How to build your way to wealth – part 1
Property development is regarded by many investors as the Holy Grail because of the huge profits on offer. So what does it take to be a doyen of development?
When done right, property development can deliver handsome rewards for investors.
However, the pitfalls and challenges are great and varied, which means first-time developers need to be extremely cautious about their investment decisions.
In the first part of this three-part series, we outline 10 tips to help property developers mitigate the risks and maximise profits.
- Know the ins and outs of the industry
Before you even start thinking about development sites or plans, you need to gain a comprehensive understanding of property development. If you’ve decided to oversee the development yourself, there are dozens of people you’ll need to coordinate with throughout the process. It’s wise to know who these people are and the roles that they play.
Some of the various specialists include:
- Building inspectors
- Building companies
- Town planners
- Local councils
Generally, it’s not advised that individuals oversee their own developments, particularly first-time developers. This can be one of the biggest mistakes to make as many underestimate the requirements and demands of property development and soon find themselves facing massive budget blowouts. Rather than overseeing the development yourself, you can engage the skills of a development manager, who will complete all the leg work for you. Alternatively, you can also participate in a joint venture or a property syndicate, which allow you to gain exposure to a development project with less risk.
- Understand the market
Equally important as knowing the development industry is understanding the state of the property development market. To do so, you’ll need to consider a range of factors such as the price points of respective suburbs; the demand of particular dwelling types; the stage of the property cycle; and economic drivers of the area, among others.
To gain a comprehensive understanding of the market, research is essential. Look at recent data and statistics about demand and supply and talk to property professionals to obtain first-hand insights. Your knowledge of the market can mean the difference between buying a development site with high-upside growth potential or one that turns out to be a financial flop.
- Search for a development site
Finding the right development site is the most important step to becoming a successful property developer. The development potential of your site will be dependent upon its size, zoning and location, as well as other factors such as if the site contains easements. When you’ve found a site, you need to consider a number of issues. These include:
- The zoning regulations and subdivision rules. You should obtain a written statement from the relevant council as these can often be misquoted in advertisements.
- If the site is heritage listed. If this is the case it’s usually better to continue your search for a different development site.
- Any structure plans, planning policies, area plans or proposed rezoning for the area that might affect the site.
The second part of this three-part series will be published in the September edition of Property Wealth News, and explain how a feasibility study will you help to avoid investing in a dud development and how to purchase your site like a professional.