Are you thinking of doing a Property Development?

You have made the decision that it is time to carve up the large family home and undertake a development. It sounds easy!

Subdivide the block, build it, sell one and live in the other. What could go wrong? In theory it should work out that you come out with a new house, sell the other one to pay off the debt. So where do I start?

Over the last 12 months we have seen clients undertake such projects. Many jump in with eyes closed, not lining up all the ducks, whilst others do it really well.

The first thing to do is check the size of the land and what can be developed within the town planning laws. Laws change over years and this can either inhibit or allow for your project size. Don’t go spending a fortune yet in plans etc. – just get a general idea from a Planner.

Next, decide on the project spend and costing. Work out a rough budget of the quality of the build. It is at this stage that many clients book us in for a review.

We then identify the GST, potential capital gains, and any income tax issues relating to your project. We can assist you to firm up your budget and factor GST and Tax into the equation.

After working out what profit is in the project, sit back. Review your finance and borrowing ability and speak to your friendly Finance Broker. Factor into the project costs – interest, delays and unknown factors such as at 10% to 15%  for building variations. Oh – and if you have to rent for 12 months, take this into consideration as well! Get the bank on your side and know your limits.

STOP – take a deep breath and see what you have created on paper.

  • Is the project workable logistically and financially?
  • Is it what the market wants in terms of design and finish?
  • Look at what could delay the project and how this can be avoided –  develop a project risk plan?
  • If things do not go as planned, is there a contingency and enough profit in the project to make it worthwhile?

After addressing these things and knowing your finance and budget, now it’s time to engage the architect or draftsperson in drawing up some concepts. Doing your homework pays in the long run. In real estate they say it is “position, position, position”. In property development, the mantra of “plan, plan, plan” is one of the reasons why some projects go well and others go pear shape.

Please reach out to us if you want help in planning your next project. Believe me, having done a major development, getting it right can make life so much easier and understanding where costs fall. Best of luck with your next property development.

 

About Geoff Gartly

Geoff has been assisting businesses with their taxation and business affairs for many years. His practical advice has assisted his clients to grow their businesses and plan their financial future. To contact Geoff please call 039597 9966