Property Development Financing

share_bear

Hi,

I am thinking of putting together a team to create a new Property Development Company.

Can anyone please advise on where developers get finance, what level of collatoral is expected to start off, and what minimal types of qualifications financiers would need to see on the management team.

Also, anyone interested in getting involved down the road, let me know.

Thanks.

pedronomix

So you do not know even the basics of the game, unlikely to ever get off the ground. As a non-Nama partner you can expect to be able to put up at least 50% of the site and development costs with unencumbered cash.

share_bear

pedronomix wrote: »

So you do not know even the basics of the game, unlikely to ever get off the ground. As a non-Nama partner you can expect to be able to put up at least 50% of the site and development costs with unencumbered cash.

Many thanks.

Every developer was a starter at some point - and that is why input from those who have gone before is very much appreciated.

For example, there is a Site in Dublin city with FPP for a Mews.
The Site itself is only 150k and it is is a nice area - seems a promising start.

Lets say I have 200k to put in, leaving aside any partners that I might meet here for arguments sake.

If I purchase site for cash for 150k, would it be feasible to use that as collateral to raise a loan for construction costs? Would finance typically be structured in some other way - am I making a rookie mistake there?

Also, not clear what happens with the tax on profits. If through a development company with a partner, does that avoid the CGT issue on profit for that project? Do you end up paying CGT if you later take funds out of the company or are drawings just taxed as income in the ordinary sense?

Thanks

barneystinson

share_bear wrote: »

Many thanks.

Every developer was a starter at some point - and that is why input from those who have gone before is very much appreciated.

For example, there is a Site in Dublin city with FPP for a Mews.
The Site itself is only 150k and it is is a nice area - seems a promising start.

Lets say I have 200k to put in, leaving aside any partners that I might meet here for arguments sake.

If I purchase site for cash for 150k, would it be feasible to use that as collateral to raise a loan for construction costs? Would finance typically be structured in some other way - am I making a rookie mistake there?

Also, not clear what happens with the tax on profits. If through a development company with a partner, does that avoid the CGT issue on profit for that project? Do you end up paying CGT if you later take funds out of the company or are drawings just taxed as income in the ordinary sense?

Thanks

You've clearly thought this through pretty well..!

You seem to have a pathological aversion to CGT - you do realise that CGT (33%) is payable at a much lower rate than the highest rate of income tax (55% including PRSI&USC)...

share_bear

barneystinson wrote: »

You've clearly thought this through pretty well..!

You seem to have a pathological aversion to CGT - you do realise that CGT (33%) is payable at a much lower rate than the highest rate of income tax (55% including PRSI&USC)...

That point actually occurred to me the moment after I hit send!

I don't have an adversion to CGT, rather tax in general ha ha!

However that still doesn't change the fact that I don't have a clear understanding of how it works
with regard to development gain.

For example...
In the case of an individual going it alone, or a partnership of the non-limited variety, would they only have to pay CGT on the development value?

Whereas in the case of a development company, is it that CGT does not apply but there is the income tax issues to consider when trying to take funds out of the company?

Or something totally different?

godtabh

I work with a lot of developers. They are either private self financing after a point or via NAMA.

Banks will back viable developments after planning for example but you would have to met a lot of criteria. For example one development I am working on has planning application in progress, a business plan in place and an indication from the banks to the level of finance it may expect post planning.

Consultant fees at planning can be big. One of low density developments could be done for upto €20k. Large multi purpose developments could be look at fees of a minimum of €50k.

Consultants that you would need to consider include architects, planners, engineers (various), etc. I do a fair bit of private work. Getting an early spec and little variation after that is key to any development. Get it through planning quick and realise that what is built will differ a lot from what was in planning.

If you want any more info PM me

moonshadow

24 hours of asking about property will not turn you into a developer .

IrishLad2012

share_bear wrote: »

Many thanks.

Every developer was a starter at some point - and that is why input from those who have gone before is very much appreciated.

For example, there is a Site in Dublin city with FPP for a Mews.
The Site itself is only 150k and it is is a nice area - seems a promising start.

Lets say I have 200k to put in, leaving aside any partners that I might meet here for arguments sake.

If I purchase site for cash for 150k, would it be feasible to use that as collateral to raise a loan for construction costs? Would finance typically be structured in some other way - am I making a rookie mistake there?

Also, not clear what happens with the tax on profits. If through a development company with a partner, does that avoid the CGT issue on profit for that project? Do you end up paying CGT if you later take funds out of the company or are drawings just taxed as income in the ordinary sense?

Thanks

If you don't mind me asking, what is your current job?

Most property developers are either from a construction background or have an endless pit of money, from elsewhere.

If you don't know anything about the sector best stay clear of it, doctors don't fly planes.

share_bear

moonshadow wrote: »

24 hours of asking about property will not turn you into a developer .

True dat!

barneystinson

IrishLad2012 wrote: »

If you don't mind me asking, what is your current job?

Most property developers are either from a construction background or have an endless pit of money, from elsewhere.

If you don't know anything about the sector best stay clear of it, doctors don't fly planes.

The hell they don't...!!!

http://youtu.be/niPPufgaxR0

share_bear

IrishLad2012 wrote: »

If you don't mind me asking, what is your current job?

Most property developers are either from a construction background or have an endless pit of money, from elsewhere.

If you don't know anything about the sector best stay clear of it, doctors don't fly planes.

Engineer. These days, on foot of my Masters degree, I mostly write software or design electronics or automation. However, I also have a Mechanical Primary degree, which has some interaction with building topics (for example factories) and I happen to know a fair bit about building, plumbing etc etc.

So not totally wet behind the ears, but not so arrogant as to make the mistake of not being open to a suitable partner(s).

pedroeibar1

share_bear wrote: »

...
I don't have an adversion to CGT, rather tax in general ha ha!

However that still doesn't change the fact that I don't have a clear understanding of how it works......

In the case of an individual going it alone, or a partnership of the non-limited variety

You have no business experience in the area, you are flippant on tax, you don’t know “how it works” and you want to start at what is probably the most difficult point in a market cycle? If this is for real it's a great way for you to lose money on your own or be taken to the cleaners by others.

When people talk about "partnerships of the non-limited variety” I’d bet every lawyer rubs hands in glee! Ever consider looking at the Partnership Act of 1890 (yeah, it’s that old) or the subsequent amendments in the Companies Acts? Or the difference between equity or salaried partners? Any advice you get here is waaay beneath what you need. Pedronomix got it right above, but I'd up his 50% to much more in your case.

I have built some projects, and am currently building family houses in Norway.

You'll find an old thread by me on how I got finance for my project there, and how it was a world of pain, but I got there in the end.

Total costs of this project including land 3.5 mil. Initial investment 700,000 euro to buy the land, another 500,000 euro to fund the design architecture, permits, etc. Bank funded 60% of land cost retrospectively, and are funding 85% of the construction. We had to pay for 40% of the cost of building the first 2 houses in the project, they only release the rest of the loan after 4 properties have been sold off the plans

They certainly would not have funded it with no track record. My track record having built project overseas before, and good publicity and success despite recessions and my partner being an established fund management company from Sweden with a good track record, and a good balance sheet.

By the time we had got the loan all that initial money was invested pretty much, but during that time the risk of getting turned down on the building permits is still there, which is a very real. You can lose everything if that happens and the bank will take your land off you. If you don't know the game with regards to that kind of stuff you can lose all your money very easily. Property Development is a series of problems that you have to solve. Its one big long problem until you get to the end and hopefully make you big profits for putting up with said problems and stress for so long!

share_bear

pedroeibar1 wrote: »

You have no business experience in the area, you are flippant on tax, you don’t know “how it works” and you want to start at what is probably the most difficult point in a market cycle? If this is for real it's a great way for you to lose money on your own or be taken to the cleaners by others.

When people talk about "partnerships of the non-limited variety” I’d bet every lawyer rubs hands in glee! Ever consider looking at the Partnership Act of 1890 (yeah, it’s that old) or the subsequent amendments in the Companies Acts? Or the difference between equity or salaried partners? Any advice you get here is waaay beneath what you need. Pedronomix got it right above, but I'd up his 50% to much more in your case.

Yes but I can use it as a starting point to learn more.

Only planning a small development, something like an in-fill mews near the city center.

I am just asking for a simple high level understanding of tax treatment of doing it through a company versus doing it in one's own name as an individual.

share_bear

Deleted User wrote: »

I have built some projects, and am currently building family houses in Norway.

You'll find an old thread by me on how I got finance for my project there, and how it was a world of pain, but I got there in the end.

Total costs of this project including land 3.5 mil. Initial investment 700,000 euro to buy the land, another 500,000 euro to fund the design architecture, permits, etc. Bank funded 60% of land cost retrospectively, and are funding 85% of the construction. We had to pay for 40% of the cost of building the first 2 houses in the project.

They certainly would not have funded it with no track record. My track record having built project overseas before, and good publicity and success despite recessions and my partner being an established fund management company from Sweden with a good track record, and a good balance sheet.

By the time we had got the loan all that initial money was invested pretty much, but during that time the risk of getting turned down on the building permits is still there, which is a very real. You can lose everything if that happens and the bank will take your land off you. If you don't know the game with regards to that kind of stuff you can lose all your money very easily. Property Development is a series of problems that you have to solve. Its one big long problem until you get to the end and hopefully make you big profits for putting up with said problems and stress for so long!

I was planning to go for either a site with FPP to the rear of a city house, or a Site from one of its neighbors that would also be likely to get through on planning (having a template to follow successfully from the site with FPP ).

I'm talking very very very small time, simple as possible, low funding requirements. One dwelling.

share_bear

share_bear wrote: »

I was planning to go for either a site with FPP to the rear of a city house, or a Site from one of its neighbors that would also be likely to get through on planning (having a template to follow successfully from the site with FPP ).

I'm talking very very very small time, simple as possible, low funding requirements. One dwelling.

Planning permission and permits are never simple. The reason is you don't know who the neighbours are and how they will react. There is no easy template or easy road.

In norway theres 3 levels of complaint for the neighbours, local, state, national. Each one got rejected on a piece of land that should of had no problems at all. Now the neighbours are suing the council for giving the permits, basically because Im a foreigner but thats life. So the council is making me jump through various extra hoops to reduce any potential liability which for example has forced me to hire a geotecnical company at a cost of 100K a year. One problem like that and you can kiss goodbye to your profits on a single house. Im not saying dont do it, just that theres a whole myriad of problems you haven't even considered in every step of the process, for every aspect.

share_bear

Deleted User wrote: »

Planning permission and permits are never simple. The reason is you don't know who the neighbours are and how they will react. There is no easy template or easy road.

In norway theres 3 levels of complaint for the neighbours, local, state, national. Each one got rejected on a piece of land that should of had no problems at all. Now the neighbours are suing the council for giving the permits, basically because Im a foreigner but thats life. So the council is making me jump through various extra hoops to reduce any potential liability which for example has forced me to hire a geotecnical company at a cost of 100K a year. One problem like that and you can kiss goodbye to your profits on a single house. Im not saying dont do it, just that theres a whole myriad of problems you haven't even considered in every step of the process, for every aspect.

So I'll buy the site with FPP then. Now only if I understood how development value were taxed under the various scenarios I outlined...:))

share_bear

share_bear wrote: »

So I'll buy the site with FPP then. Now only if I understood how development value were taxed under the various scenarios I outlined...:))

Right so what about building permits? You do know theres a difference between planning permission and building permits right? I purchased my land with FPP as you call it.

barneystinson

share_bear wrote: »

So I'll buy the site with FPP then. Now only if I understood how development value were taxed under the various scenarios I outlined...:))

Back to your fixation with tax AGAIN :rolleyes:

You have to actually make a profit/gain before you generate an income tax/CGT liability... as of right now that's not looking like a problem you'll be facing

But to answer your question, if the badges of trade apply, you'd have a trade liable to income tax on its profits.

If not a trade then it would be a CGT transaction.

As you would be developing with the intention of selling, then you'd be obliged to charge VAT on the sale of the developed property regardless of whether it is an IT/CGT transaction.

Legal format of the entity conducting the transaction wouldn't necessarily affect any of the above, but would need to be tailored to suit the requirements of the individuals involved.

ted1

moonshadow wrote: »

24 hours of asking about property will not turn you into a developer .

It used too..

share_bear

barneystinson wrote: »

Back to your fixation with tax AGAIN :rolleyes:

You have to actually make a profit/gain before you generate an income tax/CGT liability... as of right now that's not looking like a problem you'll be facing

But to answer your question, if the badges of trade apply, you'd have a trade liable to income tax on its profits.

If not a trade then it would be a CGT transaction.

As you would be developing with the intention of selling, then you'd be obliged to charge VAT on the sale of the developed property regardless of whether it is an IT/CGT transaction.

Legal format of the entity conducting the transaction wouldn't necessarily affect any of the above, but would need to be tailored to suit the requirements of the individuals involved.

Yeah but I remember back in the day they used to talk about how some huge percentage of the cost of a new house actually went to the government. So i feel like I am missing some info still.

There is the DCC development contribution of 115 YoYos per square meter - and VAT - taxes as part of materials, direct labour and consultants fees - and income tax if you take profit which I probably wouldn't to roll over to next job - is that it?

barneystinson

share_bear wrote: »

Yeah but I remember back in the day they used to talk about how some huge percentage of the cost of a new house actually went to the government. So i feel like I am missing some info still.

There is the DCC development contribution of 115 YoYos per square meter - and VAT - taxes as part of materials, direct labour and consultants fees - and income tax if you take profit which I probably wouldn't to roll over to next job - is that it?

Well there was (still is) 13.5% VAT on the sale price.
There was stamp duty at up to 9%.
There was (still is) PAYE/PRSI on the workers employed in building the house.
And then tax (IT/CT) on the builder's profit, and tax (IT/CT) on the developer's profit.
And also, at day one, there may have been CGT on the original owner of the development site on their sale to the developer...

You need to concern yourself less with what "they" used to talk about "back in the day" and more with what will affect you now, and next week/year.

From the glib attitude of most of your posts (across several threads) you come across a bit green/immature for this sort of thing, and your attitude towards trying to game the system, dodge taxes etc... suggests you're someone in the same mould as a lot of the people who got badly burnt 6-7 years ago, but without the benefit of their chastening experience. Good luck, you'll need it.

share_bear

barneystinson wrote: »

Well there was (still is) 13.5% VAT on the sale price.
There was stamp duty at up to 9%.
There was (still is) PAYE/PRSI on the workers employed in building the house.
And then tax (IT/CT) on the builder's profit, and tax (IT/CT) on the developer's profit.
And also, at day one, there may have been CGT on the original owner of the development site on their sale to the developer...

You need to concern yourself less with what "they" used to talk about "back in the day" and more with what will affect you now, and next week/year.

From the glib attitude of most of your posts (across several threads) you come across a bit green/immature for this sort of thing, and your attitude towards trying to game the system, dodge taxes etc... suggests you're someone in the same mould as a lot of the people who got badly burnt 6-7 years ago, but without the benefit of their chastening experience. Good luck, you'll need it.

I've pulled a few strokes --- but always successfully!

share_bear

share_bear wrote: »

I've pulled a few strokes --- but always successfully!

Lol, say goodbye to your 200K.

share_bear

IrishLad2012 wrote: »

If you don't mind me asking, what is your current job?

Most property developers are either from a construction background or have an endless pit of money, from elsewhere.

If you don't know anything about the sector best stay clear of it, doctors don't fly planes.

I've been think about your post.

I would be very interested to know what what other activities generated these endless pots of cash that the developers you encountered draw from - where do they get i?

I also often wondered what kind of occupation enable people to get mortgages (where applicable) on multimillion euro properties such as you see on the home page of daft.ie.

I only know one developer - he got started due to a compensation payment received when his wife crashed the car and brain injured their eldest son. He is a horrible person and the son is worse, the brain injury combined with medical steroids for other pre-existing problems, and a full moon make for a dangerous combination. Interested in hearing about other sources of capital...

share_bear

Deleted User wrote: »

Lol, say goodbye to your 200K.

East come, easy go.

jimmii

share_bear wrote: »

East come, easy go.

If it was easy you should probably just do the same thing again!

barneystinson

share_bear wrote: »

I've pulled a few strokes --- but always successfully!

All good things ultimately come to an end..!

pedronomix

Acting as a developer is trading, thus taxes applicable are Corporation and Income, not CGT.