Hi,
I have ambitions to start up a property development business but just don't know where to start, I know its imperative to get the structure right first as it can be costly to fix after the fact, this is where i need help/advice/guidance (Please).
My current situation is this. With my husband we own 2 properties in our personal names, one is an investment (negatively geared, worth $300k, remaining loan $215k) the other is our PPOR which we intend to sell up and in doing so will have approx. $200k cash. Since we will be moving in with the parents for the short term, it is this cash we intend to use to establish our business and get onto our first development. For the first couple of projects we intend to buy, develop & sell, however at some stage we would like to continue developing but try to hold some asset and rent out. It is just the 2 of us at this stage, both full time work, however we would like to eventually cease our full time work and work with our own business. We have been keeping an eye on the market and have found a few opportunities so we want to get ourselves set up so we can be in a position to purchase the land/property in the right entity/name when the right opportunity comes up!
Could you please assist with your thoughts/guidance on:
1. The appropriate business structure for Buying, Developing, Selling & in the future Holding?
2. Is it best to use a Discretionary Trust Structure or Company? Tax benefits?? Capital Gains? GST?
3. Any recommendations for Accountants/Tax/Business advisers in the Sydney City or South area that could assist with getting us started in the right direction??Thank you very much in advance for your assistance,
K
Hi Kaylon,
I'm not too sure what size of project you are looking at doing, but there are a few things to consider.
The usual set up is with an entity – a unit trust and company as the trustee for the greatest protection. With any development the lenders will require pre-sales unless you have additional equity to use. Australian banks want blood! They will only currently lend 50% on land and 80% on construction costs and required enough pre-sales in place to cover the total debt inclusive of interest. This makes it very difficult for developers to go forward. However there is light! Overseas and local private funders we use allow greater flexibility for developments lending up to 70% on the land and 100% construction with only 50% pre sales.
Within regards to tax this is a tricky one. All developers look at the best structures to reduce tax via their accountant. For instance sake, we take units instead of profit as we only have to pay stamp duty on the transfers (from company to personal trusts) rather than GST, capital gains, company/trust tax and personal tax. You also need to discuss if it is worth while going on the margin tax scheme etc depending on size of the project.
*If your happy to travel to the south west of Sydney, i can highly recommend my accountant Peter Hawketts of Hawketts Accounting on 02 4677 0361. Mention I sent you, but please be patient as he is stupidly busy at this time but well worth the wait!
The next biggest part of any development is your consultants. YOU MUST HAVE THE BEST team around you at all times no matter of the costs, as this team can save hundreds of thousands or even millions of dollars in the long run. Again if you want some help with whom to speak to, drop me an email and i will give you their details…
The last thing i would like to say is be prepared to take a hit somewhere down the track. All developers take one at some stage in their career is just a matter of how hard you get hit and how early you detect it that makes the biggest difference. When you do, make sure you get up and keep going as this is the type of tenacity it takes to hold the line and achieve your dreams.
Wish you the best of luck
Trent gives good advice, and its nice to know there are funding alternatives to the banks here in AU, I laugh at them often, they restrict lending practices so badly no one can do anything and all of a sudden they're not writing any business, but blame developers for the woes of the property market.. Hmmm..
Anyway. A good lawyer and accountant are VITAL in this scenario, as the structures and methods used to get developments going can, depending on the size and dollars involved, become very complex. You need someone who's got experience in it already. If geographic location doesn't matter and you can transfer data electronically, give Trent's accountant a try, I know some very good lawyers in in Brisbane also.
Other consultants I think (personally) are very important:
1 – Town planner
2 – Surveyor
3 – Agent
4 – Builder/Designer/Architect
5 – Engineer (civil infrastructure)
6 – Broker/Funder/Banker/InvestorIf you have those plus your lawyer and accountant in place, you'll have the foundations you need.
Best of luck!
Matt
You need to GET educated….how much do you really think you will learn in a forum?
you need to get professional help…
if you’re niche is property development, then you need to speak to and learn from and be mentored by someone in the business and someone who is willing to teach you the ins and outs…
go to this website and read all of the free information you find written solely by an AUSTRALIAN property developer with $1.2Billion worth of property development in OZ
Then after reading and emailing him you will see how much you will learn from the RIGHT person. Then if you are ready, you can take the next step
Here is the link: http://www.realestatesdevelopmentcoach.com
with the right knowledge will you only succeed,
Jason.
Look i hate to disagree but i dont believe you need to spend $$$$ on over priced courses or ebooks from people who want to sell you something or charge you for so called mentoring.
The forum will give you alternative views and a lot of information some of which you take with a pinch of salt depending on who is posting it other can very educational.
Many people give up a lot of their time for nothing and are happy to talk and share information with others without thinking how much money they can make from the deal.
Read a few good books which you can do for next to nothing (Sure Steve has some in his library) talk to people who have been there and done it without wanting to charge you or sell you something. Most Mortgage Brokers, Financial Planners, Accountants and Solicitors will give you an initial free consultancy period which should help you move forward.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
You don’t have to be a financial expert to understand why developing property has seen a huge increase in popularity. Over the last decade, property values have gone through the roof, with the average house in the UK now topping the £200,000 mark. There’s rarely a week that goes by without media reports on the property boom, so for many, investing in bricks and mortar is extremely appealing.
For those who are keen on DIY, or want to escape their day job, renovating a house can help provide an outlet for creative urges, pent up after sitting in an office all day. And it is not as if the sector requires any particular training or qualifications and neither is there a strict template for success.
Hi Kaylon,
First, congratulations!, you know what you want. It's very important to start with the end in mind.
I think all the previous posts have covered what/ who you need as far as a team. As Matt says, most important, to answer your question on structure is your accountant. They can taylor a structure to suit your needs, however the way I see it, if you're only starting off small and selling the product on, it may be better to keep it simple and leave it in your own name for the first one. Especially if you plan on selling it outside of 12 months as you can get a 50% CPG exemption. Although, if you plan on moving quickly onto successive deals, this wont be as important.
With regards to education a agree with Richard.
"Many people give up a lot of their time for nothing and are happy to talk and share information with others without thinking how much money they can make from the deal."
It really is amazing how helpful people can be once you get out and just do it.
I have spect $$$$ on "over priced" courses and although I really enjoyed it, learn't a great deal, and would totally recommend it, you would be better of reading a few books and doing loads of research on the internet first.
One particular book I've just finished reading which is really good is "Australian residential property development" by Ron Forlee.
Good Luck
Dale
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