Jump to content

Recommended Posts

  • Replies 40
  • Created
  • Last Reply

Top Posters In This Topic

Top Posters In This Topic

Now onto one of the hardest steps (and the most boring), paying for it all.... this is probably the steps that catches most people out.... First off, banks do not like financing speculative builds (like this), they finance property 'investment' involving renting houses to people who cant yet afford them... as a side note, through this process I have learnt that the $ side of things (financing and tax) is really geared towards a more favourable position for landlords rather than developers, its really no surprise we've had less building and a lower home ownership rate as our population grows....

Off my soap box....

So banks dont like people doing things like this, you can go to 'non-bank lenders' which are slightly less regulated, and in the development boom which is currently going on that is where most will get financing from.  I have a mate who is my mortgage broker who has helped me with this and through his advise we are technically building this to rent but our situation may change when we gain code of compliance.  I advise going to a broker as they can package up your position into a neat bow to present to the bank, we have a strategy to refinance in the future which I will also discuss.  Lucky me started all of the finance application just after lockdown and prior to everyone realising the economy was fine so I virtually provided them with a pint of blood with the questions they had for me - I own a business and even though I dont draw a salary from it nor need the cash from it for this project they had lots of questions...

Broadly you will need to be able to show that:

a) You have enough cash/equity to come within their criteria, new builds dont come under the govt LVR limits (think rule of thumb is 10% deposit) so you have a bit of wriggle room.  The bank made us do a valuation (man are they way more expensive than a few years back) of what our current home value will be after stage1 (i.e. build lot 1 but before lot 2/3) and the value of the new build - this is handy as they now calculate your net equity position after the development and like you even more

b) You need to have regular income (of a decent amount) and less 'other' debt.  My broker tells me its getting WAY harder for self-employed to get through this hurdle if you are close to the edge of your risk profile. 

c) Submit all of your project costings to them, ie. all of my above work.  NB: we have our builder on a 'fixed price contract', if you're just buying materials and going to build yourself, expect a whole lot more questions and a tighter leash.

d) They will also ask for a rental assessment, i.e. how much the new place would rent for.  This is also as easy as finding your local friendly property manager (I just used the same RE firm I've been chatting to). 

With luck, they will then approve you for the amount you need which in our case needs to be used within 12 months of approval or else I have to go through the process again.  My payments are staged in based on the progress of the build, basically it works out that the builder (or surveyor, or council) invoices me, I forward it to my broker, he arranges the $ from the bank to hit my account and I pay the invoice....

  • Like 5
  • Thanks 1
Link to post
Share on other sites

Now tax.... tax is a curly one and this is a serious disclosure of DYOR...

I'm just going to be brief on what I'm going with so a) I'm not providing advice on alternatives and b) I'm not broadcasting my tax position and I may still yet become unstuck.

I've learnt that there is indeed a 'brightline test' which means if you have a regular pattern of buying/selling properties for profit (even ifs your own homes you are fipping) or sell an investment property within 5 years you are subject to income tax on the profit.  This doesn't cover us.

Also learnt that there is a little talked about 10yr brightline test equalivent for subdivisions..... this was a bit curly for us, however there are some excemptions if you had no intention of subdivision when you purchased your property and arent affiliated with a building company (i.e. builder yourself or work for one) plus a few other things.

Needless to say I have a very expensive document written by one of the big4 accounting firms which outlines my position and why it is appropriate in our situation.  This ensures that if there is some change in law interpretation it means I wouldnt face penalties as have received professional advice.

What it means as my wife and I have registered a GST partnership, which means I can claim a GST refund on all of my expenses for the build.  BUT I need to pay GST on any future sale of the property.  So I end up paying a bit of tax, thats fair, I think I probably should... if I'd waited till that 10yr mark it would all be tax free... or if they were rentals and I sold after 5 years it would be tax free, see how the incentive scheme works....

 

Again, DYOR....

  • Like 5
  • Sad 2
Link to post
Share on other sites

Consents, I dont really have much to add as the surveyor/builder has handled all of that.  Only bit (that I said previously) is we are doing everything within the council plan rules for zoning so it makes this relatively straight forward (and relatively quick).  Its a 2-stage consent so I only need to pay and do lot 1, with lot 2/3 to happen at some point in the future.  It does mean that we need to make all of the temp connections to our existing house but its worth it...  Only other bit is I thought I would get away without a stormwater management plan (it wasnt on the subdivision consent) but got picked up on the building side (go figure), just means we need to put in a small retention tank.  Likewise we have quite a 'high' floor height on the build due to us being in a 'flood zone'.

So, now you have all of your finance/consents/contractors arranged you can call in the digger....

D1.thumb.jpg.0af1b57901f870ba5cd9ce43e8ad929d.jpg

D4.thumb.jpg.06f96b8169e5f1d18ac05c1ad249c182.jpg

Lean to came off the back of the house no problem.  Wasnt surprised as it was just a small floor built over the original concrete slab.  They did find the old septic tank which would have been used prior to the town connection in the 1950s, pulled the top off and filled with gravel no problem (it was empty).  Sadly none of the trees could be saved in the section which was a disapointment, ended up with a relatively clear piece of dirt.   They tidied up the back of my house - moved door and gas hot water etc.

  • Like 6
  • Thanks 1
Link to post
Share on other sites
  • 2 weeks later...
  • 2 weeks later...

So correct me if I'm wrong, lol. But you're saying if you claim you accidently make money from an unintentional 3 property development, you don't have to pay income tax on the profits?

That's either the best loophole ever, or your accountant will likely end up in jail lol. Just doesn't add up to me. So feel free to dumb it down further if you can be bothered :P

  • Like 1
Link to post
Share on other sites

Are you able to pm me with further details in regards to the taxing side of this. My parents are going through a similar process but (selling one section to me for under market value and selling another for full price) for a recent subdivision (only 2 sections). They've been advised by an accountant that the sale is included as a second income/income tax, addition to their standard earnings so the sale price less costs to do the development will be the amount they're required to pay tax on, pushing them to pay 39% on that final figure. Interested if there are other ways they can go about it (not trying to avoid tax but this is essentially their retirement safety net so the more they can keep from this the better obviously). 

Link to post
Share on other sites

Best thing I can do is refer here and find an accountant for your specific situation, there are some further links here which go into way more accountant lingo than I have experience over.  I believe main exemptions are if a) you purchased with no intention to originally subdivide and b) arent involved (or associated) with people in property development or construction, 

https://www.ird.govt.nz/property/buying-and-selling-residential-property/my-buying-or-selling-situation/subdividing-and-developing-property-to-sell

Major quotes from there

"The tax rules around the sale of subdivided and developed sections are complex, and it’s always a good idea to seek advice from a tax advisor to make sure you’re getting it right."

 

  • Like 1
Link to post
Share on other sites
20 minutes ago, azzurro said:

 

Good progress Sam! 

Like any project must be awesome seeing what was in your head slowly becoming real.

Cheers

Like any project there are stressful moments of "dear god what I have I done.." and a general drain on finances with the hope it'll all be worth it in the end...

It is likely this will be slightly over our initial project budget but will do the financial wash up all the way at the end.

Will do the next update when there is a bit more of a foundation to look at.

 

Link to post
Share on other sites

Cheers for that man, will have a read through and forward it on. Might be worth having them speak to another accountant for other opinions/advice as it sounds quite similar. 

 

Definitely gonna keep an eye on this thread as you're doing an awesome job!

  • Like 1
Link to post
Share on other sites

Little bit more progress... they're back filling the foundation, you can see we've had to come up quite high on the blocks to satisfy the floor level with the council (flood hazard zone).  It wont look as pronounced once we get the ground level back with some fill/top soil and there will be a small bit of decking around the front here.

Have also had my negotiation hat on for the provisional cost revisions which are coming back, keeping em honest.

D14.thumb.jpg.fbd05fbaebe49a99ad9b3529c628be36.jpg

  • Like 5
  • Thanks 1
Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

×
×
  • Create New...