By Michael Yardney
With our property markets bubbling along nicely many investors are looking at taking the next step and getting involved in property development.
While the process of property development can be a lot of fun, it is not without some pain and considerable risk. When all goes well the results are fantastic, but if things go wrong they really go wrong, so let’s look at 10 Rules to help make your project a success.
1. Get all your ducks in a row before you start
Before starting down the path of your first (or next) development project, get your finance preapproved, have your ownership structures set up and have the core of your team of consultants selected.
2. Understand where you are in the property cycle
As a development project often spans two or more years, understand where you sit in the property cycle and pay attention to the big picture economic factors that will affect the real estate market. You don’t really want to compete your project in the depths of the next property slump- do you?
3. Do careful pre purchase due diligence
Don’t believe the selling agent when he tells you the property will make a great development site. Carefully check the council zoning as well as the title and the topography of the site.
4. Get your budget right
Do a detailed feasibility study – be realistic rather than optimistic and include all the little costs beginners tend to forget. Then allow a contingency in case unforeseen costs crop up, because they always will!
5. Don’t overpay
It’s important to buy your development site at a price that allows you to make a fair profit; otherwise you’re immediately at a disadvantage.
6. Get a good team around you
Your team is likely to involve a property lawyer, accountant, finance broker, architect, real estate agent and a project manager to oversee the whole process.
And remember…if you’re the smartest person in your team, you’re in trouble.
7. Be realistic about your schedule.
It’s not unusual for developers to be overly optimistic with their scheduling. Setting realistic time frames will help you budget more accurately and remember to set aside some contingency money in case unforeseen problems stretch your schedule.
And keep very clear accounts. If your paperwork isn’t in order, it’ll only cause headaches further down the line.
9. Design your project with the market in mind
To maximise your profits your project must suit its target market – not necessarily your tastes.
10. Don’t become overconfident
I’ve seen many investors make substantial profits through property development, however I’ve seen even more developers, some much smatter than me, lose it all through overconfidence or undertaking just one more development before the cycle ended or a project with too little built in profit margin.
So there you have it.
A list of lessons I’ve learned after being involved in property development for over 30 years. Hopefully these rules will help steer you on the path of property development success so you won’t run into as many potholes as I did.
Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He’s been voted Australia’s leading property investment adviser and his opinions are regularly featured in the media. Subscribe to his blog at Property Update.