How To Develop Property In Your SMSF
Introducing a refreshing and effective way to self-manage your super funds and invest in property development. Unlike traditional approaches, we use a unique no-debt model that helps to reduce risk and promote greater returns.
Welcome to How To Develop Property In Your SMSF, With Lower Risk. I’m your host, Rebekah Blake, from SMSF Property Capital. Let’s start looking at why the traditional approach to property development is broken.
Here is how traditional property development works with the use of bank debt. In this simplified example, we have $100 worth of property being developed. The total development cost is $75, and the available profit is $25. The bank tips in $50, and the investors contribute $25 in equity. Then providing everything goes to plan, the $25 in equity invested produces $25 in available profit, which is 100% profit. So far, so good, but what is wrong with this picture?
The problem is that banks retain massive control over the process. If an unexpected event, such as a GFC, hits or any number of other hiccups should occur, such as a construction delay, then the banks could take back the assets and leave investors with nothing. So the key to our model is to remove banks from the equation.
With the SMSF Property Capital model, the development looks like this. Instead of banks, investors contribute the whole $75 required to do the development, which delivers an expected profit of $25. Now, this is a 33% profit. It’s pretty good, but not wow. So property development with debt has potential to deliver a profit of 100%, and property development without debt has the potential to deliver returns more in the order of 33%. So why would you develop without bank debt? Well, quite simply, it’s the “sleep at night” factor. With banks removed from the picture, risk is greatly reduced, and the investors funding the development have two options, more options even if the market situation changes.
The second big problem with traditional property development is that it’s all too often marred by conflict. Developers, architects, builders, and bankers tend to tussle over whose responsibility it is to fix a particular problem. For example, maybe the builder complains that the architect specified something too difficult or too impractical to build. Well, the builder is less motivated by time and savings than the developer. The conversation then becomes more about who is right rather than getting to the end of the development and delivering a profitable outcome.
So the next key to our model is to eliminate competing agendas between the different moving parts. With our model, we line up all the moving parts under one umbrella. And the joint goal is to find the opportunity, raise the capital required, build the project till the finished product, and then distribute the profits to investors. Now, this team approach avoids conflict and ensures everyone is aligned around a successful outcome.
The next key to profitable property development is to predict and program the cost of every stage in detail. Now, this is vital to keeping every step on track and moving forward quickly because time is money in this game. It’s also important to recognize that it will not go exactly as planned. Unexpected things can happen, so let’s consider the worst case scenario. And just about the worst case scenario, most people can imagine is what would happen if GFC2 hit the day after you invested in one of our projects.
To answer that question, let’s take a look at what happened in GFC1. Around April 2008, capital city property profits started falling, and they actually lost about 10% of their value until returning to previous levels in about April 2009. In this situation, if you’re developing property with bank debt, then it’s possible that the bank could take away all your assets leaving you high and dry. But with our no-debt model, you have options. Now, one option would be to sit tight until the market recovers. Another option would be to sell later at a low level of profit. Now, hopefully that scenario won’t happen, but it does give comfort to know that there are options if everything doesn’t go 100% to plan.
Now, that’s a theory, but how does it look in practice. Well, let’s look at an actual project, Bryna Parade in Oxenford on the Gold Coast. This is a 58-townhouse project predicted to return 45.98% over 24 months. Now, this is our most recent project, and it has just of last week been fully subscribed. So it’s no longer open to investors, but it is a very up-to-date example. So as of right now, the project is fully subscribed. As with all of our projects to date, there was a minimum investment of just $5000. The average is around 50,000, and the maximum in average so far has been one million.
The feasibility is to having a profit of 45.98% over 24 months. It’s suitable for investment inside or outside an SMSF. In short, a project like this allows investors to participate in the potential upsides of property development with reduced risks and downsides. Since Bryna Parade has been fully subscribed, we’ve created a capital allocation waiting list system, and here’s how it works. Give us a call on 1300 76 73 46 or email us at firstname.lastname@example.org to book a time to have a chat and discuss the model itself. We’ll answer your questions and give you an opportunity to join the capital allocation waiting list at a level that makes sense to you. This basically gives you the right but not the obligation to invest in our next project, which is scheduled to open to investors in about four weeks’ time.
Now, if you need regular income as some of our investors do, we have an income protocol to development income fund. This pays a monthly interest rate which is currently targeting 7.5% per annum. For more information, please get in touch to request a PDS.
Here’s what one of our investors, Brett Rix, said about our model, “SMSF Property Capital provides the opportunity to directly invest in property development – an activity that is beyond the reach of most investors who do not have the time or skills to project manage their own construction sites. They make you feel like a part owner in the actual business. They drag you through the mud on site, share with you the frustration of local government behavior, and take you through the journey of design, construction, and sales. The potential returns are strong with a lot of downside protection.”
So if you’re ready to find out more or to invest, please call us on 1300 76 73 46 or email us at email@example.com, and we’ll go from there. As of today, we’re well on the way to filling up a substantial portion of our next project, so if you do have interest in the model, please inquire now to discuss your options. Thanks for watching.