausprop of course you would. You can have unencumbered units on a simple 4 unit site if you have a healthy margin. The second guy Bigtone has mentioned is my strategy too. Each development increases net worth and cash flow. If that's lazy please share what isn't.

Oscar

 

[MTR]

Oscar

On my simple 3 unit site development on todays figures if I sell 2 units I will pretty much own 1 outright with a net income of around $20,000 pa.
I can access the equity and just keep moving forward.

So you have 4 on the go in one year, if I can achieve 2 pa I will be very happy.


MTR

 

[MTR]

Hello MTR,

Looking at some developers that have made it big to see what the learnings may be, there are a couple in Bayside Melbourne that have both been in BRW rich under 40 list for many years. They both keep properties they develop for two reasons.

Shane Wilkinson from Pace, he tends to build apartments with commercial/shops underneath and keeps some of those and rents them out, his main reason is the cashflow makes it easier to qualify for lending as he has an income even when projects are underway. I would think that is his main reason with wealth creation a distant second reason for holding property.

Jonathan Hallinan from BPM- He does mostly residential and keeps a minimum 20% in each project but normally 25% of the stock, basically leaves his profit in the building with mortgage free properties. Has a massive portfolio, the banks love him as he has cashflow and they know a delay in a project or two won't sink him.
He has a great business model in my opinion, builds projects for himself using premium brand BPM and does buildings for other developers for $ under their name for the stock standard stuff.

So income from rental properties and contract builds and equity and wealth from keeping 20-25% on his own builds.

Much better bloke too.

Kudos to him.

Cheers

BT

I have never heard of any of these guys, not surprising, but wow, great stuff.

 

[oc1]

Oscar

On my simple 3 unit site development on todays figures if I sell 2 units I will pretty much own 1 outright with a net income of around $20,000 pa.
I can access the equity and just keep moving forward.

So you have 4 on the go in one year, if I can achieve 2 pa I will be very happy.


MTR

Nice. You only need a few of these and life becomes very comfortable.

Cheer Oscar

 

[matto_]

I see it as the same argument/discussion about real estate agents and whether or not they buy and hold. Most are still working 6 days. Long hours.

Comes back to your Outlook and willingness to take action.

In the case of developers they have s business that they need to keep working at, if they aren't using the proceeds for investment for themselves opposed to investment in the business.

 

[mattnz]

I see it as the same argument/discussion about real estate agents and whether or not they buy and hold. Most are still working 6 days. Long hours.

Thats just to pay for their negative gearing buy and holds.

 

[MTR]

Nice. You only need a few of these and life becomes very comfortable.

Cheer Oscar

Yes, makes for an easier life.
I also see the importance of reducing risk along the way, if the market tanks and you are in the middle of a project you want to make sure you have your rear covered.

Reduce debt along the way, hold some and create income streams.



.

 

[Bigtone]

I have never heard of any of these guys, not surprising, but wow, great stuff.

http://www.brw.com.au/p/sections/fe...from_property_hotshots_OzsdW5VSkJWVsFYrNAFBAK

More info on him if you want to read aout it.

 

[Ausprop]

Ausprop of course you would. You can have unencumbered units on a simple 4 unit site if you have a healthy margin. The second guy Bigtone has mentioned is my strategy too. Each development increases net worth and cash flow. If that's lazy please share what isn't.

Oscar

lets run some basic numbers...

a 4 unit site, RRP $400kea at 20%, assume NP $72k, x the 3 you sell, less tax = clear after tax NP circa $130k, if you built the remaining one at say $330k, where does the money come from? and would you want to have $330k of clear funds sitting there earning 2-4%? Money in the bank is less lazy (and I am playing devils advocate as I am not getting into debt deflation in this argument)

 

[Ausprop]

Yes, makes for an easier life.
I also see the importance of reducing risk along the way, if the market tanks and you are in the middle of a project you want to make sure you have your rear covered.

Reduce debt along the way, hold some and create income streams.



.

Marisa deep down I know your gut must tell you resi is a tough way to build an income stream

 

[John_]

Build massive wealth with resi development then dump it all on a few commercial properties cash flow is king.

 

[oc1]

lets run some basic numbers...

a 4 unit site, RRP $400kea at 20%, assume NP $72k, x the 3 you sell, less tax = clear after tax NP circa $130k, if you built the remaining one at say $330k, where does the money come from? and would you want to have $330k of clear funds sitting there earning 2-4%? Money in the bank is less lazy (and I am playing devils advocate as I am not getting into debt deflation in this argument)

No arguments here but why do you assume 20%?? You have to get over that limiting factor first.

 

[Ausprop]

No arguments here but why do you assume 20%?? You have to get over that limiting factor first.

absolutely - if you can do better than 20% then happy days

 

[oracle]

Ive personally seen a developer get taken out by gfc, lost around 150 or 200m worth of property.

.....

I intend to do the same

Are you serious?

Just kidding...I know what you mean

Cheers,
Oracle.

 

[MTR]

Marisa deep down I know your gut must tell you resi is a tough way to build an income stream

Hi John
So what are you suggesting?? I think a mix of resi and commercial would be a good way to go

At the moment perfect timing to develop in Perth, rising market, and on completion the yields are as good as commercial.

Marisa

 

[saiman]

doesn't harry triguboff hold a large proportion of his devs to lease out? Pretty sure hes quite a successful developer....