Help with Strategy 2014-15

[nhg]

Scenario.

Due to circumstances I won't delve in to. I have a portion of my assets tied up in Sydney-ish (Newcastle -> Wollongong area). I'm trying to figure out what to do with it.

Borrowing capacity of $1M+ which will go up by the end of the year.
~$100k cash-flow (passive and active).
~$150k capital.

My strategy so far has been positive cash-flow but that seems to be non-existent in Sydney atm. Even with GF's I can only see at most 6% ROI which will be neutral at best.

I question if what I have is enough for construction in Sydney and even though I've seen potential renovation jobs with 15% profit, but I'm struggling to get my head around manufacturing $40k capital (10%) only to have it chewed up over 4-5 years through negative gearing (and I can't see a price hike happening again anytime soon).

Maybe I'm looking at it the wrong way, any advice? Do I just sit on this whilst I do my thing elsewhere?

Regards
Stuck-in-a-rut.

 

[LoneWolf]

If you have the cash on hand, try doing a small development project?

 

[MTR]

As LW mentioned if you start off with small development, purchase house and build at the rear perhaps you can do better than 15%, don't know how this would work in Syd market?
I also like to sell stock to reduce debt, yes, you pay tax but you can end up in a much better cash flow position which may enable you to get into larger projects, more money

 

[nhg]

I have 4IPs and am building 2 more granny flats at the moment.
I'll be ~+$40k cashflow positive by the end of December.
Total cash if I were to refinance at 90% LVR would be ~$350-400k.

Would that count as small development?

Call me John Snow, but I feel like I know nathin (props to you LW), I am just not seeing the opportunities in Sydney, and as mentioned I have half my assets tied up here. I am looking at development sites for the other half elsewhere atm.

Developments aye... I feel like I'll have to have at least $2M borrowing capacity in Sydney I feel to find anything worth while. Maybe it's a defeatist attitude and that's what is limiting my seeing the potential.

 

[beachgurl]

Sorry if I'm having a blonde moment but are you saying in your original post that you can only buy in the Sydney area? I tried for a few months to find a splitter block or granny flat addition that would make reasonable dollars but had no luck. I decide to venture to brissie to give it a try.

A friend of mine just bought a site in Wenty that will hold 6 townhouses. If you don't have the funds to do a development like that yourself, perhaps do a feaso on whether there's money in getting a DA and on selling? You'd get a suitable block for under a mill. Or even JV the construction and structure the deal to split the newly constructed townhouses between you?

 

[nhg]

Sorry if I'm having a blonde moment but are you saying in your original post that you can only buy in the Sydney area? I tried for a few months to find a splitter block or granny flat addition that would make reasonable dollars but had no luck. I decide to venture to brissie to give it a try.

A friend of mine just bought a site in Wenty that will hold 6 townhouses. If you don't have the funds to do a development like that yourself, perhaps do a feaso on whether there's money in getting a DA and on selling? You'd get a suitable block for under a mill. Or even JV the construction and structure the deal to split the newly constructed townhouses between you?

Yes it seems I'll have to get more creative. It is a JV that got me in this position in the first place.

I'm seeing huge potential elsewhere and have already done a lot of the groundwork. I did a JV on an IP in Sydney which had great growth but the other party is too risk averse to look anywhere outside their backyard. I made the mistake of thinking common sense and statistics would sway someone. Nope, they'd rather haemorrhage cash than buy somewhere they can't drive past it every day.

 

[D.T.]

I have 4IPs and am building 2 more granny flats at the moment.
I'll be ~+$40k cashflow positive by the end of December.

How do you have +10k positive cashflow from each IP? Are the loans paid out or something?

 

[nhg]

How do you have +10k positive cashflow from each IP? Are the loans paid out or something?

Granny flats. The $40k will be from 6 IPs. Yes I have put a significant dent in my mortgages through capital and manufactured growth. Granny flats will have no debt against them.

Sounds like I need to to look at buying and doing DAs, subdivisions for capital... anyone avaliable to mentor me, I could really use some coaching on this one?

 

[Ausprop]

I also like to sell stock to reduce debt, yes, you pay tax but you can end up in a much better cash flow position which may enable you to get into larger projects, more money

can you elaborate on this please MTR? a devy proposal shouldn't be impacted by your buy and hold portfolio. and any hurt money from the previous devy should be recovered when refi your devy loan with a typical mortgage. If anything the tax will attack your available cash

 

[MTR]

can you elaborate on this please MTR? a devy proposal shouldn't be impacted by your buy and hold portfolio. and any hurt money from the previous devy should be recovered when refi your devy loan with a typical mortgage. If anything the tax will attack your available cash

Hi Ausprop

It is dependent on how many developments you turnover and if the plan is to continue to increase this. I am placing as much as 30% of my own funds in each deal so a fair chunk of my own cash on the table, currently have 3 projects on the go. I may/may not sell them all, it is dependent on many factors.. including the market conditions.

I meet with my accountant very soon and we will tweak it and strategise. I buy land in a trust and I also have a company that project manages etc, both need to show profits for finance purposes, so sometimes it will be necessary to sell.

MTR

 

[MTR]

I have 4IPs and am building 2 more granny flats at the moment.


Would that count as small development?

Yes, of course it does, you are adding value/building.

However, the down side is you can not sell the g/flat as a stand alone, and refinancing may not be as attractive if it were sitting on its own title.

If you are looking at lower entry developments then perhaps look at other States, RPI I believe is a developer in QLD. Give Perth a miss, too expensive.

 

[nhg]

Yes, of course it does, you are adding value/building.

However, the down side is you can not sell the g/flat as a stand alone, and refinancing may not be as attractive if it were sitting on its own title.

If you are looking at lower entry developments then perhaps look at other States, RPI I believe is a developer in QLD. Give Perth a miss, too expensive.

Thanks MTR.

I was looking a doing them as stand alone houses, but there were either zoning issues or other.

I am looking at developments in SA atm. Have culled down to about 10 suburbs. I have allocated $100-150k cash + $400k borrowing capacity to this.

The issue as mentioned above is half my assets are tied up in Sydney, I'm trying to do something with that at the same time... I hate working when my money is not.

 

[MTR]

Thanks MTR.

I was looking a doing them as stand alone houses, but there were either zoning issues or other.

I am looking at developments in SA atm. Have culled down to about 10 suburbs. I have allocated $100-150k cash + $400k borrowing capacity to this.

The issue as mentioned above is half my assets are tied up in Sydney, I'm trying to do something with that at the same time... I hate working when my money is not.

Sounds good.
I think there is a regular SS poster who is from SA and has been successful with developments. I just can not recall name??

 

[Tonibell]

Have you got a good PPOR site yet ?

If not, the earlier you do something about that the better.

A nice area and private school fees can really chew up the cash - it is funny how your plans can change.

 

[nhg]

Have you got a good PPOR site yet ?

If not, the earlier you do something about that the better.

A nice area and private school fees can really chew up the cash - it is funny how your plans can change.

Hmm. On the rare occasion the thought crossed my mind, the wife and kids came first in the PPOR scenario. Haha.

TBH not sure where I would want to live. Acreage on the outskirts of a city sound appealing. That is a good point. Though I always pictured lump sum gains and using that to purchase a PPOR outright.

 

[westminster]

nhg,

With your skills I would have thought that a retain and build would be right up your alley. You can reno the retainer and build in the other half.

This is usually the cheapest way to get into developing

 

[thatbum]

Granny flats. The $40k will be from 6 IPs. Yes I have put a significant dent in my mortgages through capital and manufactured growth. Granny flats will have no debt against them.

Hang on, if you're getting pretty good numbers on your GF projects, then what's wrong with doing more of the same?

Or is it the case you've used up all your properties with GF potential?

 

[nhg]

nhg,

With your skills I would have thought that a retain and build would be right up your alley. You can reno the retainer and build in the other half.

This is usually the cheapest way to get into developing

I think you're right, buy and hold/small renos may be a step backwards.

Hang on, if you're getting pretty good numbers on your GF projects, then what's wrong with doing more of the same?

Or is it the case you've used up all your properties with GF potential?

Yes, I've run out of properties to sit on in Sydney. I was going to buy a handful but left my job mid last year instead to start a business and lost my borrowing capacity, so will run out of workable sites by December. Also granny flats in this current market are a quick way to nowhere. Poor valuations and the overall ROI is very low % wise (will be neutral geared at best).

I have been eyeing an apartment to renovate near the city, looking to make ~$40k+ equity after expenses (10-15% profit), yet I am projecting at the next 5 years and am just seeing those profits being chewed up with holding costs. This will also cost me just under $500k of cash and borrowing capacity. I don't see the long term benefit vs opportunity loss, trying to work out the alternative.

 

[nhg]

Sounds good.
I think there is a regular SS poster who is from SA and has been successful with developments. I just can not recall name??

CJay or Brady?

CJay is a top guy, am yet to have the pleasure of meeting Brady.

 

[BLTN]

I meet with my accountant very soon and we will tweak it and strategise. I buy land in a trust and I also have a company that project manages etc, both need to show profits for finance purposes, so sometimes it will be necessary to sell.

I've seen you mention this a few times, and I know it's off topic, but could you elaborate as to why you need to show a profit for finance purposes?