With the previous Step 6: Build completed, the finish line of your property development project is in sight.
The goal of this final step, Step 7: Realisation, is to realise your return on investment.
Two ways of realising your return are to:
- Sell your properties for profit, or
- Hold your properties as investments
Property Development Course Step 7: Realisation
Remember the Strategic Business Plan that you developed in Step 2: Strategy?
The Strategic Business Plan at that time, should have provided your solicitor and accountant with your intentions for the development (eg. your sell and/or hold strategy on completion of the project).
Armed with this information, your solicitor will have given you legal structuring (entity) advice while your accountant will have given you tax advice (including GST on sales & Margin Scheme implications, if applicable).
That information and the decisions you made then, now come into play.
If your intentions have changed, you may need to re-consult your solicitor and accountant. Be mindful that in the eyes of the Australian Tax Office (ATO), it was your intentions at the commencement of the development that mattered – and which will determine the amount of tax you need to pay.
1. Sell your properties for profit
Should you choose to sell some or all of your properties, engage both a real estate agent and your conveyancer/solicitor.
Your real estate agent can advise on the ideal marketing strategy, advertise your dwelling/s and assist potential purchasers.
Be sure to choose a reputable agent who has sold the type of property that you are selling, in the locality that you are selling it. (Ideally, this will be the same agent that you obtained your market research from in Step 2: Strategy).
Regardless of whether your property is going For Sale or Auction, your agent will require a Vendor’s statement (otherwise known as a “Section 32″ – referring to Section 32 of the Sale of Land Act 1962) from your solicitor.
The Vendor’s Statement is a document of the information that you are required by law to provide to a purchaser before a contract can be signed.
In order to compile a Vendor’s Statement, your solicitor/conveyancer should be able to obtain most information however you can assist by supplying:
- Any related Building Permits
- Builder’s warranty/Owner Builder’s insurance details
- Copy of Title and subdivision (including Owner’s Corporation/Bodies Corporate information, if applicable)
- Information regarding rates, charges, taxes and other outgoings
- Certificate/s of Occupation or Certificate/s of Final Completion
- Existing Loan/Mortgage information
- Chattels included
Hopefully all the groundwork that you’ve done throughout the entire 7 Steps has paid off and you achieve the sales price you are after.
Even at the time of sale, there is one final tool that you as the developer might find useful – the “Section 27“.
Depending on how your finances are structured, generally speaking the later you are in the development cycle, the greater your debt exposure. With the purchaser’s permission, a signed Section 27 form, allows the purchaser’s deposit to be released to the vendor (you) early. This is especially helpful for sales you have made with long settlement periods as receiving the deposit money upfront can assist in paying down your debt and keeping your Loan Value Ratio (LVR) down.
As an aside, its not uncommon for property developers to initiate this sales process much earlier in the development lifecycle by selling properties in the proposed development “Off the Plan”. Due to tightening credit conditions, some financiers almost insist on a certain proportion of properties in a potential development to be sold “Off the Plan” – that is, before construction even starts.
2. Hold your properties as investments
Should you choose to hold some or all of your properties for ongoing rental income, engage your local property manager.
Your property manager can advise on estimated achievable rents, advertise your dwelling/s and screen potential tenants, collect rents on an ongoing basis and liaise with your tenants regarding any property issues.
Be sure to choose a reputable property manager who has managed the type of property that you are leasing in the locality that you are leasing it. (Again, this will ideally be the same property manager that you obtained market research from in Step 2: Strategy).
If your dwelling/s also include an Owner’s Corporation (formerly Bodies Corporate) then look for a Property Manager who can handle both Owner’s Corporation and Tenancy Management responsibilities (& perhaps offer a discount for the extra business).
For each investment property, it will also be a good time to organise a Tax Depreciation Schedule so that you can maximise the tax effectiveness of your investment/s. This report will need to be prepared by a licensed Quantity Surveyor. You can aid the process by providing as much detail of fixtures & fittings that are to be depreciated. The Tax Depreciation Schedule is one of the documents you will hand to your accountant come Tax time.
Conclusion
The goal of this final step, Step 7: Realisation, is to realise the return on your investment.
Two ways of realising your return on investment are:
- Sell your properties for profit, or
- Hold your properties as investments
Whether you choose to lease or sell, once you have realised your return on investment, be sure to pause and review all the learnings you have gained from the entire development process:
- What went well?
- What didn’t go so well? Why not?
- What learnings can you take away from this project and apply to the next?
This step, Step 7: Realisation, concludes our Property Development 101 Short Course. We trust that you have enjoyed it and will continue to use it as a reference in your Property Development ventures.
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Related links:
- Australian Tax Office
- Austlii: Section 32, Sale of Land Act 1962 – Vendor’s Statement.
- Austlii: Section 27: Sale of Land Act 1962 – Early release of deposit.
- Consumer Affairs Victoria: Bodies Corporate/Owner’s Corporation
- Australian Tax Office: Guide to Depreciation
- Australian Institute of Quantity Surveyors
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