Popular Post nzstato Posted January 30, 2021 Popular Post Share Posted January 30, 2021 By popular request this is my attempt to document our subdivision/build. Specifically the steps to go through the whole thing, my experience and how all of the $$$ stack up at the end of it..... First disclosure is I'm a newb at property development, probably made a bunch of mistakes and its all still a work in progress so no idea if it'll all work out in the end... First step is obviously you need to own some form of land larger than the 2x minimum lot size/density for your zone (more on this later)... This is what we are starting with... we have 1629m2 of a flat section (with my current house on it), in Mosgiel, Dunedin. We originally bought it in Oct 2014 with intentions that it would remain our family home for a very long time (this will become important when we talk about tax...). First step was to establish if/how we could loot to subdivide our existing lot, councils will have their district plans published where you can determine the minimum lot size for your zoning area. We are "R1" - General Residential which has a min, lot size of 500m@, so easy there we can make 3x from 1.... as a preamble, this is enough work as it is so everything we are doing is entirely within the zoning/build rules so we avoid having to go through notified consents which can cost $$$, take time (years) with only a chance of success (I know someone who has lived this for the past 2 years). Then its a question of how you want to split the section up (there are rules there also) and how 'hard' it will be to put in all of the services/entrance ways - ours is super easy as we have a corner section where each lot will have direct access to the roadway, with the rough rectangle of the existing lot it made sense to split one roughly N-S and 2x E-W to end up with sections which werent super narrow and had good layout to the sun. Fortunate the watermain/powerlines is close to our side of the road and (lucky us) we have a sewermain running through the corner of our lot which we can connect into. From a scenario like this everything gets much harder... you may have to put in a leg-in driveway, take connections from across the road ($$$ + traffic management $$$) or have to request it from a neighbour..... Easiest way to figure all of this out is to go talk to a surveyor (since you will need to anyway) and they will advise what you can do. I starting out talking to one surveyor who I got a bad vibe from (and who tried to send me an invoice for 2K, without outlining fees in a letter of engagement because a 45min meeting in his office was a 'consultation') and spoke to a few ppl who recomended another guy who is a GC. More to come... 14 2 Quote Link to comment Share on other sites More sharing options...
Popular Post nzstato Posted January 30, 2021 Author Popular Post Share Posted January 30, 2021 Now you need to figure out your gameplan to do the whole thing, such that you can either sell the sections off, build and sell or build and rent etc... Results may vary but our approach is somewhat defined by our overall endgame and what you can swing with financing (more to come on that)... we really enjoy our existing villa (and have done a fair bit of upgrades) so ultimately want to take it off the section onto a rural block to complete an extension. As such we need to generate some cold hard cash to buy a rural block and pay for the move (banks dont really fund house relocations...). Answer was to do this all in two stages - it makes sense to complete lot 1 as we can get away with demoing only the 'lean-top' portion of the house at the back (it would have never moved with the house) and run all of the services out of it into lot2/3 - this will also involve reconnecting the house into the services (temporarily) which is one of the hassles doing it this way. Benefit is that we can stay in our home, sell of lot 1 in one form of another and then plan the next move, also it makes the financing easier as you don't need to loan as much. After running some of the basic numbers (numbers will all come at the end) it really made sense for us to do new-builds on the lots ourselves rather than just selling off bare sections. Likewise we have some moral attachment to the whole thing and have a bit of a vision for how we would like it to all turn out - briefly the aim has been to keep as much of the garden/trees/hedging as possible in the new lots as well as 1x of the garages, with the builds to be 'sympathetic' to the fact its in an existing suburb and the architecture of what was previously there. So then the next step is to find someone to do all of the services/siteworks and the build.... we thought of a basic scope that lot 1 would be a 3br of ~120-130m2 with keeping the existing garage, lot 2 a ~180-200m2 4br with garage and lot 3 a ~160m2 3br with garage For this step I really thought with the competitive nature of the house building sector (alot of different companies to choose from) I'd be speaking to some really savvy people who would be proactive in helping us execute on the project.... not so... I spoke to 4x different house build companies (3x franchises and + 1x private), one I'd had enough when they just talked at me for an hr without asking a single question, another I dropped when they offered plans which didnt work with the site and clearly hadnt listened to what I'd advised of and 2x which we went to formal offers with. Of these 2x firms I got them do to a basic quote on the build of lot 1 with an indicative on lot2/3, after looking at the concept of me having to arrange all of the subcontractors for the siteworks/services I went back to them both with the bigger job of managing the whole thing using their own subbies as a way to get some price efficiency. The franchise didn't budge on any of their build pricing (even though we're doing 3x houses not 1x) and proceeded to wack another 15% PM fee on it all while the private guy (who is an absolute GC) came to the party with a great deal which we took... Enough for tonight, tomorrow will be a bit on finance and tax... 16 3 Quote Link to comment Share on other sites More sharing options...
Popular Post nzstato Posted January 31, 2021 Author Popular Post Share Posted January 31, 2021 I feel I need to go a little step back... obviously at the start you need to have some sort of estimate on your sales price on finished builds/lots and a fair idea that you'll turn some sort of profit... Kinda went about this two ways - first is to get in touch with a friendly real estate agent (they're not too hard to find) to provide you with a market assessment, they tend to be fairly optimistic in their numbers so keep that in mind. There is now quite a number of websites whereby you can get value estimates on almost every address in the country (homes.co.nz for example), they collate council sales data (the DCC publishes it all online also) and run their own algorithms to provide estimates, doing some comparisons for similar new houses in your area can be helpful. You can also pay a valuer (I'll have to do that in the future, more on that) to do it or in my case its an opportunity for some DIY.... Being somewhat of a nerd I have been collating the last 2yrs of sales data of new builds from homes.co.nz for my local suburb (Mosgiel), being the major piece of flat land in Dunedin fortunately for me there are a number of small subdivisions and new build sales. I then ran some basic regression to see what were the features that went into sales value i.e. lot m2, house m2, 2br vs 3br vs 4br etc - tightest model is between house m2 and $, no surprises people pay more for bigger houses.... Note the slope and y intercept. Slope is roughly the value /m2 (we'll come back to my build cost/m2 in the future) where the y-intercept I think of as the section value including all services connected to house and foundations put in (but not floor poured) which is why its alot higher than our current market. Also note that all of these houses will come with attached garages which adds ~40m2 of size so my 124m2 can be thought of as in the mid 160s of this plot. Alot of the larger houses are on larger lots in greenfield subdivisions also. More to come, any questions I'll look to answer on here also... 11 2 Quote Link to comment Share on other sites More sharing options...
nzstato Posted February 1, 2021 Author Share Posted February 1, 2021 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.... 5 1 Quote Link to comment Share on other sites More sharing options...
nzstato Posted February 1, 2021 Author Share Posted February 1, 2021 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.... 5 2 Quote Link to comment Share on other sites More sharing options...
nzstato Posted February 1, 2021 Author Share Posted February 1, 2021 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.... 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. 6 1 Quote Link to comment Share on other sites More sharing options...
Popular Post nzstato Posted February 1, 2021 Author Popular Post Share Posted February 1, 2021 At this point I had the 'grumpy client call to contractor' moment - I had specifically had a conversation that I wanted the tree in the corner kept wherever possible, then I had my wife message me that it was gone when she got home. It ended up needing to go to run the services but called them out on poor communication and that they have pulled down our fence with the neighbours without replacing it. They've made a hell of a mess digging the foundations first (and found all of the old pipework in the process) rather than digging the new services, making the new connections/getting rid of the old so then they could dig foundations at will. Obviously had an effect as there was a 'site meeting' within 10min of my phonecall whereby the civil subbie has been advised the direction this now needs to be heading in... The boys do enjoy watching the diggers..... Thats kinda up to date to now, it's just build progress from here. At the end will probably have sections on the legal aspects of a subdivision and my all of my final numbers to figure out if this was even financially worthwhile. Anything else I'm missing as unanswered questions? Cheers 16 1 Quote Link to comment Share on other sites More sharing options...
thegreatestben Posted February 2, 2021 Share Posted February 2, 2021 You're certainly moving at a pace I simply can't match, everything is taking me atleast four times as long! 1 Quote Link to comment Share on other sites More sharing options...
Popular Post nzstato Posted February 16, 2021 Author Popular Post Share Posted February 16, 2021 After a few setbacks we are starting to see some progress again. We have a new fence to separate ourselves from the neighbours, after a few grumbles on when/where it was going up from those next door I am yet to hear a thank you.... Also the storm water connections have all been made. They were able to use my existing connection to the main as the new connection for LOT1 (below) My temporary connection uses the new one which will end up for LOT2 and we have one there waiting for LOT3. Now they will tidy up the dirt piles on the section a bit, build a fence between us and the build and then start on the footings for us to get some concrete in the ground... Market is roaring on regardless, very little stock in Dunedin. A future post will go through how we have gone through the sales process -> currently undecided if will sell privately (my job is in sales) or if through an agent but expect them to be put through the wringer 10 1 Quote Link to comment Share on other sites More sharing options...
westy Posted February 16, 2021 Share Posted February 16, 2021 Awesome read mate. Thanks. 1 Quote Link to comment Share on other sites More sharing options...
Popular Post nzstato Posted February 25, 2021 Author Popular Post Share Posted February 25, 2021 Site is looking better now, footings are in and remainder of the fencing is in place. Blockie is coming on mon. 11 1 Quote Link to comment Share on other sites More sharing options...
Bling Posted March 2, 2021 Share Posted March 2, 2021 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 1 Quote Link to comment Share on other sites More sharing options...
Taistorm Posted March 2, 2021 Share Posted March 2, 2021 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). Quote Link to comment Share on other sites More sharing options...
nzstato Posted March 2, 2021 Author Share Posted March 2, 2021 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." 1 Quote Link to comment Share on other sites More sharing options...
azzurro Posted March 2, 2021 Share Posted March 2, 2021 2 hours ago, nzstato said: I AM NOT A LAWYER Good progress Sam! Like any project must be awesome seeing what was in your head slowly becoming real. Quote Link to comment Share on other sites More sharing options...
nzstato Posted March 2, 2021 Author Share Posted March 2, 2021 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. Quote Link to comment Share on other sites More sharing options...
Taistorm Posted March 2, 2021 Share Posted March 2, 2021 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! 1 Quote Link to comment Share on other sites More sharing options...
Bananaman Posted March 3, 2021 Share Posted March 3, 2021 Nice work, watching also just for curiosities sake. Been in the construction industry for most of my life. 1 Quote Link to comment Share on other sites More sharing options...
nzstato Posted March 11, 2021 Author Share Posted March 11, 2021 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. 5 1 Quote Link to comment Share on other sites More sharing options...
Sunbeam Posted March 11, 2021 Share Posted March 11, 2021 Wow, that does look high when you see it like that. 2 Quote Link to comment Share on other sites More sharing options...
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