Hi Guys
Okay, here’s my question:
what are the benefits of property developing?
Are there any?Are there any people here who do it, who specialise in it, who are successful, who are making profits, able to mitigate the risk, are able to manage the process to get their desired outcome, who think it’s a brilliant wealth creation strategy, who would do it again, and again?
Are there any of those people here who would agree that there are great benefits to property developing?
Please feel free to post…
cheers-
MiniGreat question Mini. We have already discussed the risks of proeprty development in another post so let’s look at the benefits of becoming a property developer
1.Savings – rather than buying properties at retail, you can acquire your investments 15- 20% below their market cost. You don’t pay developer’s margin, agent’s commission, GST, marketing and other costs usually included in the price of buying real estate.
2.Profits – at the correct time in the market you can make good profits selling your development projects.
3.Easier finance – once you have completed your development project you can approach banks to re mortgage your properties. They will usually lend you around 80% of their retail value when completed. In many instances this is around about what it cost you to develop your project and you can take out your initial equity. In other words it’s a bit like borrowing 100% of the cost of the property or the classic “nothing down.â€
4.Following on from the above point you get massive leverage when you have completed the development project because you control a substantial property (or 2 or 3) with little capital required as equity.
5.Tax Benefits– owing a new property gives you all the benefits of depreciation allowances.
6.Higher rental return –your tenants will pay the retail rents. They won’t know that your cost for your property was substantially below the retail price. This means your rental yields will be higher than for someone who bought their property at market value.
7.Security – if done properly development can be very lucrative. If you buy your development site well you are underpinned by the security of real estate in a prime position.
I’m sure other contributors will come up with others
Michael Yardney
METROPOLE PROPERTIES
Author of Australia’s leading property e-magazine.
Join over 10,000 readers each month.
FREE subscription http://www.metropole.com.auMini,
As stated before, the biggest advantage I can see from where I’m sitting right now is that you can ditch the 9-5 and take charge of your life as your own boss.
Like back in the Uni days – you succeed or fail based on your efforts and you push yourself – no-one there holding your hand or complaining if you don’t do something their way…self motivation goes through the roof when the profits go to yourself rather than your employer.
Commuting time is reduced – especially during peak hour traffic.
See way more of your family.
All of these are the cake for me.
The profits are the icing.
Best of all you get to eat your cake.
Cheers,
Dazzling
“Go hard or go home”
“take charge of your life as your own boss”
indeed, and my mother tells me I did this age two
and yeah – I heard 9-5 sucks, and I don’t know many people that actually do it. I did have one friend who was an employee but she was investing on the side (v. smart cookie) and bought a bazillion properties and now just grooves around various countries buying up large and living off her portfolio. Oh, i do love a woman of independent means.
Me, I work *whenever* until *whenever*, zero commuting time and all that, but define ‘work’ anyway? Does typing on the forum count? Does making an offer on a property count? Does starting a company constitute work? Does trademarking an intellectual property constitute work? Does developing a property constitute work?
PS Developments are negatively geared while you build them, so they should be in my opinion part of a positively geared portfolio and done in proportion so they don’t propel you back to employment, if you just left
Originally posted by MiniMogul:
[PS Developments are negatively geared while you build them, so they should be in my opinion part of a positively geared portfolio and done in proportion so they don’t propel you back to employment, if you just leftUsually you capitalise the interest during a development so they do not have to be part of a +ve geared portfolio.
I have a substantially negatively geared portfolio. I have undertaken 3 developments for myself this year and yet have added millions to my nett worth. The negative gearing really doesn’t matter as my nett assett position has grown substantially.
This means I can and have borrowed against the extra equity I have and my LVR’s stay well within my tolerance level and the abnks
Michael Yardney
METROPOLE PROPERTIES
Author of Australia’s leading property e-magazine.
Join over 10,000 readers each month.
FREE subscription http://www.metropole.com.auMichael,
Typically with your developments – do you sell them all / keep a few and rent out / keep them all and rent them all out ??
I imagine the more you keep restricts your ability to fund further developments ??
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Thanks Michael, I get how the interest is capitalised i.e. part of the cost of the development, but are you saying that you use equity to pay off interest, i.e. sell stuff? Or do you take out a loan and use some of the lump loaned to service itself?
I also understand that banks will sort of let you provide equity instead of serviceability. But are you actually able to service the loans, or not, because they are negatively geared? I suppose I don’t understand where you take the shortfall from…
GDay team,
I am assuming you all have enough cashflow coming off your investments to fund your lifestyle completely.
Can some one please tell me how you started. Anyone work part time to pay their own bills whilst also doing a development on the side?.
If so how long did it take until you made enough cash to live off and stop ‘working for somebody else’………….
[biggrin]To answer most of the above posts. ….
I rarely sell anything.
During the peak of the boom, when we were doing a number of large developments at the same time, I had to sell some properties. But I haven’t sold anything for 3 years.
Why?
That’s one of the benefits of developing.
On comlpetion a typical development costs me 80% of its retail value. AND….
The bank lends me 80% of the properties retail value.
That means I do not have to have any equity (my money) in the project – at the end. I can withdraw it and use it for another project. But I need the 20% or 30% DURING the project to satisfy the banks.
When I said I live off the equity of my properties, I do not sell them. I refinace them each year or so, borrow more and live off that.
Debt can pay for debt.and its tax deductible (?)
One persons debt is another person’s cashflow.
These are some of the concepts I wll be explaining at my annual Property Briefings. If you want to understand some of tehse advanced concepts of proeprty you must attend. Click on this link
http://www.metropoleprojects.com.au/html/s02_article/article_view.asp?art_id=115
Michael Yardney
METROPOLE PROPERTIES
Author of Australia’s leading property e-magazine.
Join over 10,000 readers each month.
FREE subscription http://www.metropole.com.auHi Loanwolf,
I am replying as a first-time small developer i.e. haven’t even done my first one yet which is two townhouses in a residential area. they will be similar in style to other existing housing in that street.
>I am assuming you all have enough cashflow >coming off your investments to fund your >lifestyle completely.
I do live off my properties these days and I only started investing 2 years ago. Basically I make money from ‘doing deals’ – is the most all-encompassing way to describe what I actually live off, the reality is there are about 8 different ways I do this and it would take me all day to explain!
>Can some one please tell me how you started.
Steve McKnight seminar, cheap undervalued high CF houses with 24 percent CF yields which doubled or tripled in value in a short time. Using buy, do up, raise rent/value strategy too for extra velocity. Zoomed ahead this way much faster than expected.
>Anyone work part time to pay their own bills >whilst also doing a development on the side?.
I am still busy all day and night but it’s not ‘work’ as an employee, it’s ‘doing deals’ work.
I expected that as I progress I will do fewer larger deals for the same or more $$$ rather than many smaller deals as I am doing now.>stop ‘working for somebody else’
Does not compute – because have never done that as an employee except as an under-20 year old. The rest has been freelance, i.e. for self“Debt can pay for debt.and its tax deductible (?)”
Michael, this is absolutely killer stuff!
Wicked! – I think that absolutely nails it.I’m mulling that one right now!
Michael – even at 80% retail I suspect your properties are still quite neagtive…. are you saying you refinance your other properties to cover your annual shortfall? The stamp duty and loan application fees would be huge wouldn’t they?
http://www.megainvestments.com.auExtensive list of ‘Off The Plan’ property available for sale in Perth.
John – 0419 198 856
Originally posted by AUSPROP:Michael – even at 80% retail I suspect your properties are still quite neagtive…. are you saying you refinance your other properties to cover your annual shortfall? The stamp duty and loan application fees would be huge wouldn’t they?
http://www.megainvestments.com.auExtensive list of ‘Off The Plan’ property available for sale in Perth.
John – 0419 198 856
You are right that it is difficult to positively gear a new investment property, even when we build them ourselves.
Theer is no stamp duty on mortages any more and my bank (NAB) does not usually charge me establishment fees, and even if they did, it would be irrelevant.
Imagine I went and got a real job and earned $100,000 After tax and medicare levy I would have $50,000 and even less after super.
If I have a property portfolio worth say $2million in good capital growth areas my properties go up by say $200,000 per annum (on average).
The bank will lend me against this extra equity and I borrow $100k at 7%. (I could borrow more)
This would cost me $7,000 interest and I would be left with $93,000 to live off or invest, or pay off other loans.
If I worked for the $100k and paid tax I would only have half that.
When you own enough equity; cashflow is not important.
Equity = cashflow.
Banks will lend against the equity of your properties,and you don’t need income (lo or no doc)
Having debt is not risky, not being able to have it is
Michael Yardney
METROPOLE PROPERTIES
Author of Australia’s leading property e-magazine.
Join over 10,000 readers each month.
FREE subscription http://www.metropole.com.auExcellent stuff.
I had always considered “living off borrowed money”. I have no problem with doing that. I have recently set up a new trust account specifically for the purpose of low docing and property.
Great point about the fact that interest paid on a loan is much more beneficial than the equivalent amount paid to you as an employee after tax.
Take care all.
J.
This I believe is the “harvesting of equity in retirement” that the Investors Club founder Kevin Young has been espousing for many years.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
I believe Steve Navara also follows similar strategy
Originally posted by MichaelYardney: Imagine I went and got a real job and earned $100,000. After tax and medicare levy I would have $50,000 and even less after super…. If I worked for the $100k and paid tax I would only have half that. When you own enough equity; cashflow is not important. Equity = cashflow. Michael YardneyHi Michael
I’m very, very impressed. Do you mind being a little more specific on the mechanics of how you draw the money out each week/month (ie., the “paper trail”)? I assume your Trust, as a separate entity, is not paying you (as an employee /contractor) a “consultants /property management fee”, because you’d have to declare this as income, which the tax man would tax, right?
So how do you do it? Do you somehow invoice the Trust?
Hi Michael,
We have just been looking at your website, and WOW, we are impressed.
It is just what we were searching around here for!
Property development is definitely the way to go in this property market.We hope to make it to your seminar in June!
You really have some property “heavy weights” speaking!! [biggrin]Kind regards,
Will & Del
Yes anyone who hasn’t been to one of Michael’s seminars really should get along to his next one… it is extremely cheap/good value for a very enlightening and entertaining evening… I went along to the Brisbane one last year and I’ll be there again this year!
-Ian
Hi MichaelI’m very, very impressed. Do you mind being a little more specific on the mechanics of how you draw the money out each week/month (ie., the “paper trail”)? I assume your Trust, as a separate entity, is not paying you (as an employee /contractor) a “consultants /property management fee”, because you’d have to declare this as income, which the tax man would tax, right?
So how do you do it? Do you somehow invoice the Trust?
The princpals will be discussed in more detail in my upcoming Property Briefings
http://www.metropoleprojects.com.au/html/s02_article/article_view.asp?art_id=115and in great depth at the “Real World” real estate workshop
http://www.metropoleprojects.com.au/html/s02_article/article_view.asp?art_id=107The simple answer is you have a line of credit on the increased equity in your properties. Then its like having a big credit card – and you draw doen when you need it
Michael Yardney
METROPOLE PROPERTIES
Author of Australia’s leading property e-magazine.
Join over 10,000 readers each month.
FREE subscription http://www.metropole.com.au
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