My little Mona Vale development update - Phase 3

[JIT]

No Abby, that's double taxing...

Rickardo is right due to the HDT structure.

Cheers,
Michael

Michael, there is also a chance that you may not be able to negative gear with HDT's at all (even if you are CF+ve, there are implications here when re-financing)... even the supposedly ''well written'' ones.

I'm overseas now but am going to get an update on this next week.

 

[JIT]

So now if you drew out 200k from the company as your profit for the sole director, then it would be down 100K or so after it gets declared against the ATO personal income return.

So in a general sense under a develop and sell all model, we are left with around $100K profit from such a development. It may be less once Michael crunches the final numbers, and it would be good to see how it computes at the very end.

My point being is if you were purely developing to sell, this seems VERY high risk & VERY STRESSful for a very low profit margin.

Definitely not your 20% builders / developer margin we often hear & read about.

This could be a message to those looking to develop for profit, - couple of misfires and less due diligence than Michael has shown and one could very much be left is negative 100K or more take home loss!

Very interesting figures.

Also may prove that you aren't always better off to buy wholesale rather than pay retail on something already built as building costs are rising fast and so to are the unforeseen risks which are difficult to budget for.

I'd have to agree with your sentiments here, but it's still early days, and as a learning experience it's hard to put a ''price'' on this, as Rickardo mentioned...

I'd add also that what is more significant here is the ''opportunity cost'' incurred in a development taking 3-5 years without generating substantial equity.

 

[MichaelW]

Hi Everyone,

Time for another little update as its been another exciting day in Mona Vale!

Today we poured the footings, all without incident. The only minor hiccup was our traffic controllers who stuffed us around so we had to use alternate ones, but thanks to my builder's efforts they sourced a team and the pour went ahead without delay.

They'll now layout the basement formwork, reinforcing and plumbing rough out then we'll move on to the basement pour in a couple of weeks time.

Here's some happy snaps my builder just emailed me. Enjoy...

Cheers,
Michael

 

[Rockstar]

It's a good feeling having those holes full of concrete (and not water) but a better feeling to have a roof on. Glad to see progress mate. You've got your builder well trained to be taking progress pics for you. Is that in the contract?

 

[MichaelW]

Hi Rockstar,

Thanks mate.

Yes, I was worrying a bit about rain and how much of an issue it can be at this stage of the project. The property two down had a lot of issues getting their basement in with constant rain delays and pumpouts. Thankfully we've had no rain so far and fingers crossed it stays that way until the basement is down. At least then we've got a solid base to work off.

Yes, the builder is great. They're taking lots of photos at all the key stages and sending them through to me. I think they know just how much it is killing me to be living in Brisbane now while my project finally comes to life in Sydney.

Very exciting times. I was talking to my builder yesterday and we think most of the cost variation risk is now out of the project. The unknowns are all accounted for and its now just executing to the timeline with only a few minor provisional sum variations. We're hoping to have tennants in by Christmas. That will be happy days as we'll be rolling in cash flow and sitting on a fantastic asset in my portfolio in Sydney's saught after Northern Beaches.

All very exciting...

Cheers,
Michael

 

[MichaelW]

Hi Everyone,

Time for another quick update. All going along smoothly now and I'm thrilled with the progress. Its coming up out of the ground now as the builder is doing the block work in the basement prior to the basement concrete pour. You can see the location of the lift well in the last photo and the ramp access from Darley Street.

Here's the photos to whet the appetite of any other would-be developers out there...

If there's one key word you should take away from this entire process it is tenacity. If you've got it you will succeed, if you don't then take up another hobbie...

And for those suggesting this is not looking to be a fruitful undertaking, I beg to differ. The stars are aligning for a profitable outcome coupled with a bucketload of portable learnings which I will soon bring to bear in Brisbane once these are complete and let out. The financial rewards are enormous and I am thrilled for my families sake that we took this on and had the gumption and tenacity to stick with it through the tough hurdles along the way.

Until my next update...

Cheers,
Michael

 

[skater]

This all looks amazing Micheal.

Can I ask a silly question? Why do you need a lift?

 

[Leghorn]

Awesome post Michael thanks for sharing

 

[MichaelW]

This all looks amazing Micheal.

Can I ask a silly question? Why do you need a lift?

Hi sk8er,

Not a silly question at all. To be honest, its an expense I could have done without... But the short answer is that it is a requirement under Pittwater Council's development controls for multi-unit developments. 50% of them need to be "accessible" so need all sorts of additions to make them suitable for mobility limited occupants. For me, this means two of the three need to be accessible. That required a lift access from the basement to the ground floor so the ground floor unit could be accessed without stairs and the ground floor of the townhouse could be accessed without stairs. Within the townhouse we also had to locate a bathroom and bedroom on the ground floor for it to comply which is a bit of a *******isation.

All sorts of other complying elements too like 1.5m turning circles in bedrooms and bathrooms for wheelchair access. Our common property side access couldn't be greater than a 20:1 type slope either and all sorts of other controls. Added a fair bit to our construction cost but that's all part of the cost to build these in Pittwater.

It has an upside in that it will be attractive to a greater range of tennants. A lot of elderly tennants in Pittwater demand lift access now.

Cheers,
Michael

 

[skater]

Ouch! That is one large expense! Surely a ramp would have sufficed?

 

[ianvestor]

Surely a ramp would have sufficed?

Good work Michael, exciting and inspiring stuff.

 

[ok180]

Well done Michael. Your lucky the weather has been relatively kind to you the past month or so. I've been on jobs that have been delayed for months due to inclement weather alone at the footings stage.

 

[MichaelW]

Well done Michael. Your lucky the weather has been relatively kind to you the past month or so. I've been on jobs that have been delayed for months due to inclement weather alone at the footings stage.

Hi Oscar,

How dare you even voice that concern out loud!!!

I know just how lucky we've been and I've got everything crossed that we get the basement slab down before any rain comes along. So far, so good, which has been a huge relief.

Cheers,
Michael

 

[sports fan]

when i was an apprentice working on a high rise in north sydney it rained every single day for 2 1/2 weeks while job was coming out of the ground.. boss of the formwork company had to pay 25 carpenters wages and 6 labourers wages union wouldnt let him move them to another site where they could be productive because bovis lend lease was builder.. needless to say the end result

 

[dantro]

Assuming my $500K margin is accurate to start with, I'd need to subtract $270K in GST but then add back $125K in GST credits for a net deduction of about $145K reducing my margin to $355K in my pocket.

...

Cheers,
Michael

Hi Michael,

As a first time "hobby" developer (4 units in Melbourne), I've really enjoyed reading your posts.

Just a quick note/ clarification on the GST. Are you using the margin scheme consideration method to work out your GST?

In that case the GST would NOT be 270k minus credits of 125k but the "margin of profit - i.e. [2.7M minus purchase price of 800k] x10% = 190k and I believe you would also claim the GST credits on top of this. My accountant explained that the margin scheme would apply in my case, and I see no reason it would not apply in your case (there are some conditions on using the margin scheme but not many). The GST credits (that you claim for costs mostly related to construction) gradually reduce over a 5 year period.

http://www.ato.gov.au/corporate/content.asp?doc=/content/70665.htm

Or have you already included that in your credits of 125k? I'm not an accountant but I know that if you don't use the margin scheme, you'll be paying a huge amount more in GST in the event of selling <5yrs.

All the best.
Daniel

 

[MichaelW]

Hi Daniel,

Thanks for that post, very illuminating. I wasn't using the margin scheme and will have to check with my accountant on its applicability. I was purely assuming I would have to pay 10% GST on my sell price but was limiting my credits to my GST inputs that are deductible. If I need only pay GST on the margin then that would make a significant difference as the land was GST free and hence had no input credit claimable.

Many thanks!!

To everyone else, here's a quick update as to where things are at right now. I think a picture tells a thousand words so will leave it at that...

Now who was it that had the audacity to mention rain in an earlier post!!

Cheers,
Michael

 

[rexilla99]

Hi Michael,

Nice to see your project coming along, keep the pictures coming.

Jason

 

[murph14]

Gee, I can't fault the polishing job on the basement there...

 

[MichaelW]

Gee, I can't fault the polishing job on the basement there...

Smooth as glass hey!

Still like that I think. They pump it out, it rains, they pump it out again. If Sydney could string a week of sunny days together we'd get the slab down...

Ah well, if we're going to have delays they're better at the front end of the project when the construction loan is virtually not drawn down yet so the interest servicing costs are manageable. Would be a bugger having delays at 90% completed and up to our eyeballs in debt.

Cheers,
Michael

 

[zed_kid]

Gee, I can't fault the polishing job on the basement there...

Lol that’s exactly what I thought ‘polished concrete in the basement, that’s rich’