I am currently looking to develop splitter, or duplex sites. Would it be better to keep them both on completion or sell just one? I could keep them both, but it would mean that I walk away with no cash flow. I could probably suffer this on the first development but on the second I may have to sell at least on or even both. Then maybe on the third I could keep one or two again.
Does this sound like a good strategy ?
All depends on the figures. Make sure you factor on how tax relates to this, ie. GST/CGT/sales costs.
If you’re going to make a strong $ and % return then sure it may well be justified, but obviously there’s not point going down any pathway unless it’s getting you to your long term goals in a reasonable time frame.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
What is your investing strategy Jonesy? Are you an income investor or a growth investor?
If you are wanting an income (positive cash flow) from your properties then you would have to weigh up what return you would get from the two duplexes, if the numbers don’t quite stack up and you’re left with a lazy investment you would be better to sell and redeploy into another deal that will get you a better return.
If you’re a growth investor and are in a good market, then why not put a tenant in and then sell up in 3 or 4 years or however long you feel you need to hold the property for.
As long as you are getting the returns vs how much you can make doing a quick Reno and selling on, I would lean to whatever makes you the most money in the least amount of time for the least amount of risk and aggravation.
Adnie | Advice Investments
Email MeThanks for the input,
I am a builder living in the northern rivers NSW. My plan is to buy, develop the land by splitting and building house/duplex. hold for the next few years, and when I have enough equity sell some of the properties and pay off the loans on 3-4 properties creating passive income. I would like to have positively/nuetral geared properties but this may or may not be possible.
The market prices are high now, due to the high demand. Growth in these areas is not great, there has been growth over the last 2 years, but i see minimum growth over 2-4 years. This is why I look to sell as demand outstrips supply hugely when it comes to sales and rental.
Effectively I would build at cost, and anything I would earn plus any equity that i gain would stay within the property when complete. This would give me approximately 30% LVR. This would also mean that I would recoup all of my original investment, so I could go and repeat the process.
I understand that if I sell straight away I would be hit with CGT/GST, but I will have to pay that sometime along the line, albeit at a discounted rate after 12 months.
I feel that if is sell and cash out say after 12 months, then I have eliminated any risk when holding for say 5 years. I know I may be missing out on growth but like i said before the growth is not amazing.
any thoughts would be greatly appreciated
Hi Jonesey,
Sounds to me like you have a couple of choices – and different choices to many others of us who are investors. That difference comes from your trade as a builder.Now, I am NOT a registered adviser, but I think it might be beneficial for you to discuss the idea of developing/building as a Company, rather than as a private investor. Gains right off the top of my head could be
1. Being able to buy stuff at trade,
2. Being able to sell within 12 months and only pay 30%
3. Being able to only pay Tax on the profits after all expenses have been deducted.As an overall thought, I would err on the side of retaining cashflow – even if that means selling BOTH of the first development, or one out of every two over several developments. Once you have a huge buffer, you can then look at building to keep, etc.
Anyway, I will be reading others’ thoughts in reply avidly. Some really great ideas pop up in various replies – looking forward to reading them, especially in your case.
Benny
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