Property build/sell

Howdy

So Having a discussion with a mate last night whose keen into property.
He's built a couple of houses now and plans to take this as his strategy instead of buy/hold.
He's working on a 50k in 50k out strategy and I assume 1 per year.
His figures are apparently quite conservative with the sale price.
Apart from 50K bieng not a whole lot for quite a bit of work what other problems is he likely to run into, things I can think of.

CGT
Reduced sale price if market tumbles.
Holding costs during construction/sale period.
Builder blow-out costs


It almost seems like a lot of work for minimal return.
 
Howdy

So Having a discussion with a mate last night whose keen into property.
He's built a couple of houses now and plans to take this as his strategy instead of buy/hold.
He's working on a 50k in 50k out strategy and I assume 1 per year.
His figures are apparently quite conservative with the sale price.
Apart from 50K bieng not a whole lot for quite a bit of work what other problems is he likely to run into, things I can think of.

CGT
Reduced sale price if market tumbles.
Holding costs during construction/sale period.
Builder blow-out costs


It almost seems like a lot of work for minimal return.

Whilst 100% cash on cash return looks good, you should consider the total cost of the project i.e. risking $500k for $50k is only a 10% profit on cost, and you should be aiming for more so that you have a buffer.
 
CGT ??? I doubt it. This is not a capital gain issue. This is ordinary income. This also affects when many deductions are claimed. Many deductions would be deferred so that the net profit occurs when the sale occurs. Some costs may be deductible otherwise.

Stamp duties / legals / bank security costs

Lack of title and liability issues - Joint / several etc...Who may be the party that meets a claim ?

If its "new" residential construction then GST may impact. If its reno of existing unlikely to have a GST impact. Worth checking.
 
CGT ??? I doubt it. This is not a capital gain issue. This is ordinary income. This also affects when many deductions are claimed. Many deductions would be deferred so that the net profit occurs when the sale occurs. Some costs may be deductible otherwise.

Stamp duties / legals / bank security costs

Lack of title and liability issues - Joint / several etc...Who may be the party that meets a claim ?

If its "new" residential construction then GST may impact. If its reno of existing unlikely to have a GST impact. Worth checking.

Thanks Paul :)
 
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