If I mention to you the concept of “Making a Profit”……did it entail selling down the assets and the cash that was left after expenses?……You property developers out there, how many of you are selling down property trying to shove profits through your company to show the bank a turnover for serviceability?….Let’s break down this idea of “Profit”.
What are you actually trying to do with these “Profits?” If you’re trying to build up the books of your company to impress any would be investor or bank, then the GOOD news is that is what you are more than likely doing. You make your 20%-30% in gross margins and take that cash to reinvest, in another project(s) and you have your game plan for the next project. But if it’s to create financial independence, there’s a better way…
Lets look at what you are doing with profits: Simply put, whether you are trying to impress a bank or after financial independence, correct me if I’m wrong, but aren’t you trying to create an INCOME?
I challenge all of you to run the numbers on what your properties produce when HELD, EQUITY used to fund the capital for the next project and the RENTAL INCOME used as a source of servicing. Now I know a lot of you are coming up with every reason under the sun right now as you’ve probably set up your holding structures that require Sherlock Holmes to figure out, but boil it all down and work out what it is costing you to:
1) Turn your assets into cash
2) Maintain the entity(ies) used to funnel your cash through
3) Exit a growing market
4) Be without the income you would have had if you had kept your assets
I’m not sure what you’ve come up with, but I haven’t met a scenario where I haven’t been able to halve the time it takes to get to a first income goal, simply by playing a balancing act between the income and created capital and replacing “Profit” with the term “Equity”. It will quickly become apparent, that if you had sat down and worked out where you wanted to be first instead of what you should be doing, your strategy would have been far simpler and far more “PROFITABLE”.
There’s a good reason why the more affluent Asian countries around the world reward those that live inside of the banking system…and Australia does also in a way. When you turn an asset into cash, you pay tax on what you make. You’ve exited a market and your money is standing still. On the flipside, if you were to hold the asset(s) and use equity to finance your next venture or even just to use the equity for cashflow purposes, there is no tax. Sure you’re only looking at 90% of the true value of your profit, but what are you paying in tax to make that cash available? And the income you would be generating as opposed to living off cash equity, what tax are you paying there?
If you would like to know how to realise profit and income in the same property contact us