Oh OK, a Company is considered as a “non biological” individual & can make purchases in the same way as a “biological” individual.
……whereas a Trust cannot do the same because a Trust is considered simply a relationship between entities (not an entity itself).

Sorry to put it so crudely but that’s the impression that I get from your explanation.
Hope I got it now.

Regards.

Hi,

You want to buy land/land with an old house and then build 3 villa units (2Bed 1bath 1Garage) and then sell them.

I would like to give you some food for thought whilst you find the financial answers that you are looking for.

What if that particular combination is not what best suits the area or does not give you the best return?
Will you look at another block, a block that only works with that combination?

Developers would think slightly differently, they find the formula to a block rather than have a pre-determined formula to follow.
Why not find a block & only then start working on figuring out it’s max potential (to best suit the area & your budget). Then make plans to achieve that (once you feel comfortable that it’s the one).

It will open up more possibilities for you & keep you learning with every piece of land that you find because the project is not merely dismissed for not conforming to one template. If you dismiss it, it’s because it did not stack up fundamentally. You are learning with every rejection you make, you are learning & gaining with every project you complete. You are setting yourself up for a possible win/win.

More wealth to you, have a wonderful & exciting journey as a developer.

Cheers,

Actually I am now very sure that my above entry is extremely incorrect.
Hopefully someone with GST knowledge will assist.

What happens with GST if a newly created property is rented (because it cannot sell)?

Solomon10 wrote:

Thanks Terry,my understanding now is, if sold in under five years GST would apply,and profits after GST and costs would be added to taxable income for the year. If sold after five years of being rented, no GST would apply and CGT should apply instead of income tax. Seems a better way if can afford to hold them for six or so years.

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Hi Solomon & all,

I am quoting your above comment as I believe that the GST situation is a little more complex than simply holding a development property for 5-6 years and then not paying the GST back but then paying CGT with income tax. (BTW, I am really hoping that I am wrong) & I want the GST experts on this forum to prove it. GST is complex so I am hoping that there are new rulings or that I have misinterpreted the law.

There are only 2 ways in which you can hold a development property for more than 5 years & the outcomes of both scenarios are very different indeed.
Scenario 1: You hold onto the development property & rent it out for more than 5 years. You do not actively market it for sale during that time. ***Not marketing the development for sale (due to soft market or whatever other reasons) is deemed by the ATO as a change of your intention***.

Consequences for scenario 1: You are forced to make decreasing GST adjustments for the GST credits that your received during the construction phase. I believe that the time period for this adjustment is approx 12 months after every GST credit was claimed therefore you would have paid back 100% of the GST credits within the 1st year of holding onto the development property. If you undergo this “adjustment” & pay back all of the GST & you actually end up selling the development within a 5 year period then the ATO allows another type of GST adjustment (increasing). This increasing GST adjustment basically gives you back an apportionment of that original GST credit depending on which year you sell. 2nd year sale give you back more GST credits than a 4th year sale as the longer it takes to sell the closer the property is labelled “used” and not “New” stock any longer. (If you sell the development after 5 years then you are liable for CGT just like any “used” stock is treated.

Scenario 2: You hold onto the development property & rent it out for more than 5 years. In this time you actively market it for sale.
Consequences for scenario 2: In this case of actively marketing the development for sale, it will not matter how long you rent it for, the GST is never wiped out. The 5 year count down only starts when you are not marketing it for sale whilst you rent it. In this scenario you can sell the development after 10 years and it is still considered new stock. GST & income tax rules apply.

The difference to both of the above examples is your intention with your actions because that determines whether or not the ATO deems that your intention has changed. From what I can see with your plan, there is no GST free situation that will be beneficial. (Either it is paid back in full soon after construction or anytime after). I used to believe that a developer could simply hold onto a development property & rent it out for more that 5 years after construction and the GST would be wiped (without being paid back earlier) but I cannot find/prove this by searching the ATO site.

Hopefully somebody will prove me wrong but I’ll be very happy with the egg on my face (for just this time).

Cheers.

All great advice – in particular “Catalyst” recommending to start at the local library & “Jacqui” pointing out that if you start with understanding your financing ability it would save you so much time.

You’ll find that you will be able to answer your own question as to whether your single income will be enough to commence. You’ll also find that every answer to every question about investment will be: “it depends”. Eg: Is a single income of $1 million enough to commence with property investment? What if that person spends most of it on fast cars & on gambling or is very sick and needs to spend it on medication? It changes everything. Some people earn heaps & live pay to pay, others earn very modest amounts and have investments. Of course the opposite is also true, some low income earners waste all their income & some high income earners budget wisely and have their money work for them.

I’m still learning, reading tonnes of books & also putting some of it into practice. I don’t think that should ever stop.
I post very large replies mostly because I am a pleonastic but it also helps me learn that way. Writing about stuff helps me question whether I really believe it or not. I am sure that the length of my posts have annoyed some members but I have not had any complaints so far. :)

The library will give you a much better sense of what type of investors are out there, what type you are or want to become. It will also help you to know some financial ideas & products. Please remember that books cannot beat talking to a broker for that kind of financial detail. Brokers look at your situation in particular & find the right financial products to suit you. Books are written for audience masses, brokers are talking to you alone.

Many books are outdated so they have details of loan products and ideas that no longer exist or no longer work in the current environment – I still think that these books are beneficial for you to read as mostly it’s “Chew On The Hay, and Spit Out The Sticks” type of learning. The books cover the full spectrum of all types of investors so some books will say:- do only this, others will say:- do only that – and the rest will say:- do a bit of both. There is nothing in books that’s a one size fits all remedy for investments. What works for one investor may not work for another (even if given the exact same property with the same expenses). We all have different personalities, risk profiles, needs & goals.

A book that I have read a few times is called “47 Biggest Mistakes Made by Property Investors and How to Avoid Them”. It opened my eyes to a few things that I never thought of before. I’ve also read a lot of books by Robert Kiyosaki & from Steve. I used to borrow 5 to 10 books at a time. I didn’t read every page on most of them. I’d start reading chapters that I thought interested me more and progressed from there. No one remembers everything that they have read in books, but what they have remembered is what they found important. Don’t use them as manuals because they are not – some books are titled as if they were manuals & some authors are very adamant that they are completely correct and that everyone else is wrong. Don’t believe anything that you read – (it may all be accurate and true but you need to follow up with your own investigation of what you have read by speaking with brokers, accountants, lawyers, agents, family, friends etc). You are teaching yourself about yourself.

An interesting thing I read once was to ask yourself “WHY” use property as an investment? Have you chosen property over some other type of investment for any particular reason? Is it because you think that it is safer to invest in property than to invest in shares or investing in something else? You need to question that very thought. All investment is risky business when your education is low. Don’t look to learn what you do not know just yet, start with questioning what you believe to be *absolutely true* and then find the answer. Play the devil’s advocate with yourself & also when around others in conversations about investment. It’s challenging to do but you could learn heaps. It’s not like school where there is only one answer & you are either correct or incorrect.

I have learnt that investing is NOT done in property or in shares etc. Investing is done in people – as in engaging great accountants, bankers, friends etc. I think that’s what “Catalyst” meant regarding Networking being key.

Cheers & wishing for even more wealth to you.

Hi Jose,

Welcome, I am sure you’ll gain heaps of knowledge here – although, you’ll have to educate yourself further & educate yourself from many other sources if you want to carry out a successful development project.

You do not necessarily have to go with Commercial lending for a 3 lot subdivision. I know that NAB offer Residential loans for 3 or less lots. I am not sure about the other major banks but suspect that it is Commercial lending for 3 or more lots. There are many other lenders than just the major 4 banks, ask your lender (for the Frankston property) whether they would setup a residential loan or not.

Also, it’s not just the covernants that you have to ask the council about. Has anyone else subdivided in close proximity to your property? On July 2014, the reformed residential zones came into effect across Victoria. All residentially zoned land is now included in one of the reformed residential zones and the previous Residential 1, Residential 2 and Residential 3 Zones have been removed from the planning system. Please investigate this and have a chat with the council for them to explain what zone you are in – What this means is that what was done in the past regarding subdivision in your area may not necessarily be what can be done now.

If a 3 lot subdivision is possible on your block, the costs will vary but I’d say that a Planning permit may cost you anywhere from 5K – 10K. Engineering 5K, Subdivision into 3 lots 7.5K. Contribution fees may be 2% – 5% of your land value/purchase price. Power & water Levies 6K total. There are other costs like land tax, holding costs, council fees etc to consider.

You will also need advice regarding whether you are carrying out a business enterprise or not (even if your intention is not to carry out a business enterprise). If the ATO deem that you are carrying out a business then GST & income tax may be applicable after resale. You will need legal advice on this.

I’d start with the council as all of the above information becomes irrelevant if subdivision is not possible. If all OK, I’d speak to an accountant about your ideas, then to a lawyer. Then seriously look at what you believe would be the right design/buildings on your block & why you think that. Maybe 2 lots are more profitable for you than 3. You’ll need help from a Draftsman or Architect to gain Planning approval. Then get quotes on how much it will cost to build the units & whether it is worth your while to finance it. You would need to look at whether building is something that you want to go through & whether it is bringing you closer to your goals or whether selling the block with the Planning permit would be a better option. Then look at gaining your finances.

I am sure that are some other forum members that will disagree with my above order and that’s OK. I have found that being a “Developer” is NOT about subdividing land into as many lots as possible and it is NOT about building cheaper dwellings to match your budget. Maybe that was OK in the past as circumstances were very different then but that approach is very dangerous now. What I have found is that you need to study the area really well and look at providing the area with exactly what is required to be most profitable for you & to be most beneficial for the location. (I would think about this before even buying the block, it would be my reason for buying it or not). Once you buy & have this information, act to gain a Planning permit then I would ask myself one simple question. Does providing this product fit into my budget? If the answer is “YES” then go for it. If the answer is “NO”, sell the block with the plans for someone else to provide the product instead. What does not work for you may work for other developers and vice-versa. I think that doing it any other way ends up with either providing an inferior product or ends up with over capitalizing in the area – Both of these situations should be avoided as both will eat into profits & both could even create losses for you.

Cheers & good luck.

Hi,

Congratulations on expecting your 2nd child.

Sorry about the delay in answering. I’m going through forum messages & looking for ones that have not had a reply (like yours).
I think that I can add some value to your entry.

I cannot give you advice regarding whether an online bank account would be the BEST option for you to temporarily park your money in whilst you look for a home to buy and I cannot give you advice on which online bank account would be the best.

What I can say is that I’ve used one before and it worked well for my needs (one from the major 4 banks). I am fairly certain that most of the leading banks have a similar working online bank account setup so I wouldn’t be too concerned. I think that it would be wise to read the online info about them as you may find one that suits you best, maybe one from your current bank is more convenient for you.

If you decide to go down this path and use an online account, think about who’s name you will want to open the account in. If you open the account in the name of the spouse that earns the least amount of income then the interest, that you earn on the account, will be taxed at the lower income earners tax rate (which is advantages for both of you). So, if you are both earning a similar income you may want to open the account in both your names. If one of you is earning less now (or will be earning less in the future because they are staying home and looking after kids instead of being traditionally employed) then you may want to open the account in their name alone.

That brings me to the next point, I am sure that you could put your money elsewhere and possibly get a higher return on it, however, would you be able to take out that money if you needed it quickly?…….and does the higher return, on your investment, mean that you are also absorbing unnecessary risk? Online accounts seems like a pretty good option for you if you are trying to minimize unnecessary risks.

Food for thought: The only time that I wouldn’t park all of my money, in an online account of the spouse earning the least income, is when that spouse is at more risk of being sued etc. Asset protection is paramount. I don’t think that anyone can completely protect everything that they have but they can certainly minimize the severity of the event if their assets were protected before any trouble started. I mean “higher risk” spouses for example, persons working as surgeons etc (they may have more risk of being sued as compared to a person working in an office job for an IT company). All things being equal, the office job employee would have less risk of being sued.

Cheers & good luck. More happiness & wealth to you.

• This reply was modified 9 years, 8 months ago by  Pimobpi.

Hi Freezer15,

Noticed that your questions have not been answered as yet so I thought I’d try.

I believe that it would be cheaper in price to go to mainstream builders and have them adjust their existing plans to suit your block however I have a few points for you to consider before doing that.

There are only a few mainstream builders that build more than 2 dwellings on the one title – even if your intention is to subdivide into 3 lots, they will not build on it unless you subdivide it first (which I would not recommend you subdividing before you build).

I know of one mainstream builder that builds more than 2 dwellings on a single title but I’m sure there are some others out there, certainly not as many as you think. I am not sure whether I can tell you there name on this forum but their name starts with B.

A benefit of going to a mainstream builder is that they may have completed display homes that suit your block and you can view them in real time – that will give you a great indication what the builds will look like in reality.
A disadvantage of going to a mainstream builder would be that they may not be specialized in building townhouses or undergoing projects to maximize the area of your land or they may not have a floor-plan that you like or that you believe is perfect for the area. These are important facts. Better floor-plans are needed especially when block size space is not abundant. Are they experienced with multiple dwelling applications for council planning permits? etc.

I would suggest you interview (free) an independent draftsman/architect first and get their basic opinions about what they could do with your block and what they have done with developments close by. Go knocking on doors of the developments close by and ask who they used. Experience counts! Then go to the mainstream builders and run through the process again with them. In the end, I am sure that you will choose the builder who gives you the best quality for your budget and the builder that you feel most comfortable with.

Also, some medium / smaller volume builders may suit you better. Do you know anyone who has used a builder lately and is very happy. Speak to them.

Good luck to you. More happiness and wealth to you.
Regards.