Sourcing the right development project
You’ll also need to consider the impact of short term verses long term investments. If you are aiming to sell for a cash profit, then a wider selection of properties would be available to you as your focus is on short-term market movements rather than long term capital growth. Whereas if you are developing to hold, you will need to consider longer term supply and demand issues and what will drive long term growth in an area.A long term outlook also influences whether you should look at land or building opportunities. If you are holding for the long term, land is generally not suitable as it does not produce income (i.e. rentable) – this is especially critical if you find a weakening market leaves you unable to sell when you planned.
Now that you have your game plan together, its time to hit the pavement and find that elusive development opportunity. Easier said than done! But at least there are a few tools available to help you.
Firstly, you could touch base with sales agents. They may be helpful but just remember they are legally obliged to get the best price for the seller, not you the buyer. It is also likely they will have a number of developers on their books so don’t bank on them solely looking out for you. Also, ask the selling agent how they came up with the price for the particular development site – many projects we look at would make little or no profit and in some cases a loss if people paid anywhere near the asking price.
Secondly, do your own research. Be prepared to spend a considerable amount of time towards sourcing development sites and understanding planning schemes, zoning codes, construction costs and market values.And if you really want to ensure you have all the facts, you will need to spend significant funds on industry tools (such as RP Data) to do proper research and gain access to owner details in order to source off market properties.
And last but not least, there is the option of paying a professional buyers agent to find the right opportunity for you. Buyers agents are legally obliged to work for you the buyer, meaning you can rest assured that your best interests are being looked after. Do however make sure they thoroughly understand development – this includes rezoning, constructions costs, and resell prices – and that they are honest and will tell you the real state of affairs rather than what you may want to hear.