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Why you should seriously consider property developing

Tuesday, 1st Jun 2010

house and land

To many people, property development seems like a daunting challenge, something best left to the big businesses. Others just imagine it to be too hard to do for an ordinary Australian. The fact is that while it isn’t for everyone, many everyday people are property developers and it’s something almost anyone can do with the right knowledge, attitude, and a good support team of specialists. Launching yourself into the foray of property development does carry risks, but also a number of very tempting benefits.

Becoming a property developer essentially means you are adding or creating additional value to an existing offering. Rather than following the ‘buy and hold’ strategy which requires the luxury of time (particularly in a flat market), developing property speeds up the process of generating monetary returns. For example, instead of waiting for your large block to appreciate naturally, consider subdividing and building on the spare land and selling it. You’ll realise the profits much quicker, perhaps in a year or two, than if you were to leave things as is and wait for the market to rise.

Developing property also allows you to work at the wholesale end of the market. Once your development is complete, you’ll often find that you’ll have saved at least 15-20% in costs as compared to buying the same type of property once complete. This is because when you buy a brand new house for example, you’re paying a premium as the price is stuffed with the developer’s own margin, GST, and marketing costs amongst others. All these are avoided when you develop and build yourself. Better yet, when it comes time to sell you’ll be selling your development at those retail prices putting the gains straight in your pocket. Even just getting all the approvals in place but not actually getting dirty will still add value and usually more than the ‘wholesale’ cost for doing so.

Even if you don’t sell, developing will give you more leverage. Once you’ve completed your project, you can approach banks to refinance the loan. They will usually lend 80% or more of the retail value, not wholesale, subject to loan serviceability. This often means you can pull out all the money you put in and continue investing elsewhere.

Should you elect to rent some properties out, you will attract high rental yields. The tenants will be paying premium retail rents for your brand new property, while your cost base will be much lower than the retail equivalent.

Getting started in property development is daunting, but with the right help you can start to realise your property dreams sooner.