Self employed Builder/Developer

[macca22]

Hello i just want to get some feedback and look at options for my current situation.
I work for a builder in adelaide on 55k pa and i have just sold an ip that i have held for 10 years. With the proceeds after tax and also revaluing my ppor i will have around 180-190k equity to play with.
I have previously been self employed as a landscaper and since becoming an employee again i have gotten my builders contractors license and a great deal of experience in supervision and estimating.
I would like to become self employed again as i know that i can make 20-30% margin on any standard building contract and i would like to subdivide and build my own projects for a living.
I am going to see my mb who i have been with for over 10 years in a few weeks and i just want to get other opinions
I have 2 young kids under 5 with my partner working part time on 300-400 per week. Ppor worth approx 580-600 with debt of 260k.
Just want to get some more info on self employed builder finance as i am looking to secure a site around 300k and subdivide to build 2 on worth around 425 each on completion.
Thanks, Daniel

 

[Mick C]

A few things...morel like a few holes that you need to beware of...

1. Your servicing is going to be your biggest challenge OR more like "proving your income" so there's a high chance you will need to go down the low doc path - so speak to a broker about the requirements for full doc VS low doc and " plan" according.


2. self employed builder finance = Owners build...unless you get one of your mates to sign off on the build under their license and contract

3. Deposit wise it's a bit tight as well...really you want to be at 80% LVR ( esp if it's going to be low doc) -- add in with owersn build + Low doc - your LVR is now sitting at 70%.

- Can you achieve what you want without being self employed? or doing it part time??? ie working in a PAYG contract etc....

 

[Shahin_Afarin]

Borrowing capacity is going to be an issue. Depending on what your income looks like this year - lo doc may be your only option but hard to say without the flu picture.

 

[macca22]

Hello guys thanks for your feedback.
I am aware that i will need to go low doc to borrow funds for owner building but will the loan to buy the block need to be low doc or can i use my payg income as proof?
My plan is to secure all of the finance and approvals while still payg using equity where needed and then resign once the build starts.
The profit that my building company makes on the build together with the profit that i make in my own name after selling the completed projects should be double to triple my wage now and will be able to show servicing ability for the next project.
Does this sound like a feasable plan or is my head in the clouds?

 

[boeman]

Fairly certain you cannot be an owner builder for units/multi residence, since being an owner builder requires you to live in the residence for 6 years before selling.

So you need to run this where you are the builder completing the contract for a client (whether this be a trust etc).

Are you a registered building practitioner sole, or registered building practitioner contractor?

 

[tobe]

Hello guys thanks for your feedback.
I am aware that i will need to go low doc to borrow funds for owner building but will the loan to buy the block need to be low doc or can i use my payg income as proof?
My plan is to secure all of the finance and approvals while still payg using equity where needed and then resign once the build starts.
The profit that my building company makes on the build together with the profit that i make in my own name after selling the completed projects should be double to triple my wage now and will be able to show servicing ability for the next project.
Does this sound like a feasable plan or is my head in the clouds?

Bad plan. a) you need to let the lender know when your circumstances change, or even if you foresee your circumstances changing
b) lenders wont use your profit as income for serviceability for the next loan, unless you can show it consistant over 2 years in yoru tax returns
c) most low doc providers dont do owner builds. some might do a fixed price contract between you and your company as the registered builder, but thats about the only exception.

 

[Corey Batt]

The simplest way to transition from PAYG to development is to run a business while PAYG, running development profits through the business until you have 1-2 tax returns. Once you have proof of income through the returns, axe the job and work on the business full time.

Most people don't like this though because it takes TIME!

 

[macca22]

Hello Boeman thanks for your reply.
Yes i am fully licensed and intend to start a company where i can write out a fixed price contract to myself as the developer.
My building company will then make a profit of 20-30% of the contract price aswell as the profit i can make from being the developer.
I will be looking for simple subdivisions to start as my understanding is that 4 units or more is a whole different ball game when it comes to financing
Cheers, Dan

 

[boeman]

Makes a lot more sense, I read it as owner builder.

The only profit you will truly make will be the on-sell of the properties.

The 30% you make as a builder comes from finance you are servicing, so while it helps cashflow it is still money owed to the bank by you (not a client), correct?

You are essentially building at cost but require the company as a loophole so you are not an owner builder. I managed a company set up like this and it works well provided you front load the progress claims to ensure everyone is paid promptly and such.

Hello Boeman thanks for your reply.
Yes i am fully licensed and intend to start a company where i can write out a fixed price contract to myself as the developer.
My building company will then make a profit of 20-30% of the contract price aswell as the profit i can make from being the developer.
I will be looking for simple subdivisions to start as my understanding is that 4 units or more is a whole different ball game when it comes to financing
Cheers, Dan

 

[macca22]

Yes Boeman that is my intension to structure it like this and also have my missus as a shareholder in the company to spread out profits when needed.
It is good to know that it has been done before as i am keen on building but not keen on dealing with clients ( i had 7 years of that while self employed before! )
My sister in law is a RE agent so she can deal with the clients after the houses are built

 

[boeman]

You will have to deal with them for 6 months maintenance or any structural warranty issues.

They're unavoidable.

Yes Boeman that is my intension to structure it like this and also have my missus as a shareholder in the company to spread out profits when needed.
It is good to know that it has been done before as i am keen on building but not keen on dealing with clients ( i had 7 years of that while self employed before! )
My sister in law is a RE agent so she can deal with the clients after the houses are built