He said, "well, my wife and I want to turn over a few developments, you know... complete one, sell and then use the profits to go again. Our aim is to use the proceeds to pay down the mortgage on our principal place of residence and keep investing."
Dave certainly has a very good plan. As property development project managers, we are not qualified to give accounting or financial advice, but what I do like to check with anyone making this kind of enquiry is that they understand what selling costs are involved.
Dave said he understood there’ll be agent’s selling commission and marketing costs to sell the new villas, "we might have to pay some Capital Gains Tax and that’s it, I think," he said.
My reply... "Are you sure, Dave?"
If you take a look at the selling costs, then you may think twice about selling on completion, especially if it’s a small development like a dual occupancy.
In the Hunter Region of NSW where we manage our developments, we can typically create around one hundred thousand dollars in equity on a dual occ project. This sounds like a lot of equity to create and it is... if you are holding the properties you’ve built.
By holding on completion, you not only get the benefits of depreciation and higher than average rental returns (everyone loves to rent a brand new property), but some clients choose to refinance sometimes up to 95% LVR (loan to value ratio) and by doing this, they can access a lot of the equity that’s been created through the development process.
But if you are looking to sell on completion, then there are a whole list of costs you need to consider.
The big one is GST and as I explain this to Dave, I highly recommend he checks this out closely with his accountant. GST is payable when you buy new property, so Dave would need to ensure he pays 10% of his selling cost in GST. However, if he holds the properties for five years, the property is no longer deemed new and no GST is applicable. If Dave is not registered for GST then he can’t claim the input tax credits throughout the life of a development, so already he’s lost a big chunk of his profit.
Mortgage costs can be another cost to consider. Dave needs to check with his lender what fees and charges may be applicable when he subdivides the two dwellings – the lender needs to approve this before the subdivision can be registered – and then on the discharge of the mortgage.
In some instances, Land Tax may also be payable on a property that is being sold.
Dave said he would have a meeting with his accountant and then come back to me on his plans for his dual occ project and that’s exactly what he did. A few weeks later, we had found him a great site and now he’s planning to hold the villas for the short term due to the potential yield of 7.5%. This also helped him realise that if you are going to all the trouble to develop property in the right location, you may as well hold to reap the immediate and future rewards.
“I was bitten by the property bug, there was no turning back.”
Jo Chivers proves that women can indeed have it all- a career that you are passionate about and a family. While all of this sounds great, it does require hard work, dedication, perseverance and a bit of risk-taking.
Jo’s love of property development inspired her to leave her corporate career and pursue her true passion. After educating herself in property investing, she started building up her own property portfolio. After purchasing a few blue chip properties in Sydney, she soon realised how negatively geared they were and began researching outside of Sydney. She discovered a more affordable, large region of NSW where she completed her first property development. Soon her friends were asking her to find them sites and manage their developments.
She realised there was a need for an all encompassing project management service and her business Property Bloom™ was born. Ten years down the track, she has developed over 60 properties for clients, creating literally hundreds of thousands of dollars in equity and high end yields.