Starting a Property Development Company

[PropDeveloper]

Hi all, im in the process of making some very big changes in my career, I'm self employed in the food industry as i write this but have my business n the market. What I'm going to be doing in the future is property developing. Ive decided its about time i make this actually happen on a full time basis (I've built two units in the past). I guess I'm here to talk to like-minded people and hopefully bounce ideas around and learn.

So one of the first things id like to ask seems to be fairly basic but also fundamental as a property developer... that is, finance. I should mention that as im selling my business that i will be without income.
Id like to know how to set up finance for potential developments and if there is anyone that specializes in this? My initial thoughts is that a line of credit would be the easiest way to get finance using my current investments for leverage. But is it the best way to do this ?

Also i hear people talking about trusts and companies, structures and trusts.... these are things that i don't know a whole lot about and was wondering if all of it is necessary, or if im just better off keeping things simple.... which would be my preference. I was thinking just to start a company or pty ltd......

Any thoughts, or suggestions ?

 

[7DD4]

Suggestion : Do a BAG load of reading on this web site. Ive been reading on hear for about 3 years and have 2 Investment property's and still feel like an amateur.

 

[Moyston]

HI, well good on you for having a goal...however one thing ive read over and over , is that the experienced people all say...dont quit your job to do property developement. Reason, why do you throw away any income that is coming in to do a property developement that may take months or a year and have no income. Start small.....just my two cents worth but these are coming from experts who have done it...

 

[The Y-man]

... I'm self employed in the food industry ...

Also i hear people talking about trusts and companies, structures and trusts.... these are things that i don't know a whole lot about and was wondering if all of it is necessary, or if im just better off keeping things simple.... which would be my preference. I was thinking just to start a company or pty ltd......

This doesn't compute for me.....

You are self employed in the food industry - which to me is like an industry with the highest probability of something going wrong and people coming after you - and you are not clear on trusts and companies....

Do you own anything? Because right now, whatever you own could become someone else's in a blink of an eye.....

Cheers,

The Y-man

 

[willair]

Hi all, im in the process of making some very big changes in my career, I'm self employed in the food industry as i write this but have my business n the market. What I'm going to be doing in the future is property developing. Ive decided its about time i make this actually happen on a full time basis (I've built two units in the past). I guess I'm here to talk to like-minded people and hopefully bounce ideas around and learn.

So one of the first things id like to ask seems to be fairly basic but also fundamental as a property developer... that is, finance. I should mention that as im selling my business that i will be without income.
Id like to know how to set up finance for potential developments and if there is anyone that specializes in this? My initial thoughts is that a line of credit would be the easiest way to get finance using my current investments for leverage. But is it the best way to do this ?

Also i hear people talking about trusts and companies, structures and trusts.... these are things that i don't know a whole lot about and was wondering if all of it is necessary, or if im just better off keeping things simple.... which would be my preference. I was thinking just to start a company or pty ltd......

Any thoughts, or suggestions ?

Maybe just start off small,and depending on what someone will pay you in cash for your business,then use those funds to start off buy a rundown
property do a small reno and see if you can make 50-75k over 6-12 months while living in the property,a lot of developers i know all started that way,or find fire sales where the developer is about to be finished off by the banks,and have full DA council approval,plans in place and offer low balls offers,just don't go into development blind as so many have done over the past 2 years,only too find out the money is not in the deal from the first place,if i was you i would spend as much time reading this site,and see the mistakes other people make before you make your own..willair..

 

[Propertunity]

Lots of alarm bells ringing for me:
1. Little developer experience - only built 2 units in the past
2. No knowledge of structures to put in place
3. About to have zero income after the business sells
4. Starting in a market where developers cannot get access to finance
Sounds like you qualify prefectly - see you up at the Gold Coast?

OK that was the criticism. Now for the constructive stuff.
1. Don't quit your day job
2. Cut your teeth on something small to see if you can turn a profit (as already mentioned)
3. Get lots of contacts in the industry
4. Get a business plan and some mentors around
5. Set up a separate company for each development you do but take specialised legal advice for this & to protect your current asset base.

 

[PropDeveloper]

Firstly id like to say thankyou for all your replies, im quite surprised with all the input, i wasnt expecting as much, i thought it was a sleepy forum, obviously not, which is great!

Welshman, the short of it is that ive done a whole lot of reading over the last 5 years or so and although its great to read and teaches you a whole lot, for me i feel its time for me to get my hands dirty. Which is not to say that i think that i know it all (far from it). I think from other peoples mistakes you can learn a whole lot. I guess thats part of the reason ive joined this forum.

Moyston im getting rid of my day job for a new one, and that will be making money on property. Income as you mention will be my problem. To be honest im not sure how i will be doing that, but i will find a way. I will pretty much do anything, my main need is that it doesnt take as much time out of my week as my current business. So if i can have more time but make a little less money, thats fine with me.

Y MAN i dont know what to say, right now i trade under a Pty Ltd, i think you may need to explain what your trying to suggest because im just not getting it. Maybe its that you feel that my assets are not well protected ? Enlighten me Once i move into this new venture of mine, im going to get some leagal advice regarding that. I guess the reason it hasnt been done up until now is because ive felt safe in my surroundings which was probably a little silly of me. Touch wood nothing tragic has happened.

Willair i think your line of thought is in line with mine, i will read and learn from others, i also dont expect to go into this with out making mistakes, i just need to make sure that my mistakes dont cost me too much. Im confident i can accomplish that .

Propertunity you make some really good points. Experience is very important but like everyone else, you need to start somewhere. The knowledge of structures ect, is something i can research, which i will be doing. Its also one of the things i would leave in the hands of a very capable accountant and solicitor, at the end of the day there is only so much one person can do, and i feel that i need a group of people around me doing the things that im weak at.
Income will come from somewhere, if i really MUST i have jobs in the same field waiting for me. As long as it gives me more time to concentrate on my goal then i will do it.
FINANCE.... i feel this is the most crucial, its something i need to look into more, but in my minds eye.... if theres a will theres a way. Im sure there are a heap of finance people on this forum willing to help me out

the second part of your post i liked better that the first part i think that they are all great points.
My business is going, cutting my teeth on something small is exactly what i intend to do right now the plan is to do sub divisions of 2 unit sites. Contacts in the construction industry i have a fair few from my first development and also have some family in the industry.
Mentor would be great.... i have someone, onlything is he is a comercial builder. most of the same principles apply i guess but maybe i can fins someone more appropriate here on this forum, or even this forum itself can help mentor me.
As for the business plan legal advice and accounting duties, well thats what those fine people behind desks are so good at, something im going to have to get is the invaluable advice from them. All i have to worry about is following and executing it.

 

[neK]

My mate was in IT and transitioned into the property development business.

He kept his day job, made contacts and started with small reno jobs, then sub-division and now multiple town houses.

Im sure other people on this forum dont even consider that to be a "developer" but its a start.

 

[The Y-man]

Y MAN i dont know what to say, right now i trade under a Pty Ltd, i think you may need to explain what your trying to suggest because im just not getting it. Maybe its that you feel that my assets are not well protected ? Enlighten me Once i move into this new venture of mine, im going to get some leagal advice regarding that. I guess the reason it hasnt been done up until now is because ive felt safe in my surroundings which was probably a little silly of me. Touch wood nothing tragic has happened.

I assume you are the director of the pty ltd company - which is a little bit better than sole trader, BUT as director, you can still be up for a *lot* of liabilities if some unhappy person(s) comes after you.

Trusts are used as a tool to protect your assets from litigation (although they need to be constructed carefully) by isolating them from you (very similar to a corporate entity such as pty ltd, but much better protected from litigation etc)

In a *very* simplistic explanation, you effectively sell everything you own to the trust (which acts like a person) - this means that you own nothing if someone comes chasing you. There are various costs and tax implications of doing this however, and this is where you'll need a half decent accountant to see if it is worthwhile (eg it might be cheaper to lose your home than to move it to a trust).

Cheers,

The Y-man

 

[PropDeveloper]

Thanks Yman in my current situation i dont think that im in need of a trust but its definetly something i will looking into the future as the need arises.

 

[james_w]

start off small as others have suggested H&L packages are th easists way we found when first starting out just make sure the blocks are under market
and you will acutally make a decent profit it's not easy as some would make you believe you have to factor in selling costs how long approx it will take to sell etc banks are pretty comfy on lending on small H&L packages if you can show that there is a definate profit take tax into account etc and talk to an accounting before you even think about starting
one that deals with developers and develops himself is a good start

 

[MichaelW]

My mate was in IT and transitioned into the property development business.

He kept his day job, made contacts and started with small reno jobs, then sub-division and now multiple town houses.

Im sure other people on this forum dont even consider that to be a "developer" but its a start.

I would certainly consider that to be a developer. I was originally in IT but then got into Management Consulting and now back into industry as a Supply Chain professional. On the side I also dabble in development. The link in my sig has the full blogged history of my current project which is just about to kick into construction phase.

I hope to progressively transition from salaried PAYG employment to more flexible higher dollars per hour worked type employment. As the passive income kicks in I'll be more in a position to relinquish my high salaried PAYG income. But until then I do both. I already know how to move to a more consulting based income stream again doing 6 months on 6 months off, but I'm not sure the banks will look as favourably at this income stream and I don't want to jeapordise my current construction.

Might look to make that jump in 12 months time once this one is done and consolidated.

You don't go from 100% PAYG to 100% developer overnight. I consider it a gradual transition as your skill set migrates and the finances allow. Once your big enough you can no doubt go 100% developer with multiple simultaneous projects on the go financed through the passive income of previous projects. That's still a fair way off for me but a nice end goal.

PS PropDeveloper, might be worth a perusal of that linked development in my sig for some background of one specific example and what's involved. Read all the back threads linked in the first post too for full perspective.

Cheers,
Michael