My future career (a builder)

[Kawrayy]

Hi everyone i've been a long time reader first time poster, this may be a long post but I really need some help as I'm only 18 and looking to be a builder and invest in property as my chosen career. I will start by telling you what I'm thinking about doing and my circumstances.

Well I'm an 18 year old male, and I've chosen to be a carpenter I jus started my apprenticeship in January 2010. I plan to complete the apprenticeship whilst also studying my cert IV in building and construction (builders licence) so by 2014 I will be a qualified and work a further 2 years qualified to obtain my builders licence. I also have a bet with my dad. If I save $30,000 by 2014 my dad will give me $15,000 so in total I will have $45,000 when I finish my apprenticeship. I Plan to retire about 45 - 50.

Now this is where I need some help. I'm 18 and just out of school and eager to succeed in the real world. Please be kind as I may not make much sense

This is my plan,
as I'm a carpenter I will be able to put down a deposit for a loan and build (the carpentry side), and I already have friends that will be qualified before I am that are, Electricians, Plumbers, Plasters, Shopfitter/cabinet maker so I can save alot there. Once the house is build I will be able to keep it for a year and sell (less capital gains tax) and then build another so on and so on until I have made enough profit to own a house. Then I will start again but keep one house then work full time building a house keeping it for a year then selling unit a have made enough to own the second house outright and repeat this sequence.


but since I have been reading I'm not sure weather I should keep the first house and build another using equity. With equity I want a straight aswer how it works? (A simple definition maybe?) I've tried to research but I can't fully quite understand it. I don't understand how someone can own 5 houses equity ofc rent out 4 and still pay the mortgage like I'm sure the rent wouldn't pay the whole mortgage right?

To make the questions straight forward,

1. Is there money in building and selling? specially if I can get cashies done?

2. How does equity work?

3. Is the difference between the 2 questions above building and selling is cash flow and equity is long-term?

4.

 

[craigb]

KW sounds like a plan , there are many other things you will get on the way.
ie structures buisiness related , tax savings , and income streams , without an income you will not get a loan, without equity you will not get home owners warranty for your clients, if you continue to build for others, that is?
they will be cheaper , when you buy them through a company , etc etc , but keep up the dream with out them nothing becomes true.

 

[Kawrayy]

Yes well I'm still going to work as a carpenter or maybe even do a plumbing apprenticeship on commercial so I get allowances and mature age apprentice wages so hopefully 1st year I will be on about 900~ take home a week, not too bad. And for the building I'm only going to do the 1 house a year on the side (call it something to get ahead) and I will only build for a friend or family member unless I go towards building full time then I will build for clients but thank you for the info you provided i will take in each and every little bit i can

 

[Railglider]

Yes well I'm still going to work as a carpenter or maybe even do a plumbing apprenticeship on commercial so I get allowances and mature age apprentice wages so hopefully 1st year I will be on about 900~ take home a week, not too bad. And for the building I'm only going to do the 1 house a year on the side (call it something to get ahead) and I will only build for a friend or family member unless I go towards building full time then I will build for clients but thank you for the info you provided i will take in each and every little bit i can

Many things I do not think you may have thought of with all this.

First thing is "Capital" - You would need a lot of money behind you before you even hammer in your first nail.
Ever heard of Home Warranty Insurance? You are required to have the policy for any building over $12,000 in value, and it's not cheap on an average $200,000 home.

Second thing, your young - and with this comes having a vehicle and the costs associated with owning a vehicle. When a young man has wheels - his whole life changes, because he then also finds young women also like young men who have wheels.
With this - these young women who like young men with wheels also like to spend money, and lots of it.
Nothing wrong with having dreams, but finish your apprenticeship and evaluate your situation from there.

 

[NBS]

Well at least you have a plan and thats a great start. You may need to write this plan down and after each 6 or 12 months review it as well as your budget. To save $30.000 on apprentice wages will need discipline. Get yourself a good accountant, adviser etc to help set your plan up.

You can make monies as a builder however you will need to ensure you structure your business correctly and a business plan will help in this, which can involve your plan on owning IP's. Just remember more builders go bust in the boom times so never over extend in these times. Of course you will need to be able to communicate with people that will be a big plus as a builder.

The way I see builders or the way its heading you will be a manager more than a person on the tools as the paperwork and the requirements now are taking over, unless you employ someone to manage this you will spend more time doing paperwork than any hands on work.

As for cashies not worth the hassle why risk your future being caught by the tax man for a few $$$ do it legal and enjoy life more.

Good luck
Brian

 

[Kawrayy]

Rail~ Do I need the warranty insurance even if I build for myself? And I've been lucky enough that my dad gave me a car and it's fairly new an 05' model with very low km's so I don't spend too much on it and I have a girldfriend she lives with my dad and myself so therefore I'm not blowing all my money on fuel going to see her and all that.



NBS, I am on apprenticeship wages but I had a fake I.D when I was 16 and I partied then, now I have a girlfriend and I am happy and have settled down, a lot. I've been saving 50 dollars a week on 1st year wages and with my tax return and apprenticeship bonuses this year I would of saved over $5,000 just on 1st year wages. I believe I can do it myself but my girlfriend will be saving aswell and she's allowed to help me in the bet but I will be trying to do it myself. As for the building part I know that builders do a lot of the paper work and management now but the houses I build for myself I will be looking to be on the tools more than just the carpentry side as I believe this should give me more of a profit and I will be able to do some cashies this way? I would only do cashies for my mates that I help do the work for the plasters, plumber ect. Is that still a bad idea?

 

[csc2]

Any mug can be a builder matey......its not that hard...trick however to make good money is to ensure you have sound accounting skills or at worst have someone who can keep an eye on things..

ive seen many a good builder who appear to be making huge bucks only to see when times get tough they fold in an instant with huge debts left behind.

as with any business always save for a rainy day so to speak cause the building game is fraught with downside as well as busy periods...........

diversify your business when required......take on small renos when the market is slow.....but always keep an eye on your bank balance.....

pay subies promptly...if you dont, news spreads very quick in the building game that your a slow payer and subies will soon be dodging your job sites...

best of luck...

 

[Jonril]

That's a great attitude to have Kawrayy. If you channel your energy in the right direction and play smart and hard you'll wind up with what you desire.

If you want to be serious about your building career I would suggest looking into project management courses/work experience to complement your carpentry/trade building skills.

Being able to build a house is a fantastic skill to have. Having the skill to be able to manage a whole bunch of individual tradesmen and other professionals is where the money is made. I would suggest working your way into the industry with established project builders and seeing how the (GOOD) project managers handle the logistics and execution of building sites. Keep your two eyes and ears open and take in all the experience you can.

When you think you have a firm grasp of the industry put your hand up to be a project manager yourself and let the steamroller which is the industry give you the experience. When you are the bloke everyone calls to get things done, go to the top of the food chain and ask for a king's ransom to keep you on. If the bosses say no, you'll have the confidence and the resources to strike out on your own.

Now go out there and play smart

 

[brendio]

This is my plan,
as I'm a carpenter I will be able to put down a deposit for a loan and build (the carpentry side), and I already have friends that will be qualified before I am that are, Electricians, Plumbers, Plasters, Shopfitter/cabinet maker so I can save alot there. Once the house is build I will be able to keep it for a year and sell (less capital gains tax)

Holding for a year won't mean any less capital gains tax as you will have none. Because you are building to sell at a profit, you will be deemed to be carrying on a business and so any gains will be classed as ordinary income and taxed at your marginal tax rate. The bad news is no CGT discount, but in return you can claim other costs back immediately as expenses rather than only when you sell, which should help a bit with cashflow. You will also need to register for GST, because when you sell, GST will be payable (you need to hold for 5 years if you want to avoid GST), but this also means you can claim back GST paid on any building materials and services. Hence, you don't want to do cashies because then you won't be able to claim them as deductible expenses and you will end up paying tax in the end on what you saved anyway.

I wish you all the best with you venture.

 

[Kawrayy]

csc2 - Yeah I've found that keeping an eye on your bank balance helps, a builder worked with went bust because he "thought" he would have enough to do this and that. And with the paying my boss has already had some troubles with being paid and his told other people so I sorta learnt that too thanks for the heads up though.

Jonril - Doing this would take up probably all of my time, as working full time and building my own house on the side would will take up enough as it is. It does sound like a plan though I will keep it in the back of my head and look into it in the future. Sounds like a way to work smarter and not harder

Brendio - But if I am working full time as a Carpenter or Plumber, and just build my house and have it as my PPOR for a year then sell I will not have CGT? It will be classed as a second income? Is this what your saying?

I was under the impression that I can work full time, then use my builder's licence to build my own house and sell it. If I sold it before a year I would pay more caiptal gains, if I hold it for a year I pay less capital gains tax?


hanks for everyones input keep em coming

 

[Aaron Sice]

plans are good at your age - you can have plans and still party.

you sound well balanced - you type normally, no txtspk 4u. communication is everything if you want to be taken seriously, and if 10% the CV cover letters i've reviewed over the past 6 months were written as well as your post, i'd have someone employed i'm sure.

avoid cashies. honestly. you might do one or two little cash jobs during the year, but on the whole, declare the lot and pay the tax and minimise the deductions to what can easily be added back. you'll be full doc your entire life with proven income with no 100k tax bills after 5 years like a lot of tradies i know.

set your GST aside into a seperate high interest account. that way every time you get paid, you're depositing and it "appears" like savings to a bank. it's also great for short term, interest free loans should you get in a bind.

good luck.

 

[fokas]

Mate I love your enthusiasm! Apart from the nitty gritty advice which more experienced investors can give you, my 2 cents:
-write out your plan so you can see where you’re going
-calculate your goals and how you’re going to get there
-lock your savings away periodically so you’re not tempted to blow it on ‘life’ as time progresses
-despite your emotions telling you otherwise, keeps things separate with your girl

What’s that saying…even if you’re on the right track, you’ll get run over if you just sit there.

Good luck!

 

[brendio]

Brendio - But if I am working full time as a Carpenter or Plumber, and just build my house and have it as my PPOR for a year then sell I will not have CGT? It will be classed as a second income? Is this what your saying?

I was under the impression that I can work full time, then use my builder's licence to build my own house and sell it. If I sold it before a year I would pay more caiptal gains, if I hold it for a year I pay less capital gains tax?

Working fulltime in another job is irrelevant. What matters is your intent when you purchase the land. If it really is your PPOR, then it is CGT-free, but if you are doing it once a year, the ATO will not view it as your PPOR, but see it as being built with the intention to make a profit and tax it accordingly. Having a builder's licence would put it beyond doubt in the ATO's eyes. There was a link posted on the forum a few weeks back from BAN TACS on how not to be a developer. It dealt in particular with subdividing land, but a lot of the principles in the booklet would carry across to building. Really, with what you plan, I don't think you can avoid the tax situation. Best set it up from the beginning in a businesslike manner so you can at least take advantage of some of the benefits rather than getting caught and retrospectively slugged a big tax bill.

The only way I see you can legitimately avoid paying tax on the gain is to build it as PPOR (only works for one house), live in it, latter decide to move back with your folks (or rent elsewhere) and rent the place out for at least five years (to avoid GST) but no more than 6 years (to still be able to claim it as PPOR). You can't have any other PPOR during this time. You could move back in for a period before the 6 years is up rather than selling. This will reset the 6 year timer. In this case, the sale will be tax-free, but it might hurt your cashflow too much and you would be better off wearing the tax as a cost of business and make sure you earn enough from your builds during those five years to still be better off, even after tax.

 

[Sheryn]

I would only do cashies for my mates that I help do the work for the plasters, plumber ect. Is that still a bad idea?

Kawrayy
IMHO do not do cashies as it reduces up your borrowing ability.

If you are going to run a business to make money then run a business properly and you most likley will need to be a company. I went to an info session run by Depart of Fair Trading on Tuesday and basically all presenters said all Builders & Subbies need to be companies to protect their personal assets.

Re: Building your first PPOR - the banks require 40-45% deposit for Owner/Builders even if you are a builder.

Suggest: You contract a Builder to built your first home so you learn
(i) how the client feels
(ii) how the builder runs their business eg. paperwork and timing &
(iii) you may get away with only a 10% deposit.
(iv) you can add value to the PPOR by doing your own landscaping and adding a huge deck.

You do not pay CGT on your PPOR.

NOTE if the ATO believes you are a house trader they will tax you as such.

I know of a few people (builders, tradies and ordinary people) who have built and sold and each time increased their cash so definitely doable.

Partner your girlfriend what does she do? Ccan she learn bookkeeping to help you out in the future OR are you medium term goals different?


Go for it...


Sheryn

 

[Kawrayy]

Hmm well I've decided not to run a building business now only build for myself and decided that I wont do cashies as it looks like I will have to pay tax and by doing that as yous have previously said can help reduce my tax bill which is what I want. I think it would be better off building and selling 5 houses and paying tax rather than waiting 5 - 6 years just to avoid it.

 

[Minx]

Congratulations on having a pathway as to where you want to be.
I have a heap of food for thought for you as, my other half is a chippy by trade and also builds houses.
- what sort of work do you and your boss do? Domestic, commercial? Is it estate work for majors or is it for builder/developer types who generally do multi dwelling being stick build?
- what is your contingency when you finish your apprenticeship? It is highly likely that your boss will let you go (reality is most do).
- you will need to find work following your completion. Furthermore, in order to build dwellings, as a chippy you will be required to complete frame, lock up, fix and everything else in between. A frame is not a job than one person can do. Will you be taking on an apprentice? If so, you will be making a commitment to provide wages to an individual regardless if you get work or not. Being able to put a house together successfully many times from scratch is very important. It is critical that you can evidence this as well as evidence your problem solving ability to fulfil requirements for DBU.
- don't know what your working hours are like now, but when you are on your own you generally don't pack up your tools after an 8 hour day. You tend to stay until the job is done or when the sun is setting. Not unusual for OH to come hope past 9 in the summer and leave home at 6:30am.
- think about the tools you have and the tools that you need bearing in mind that you will always need more to cover the apprentice etc. To give you an idea of what the other half has many of each might I add: drop saws, framing guns, fixing guns, gas guns, table saw, power saws, thicknesser, plainer, router, drills, recipocating saws, timber flooring gun, ramsets, compressor, hoses etc. Then you have consumables that you have to have on hand such as drill bits, router bits, blades, screws, nails, pins & charges for ramset etc. We are talking about over 20k worth of tools.
- as someone mentioned previously a car that is decent for your job such as a ute with t ball. Trailer to carry all the tools for the job. You are looking at a couple k plus for that.
- you had mentioned that you will get mates to do jobs at mates rates/cashies. Maybe if it was for you ppor. Really you can't expect friends to work for cheap when you will be selling for a profit. It's an unreasonable expectation. My other half's friend built with a project home builder recently. His friend wanted him to do the fix. What this company was willing to pay for the fix, my other half would charge three times that. Needless to say, my other half did not do the job. Work is work and money is money.
- further to the above point, how are you going to hide all that money from the ATO by doing it all as cashy?
- all government departments talk - you can't hide your profession so talk to an accountant about structure and be advised well in advance of what you will need to pay the tax man e.g. Gst on sale etc.
- your idea of building dwellings whilst taking on another apprenticeship is flawed. Building a house is not a weekend job and neither is being a builder. Builders are on site everyday organising material and trade. Taking on another apprenticeship is a job, is it realistic to expect that your boss will let you leave his job so that you can whip up a frame? To pick up materials? To complete the lock-up, fix and anything in between? I can guarantee you that no boss will be pleased with those conditions of employment!
- to build a house you need money. Time is also money. We are just about finished building our ppor. It is a big house but none the less all houses cost money. Other half did save money by doing all the carpentry work. However, time is money. For the 3 weeks spent on frame he made no money. For the week he spent laying the timber floors he made no money. At those times, he still needed to pay his apprentice his wages and all other associates costs. So for our house, we didn't pay anyone 18k for the frame, but didn't make 18k for the frame if that makes sense. Looking at costs for the frame alone and again basing this on the ppor, material for the sub floor and frame was about 20k plus around 14k for the steel as per engineers specifications. The houses you build may not be as big or as expensive but you need some serious cash flow to purchase material. Your projected apprenticeship wage of $900 in my opinion is not going to go far to cover the costs.
- anyone who builds a house and sells (within 7 years) or builds a house for a client needs home owners warranty insurance. In order to fulfil the DBU license, you need this. To get this, you need some serious money and or capital. Just to give you an idea, in order to build houses worth a million each year, you will need many more of that in the bank/capital. If you are unable to satisfy that, you won't meet the requirements for DBU.

It is great as I said that you have these goals and no disrespect intended with the post but I do believe the points above is generous food for thought, and will allow you an opportunity to develop you plan of action to great success.
I can't tell you of other peoples experiences and can only tell of our own.
My OH is 31 and as a first year apprentice back in the day was sent to jobs on his own. For many reasons this sort of thing doesn't occur anymore (duty of care, work cover). He was literally thrown in the deep end and as such learnt a lot and also made his boss a bomb.
The DBU process was a very long process and in hindsight some what emotionally draining. Building up to and the process in itself is interesting as you develop a business plan and an action plan and work around limitations such as cash and capital. In terms of building, our plan outlines that we won't work for clients. This is a decision we made after much consultation and consideration. I will not get into reasons why we elected that but will say that it means that projects are either done on our own or in a syndicate. This means that it limits how much time my OH is a "builder" in comparison to a "carpenter". At the end of the day, he still loves what he does (carpentry) and as a chippy is booked solid for the next 14 months. The builders that the OH does work for are all very cashed up or in a syndicate themselves and build only for themselves. All in all, we are very happy with how we are travelling and even to this day with all the experience and money made, at this point in time to build our own projects costs money, a lot of money, as such the OH is not a full time builder. Maybe if the business and action plan was to change to include providing the service as a custom builder that may change. Again, this is something that we will do, nor compromise for many reasons.
To give you an idea of the money involved in doing your own projects, the last one we did cost 1.2 mill for the site and build. When you do your own projects you need to think about where you are going to get cashflow to pay everyone and to buy material etc.
I strongly suggest that you take on work down the track for owner builders to really see what it is like to be a builder. As a chippy for an OB you kind of almost become the quasi builder as I have yet to come across an OB that doesn't rely on their tradies or actually understand that by taking on the role of OB their job is that of a builder and what comes with that. Needless to say, another rule enforced is that we don't do OB jobs.

Once you are qualified get in good with some good builder/developers who do their own projects (multi dwelling). OH has about 5 builders who give him continual work. These guys don't even ask for quotes off him, they just request an estimate and invoice accordingly. Learn to weed out the tyre kickers from the serious Joes. You will find that spending the better part of a day quoting fame, lock up and fix for a tyre kickers is a waste of your time (and that is very little time when successful) and gets frustrating. Once you find a few good builders and you do a good job, they will tell their builder buddys about you. OH is flat out with carpentry and to this day doesn't have a business card.

Best of luck for the future, you seem like a good kid with his head on his shoulders. My advice would be to network & find a mentor. My OH had 3 who were happy to explain the highs and lows of building. To be honest, the lows and everything in between.

 

[Chomp]

Not sure what state you live in, but check with your builders registration board for what is needed to obtain your building license, there is alot of information on their websites.

I think doing a trade is a good way to go, if you work as a supervisor once you have finished your trade you will usually have the respect of other tradesman. I have seen people with degrees just not getting that.

Try and get a mixture of commercial & residential experience, again check your brb website, in WA 2nd fix does constitute as being in the work of a builder.


Take note that not just any mug can become a builder despite what some people may think. I have completed the double diploma and our original class of 35 odd blokes only 4 of us went through to the end. Alot of this was due to the extreme work load with them on the tools as well. But at the same time, some of them just didn't have what it takes.

I saved up and received austudy, so I didnt have to work for the two years, not easy when your thirty and used to a good wage , but it was well worth it.

Dont forget you will have your theory side of your apprenticeship to pass as well, while not overly hard it is still time consuming.


Chomp

 

[wylie]

Take note that not just any mug can become a builder despite what some people may think. I have completed the double diploma and our original class of 35 odd blokes only 4 of us went through to the end.

Maybe that was because they were all a bit "odd" (sorry, but someone had to say it).

 

[Chomp]

Maybe that was because they were all a bit "odd" (sorry, but someone had to say it).

Not a bad effort

Chomp

 

[Rodney]

go for it... you will never look back