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Property development: Time is money

Wednesday, 6th Jun 2012

development

Many property developers are so eager to jump into a development project that they forget to take the time and look at the big picture. This is especially true when it comes to making important decisions in regards to project management, consultants, finance, and builders or architects.

When making these types of decisions, which could affect the timeframe or quality of the development, it’s important to remember that old cliché – that time is money. Yes, you’ve probably heard this before but that doesn’t mean it’s not relevant. Many first-time developers seem to forget that for every month (or day for that matter) that you are delayed, you’re paying interest on your loans used to fund the development. For example, if you had $1 million in outstanding loans, each month your project is delayed could cost you more than $5,000 every month! Every wrong decision could seriously dent your profit margin.

With this in mind, as soon as you have a signed contract you should get your finance application in with your broker as early as possible. If you have a short settlement or your offer is subject to finance, you will not be able to wait until you’ve completed your due diligence so you must act quickly. Assuming everything has been done correctly, you will probably get finance approval for the land purchase and perhaps some level of indicative approval on the construction.

With finance out of the way, you need to consider whether to use a project manager. A project manager’s role is to take responsibility and control of the development from start to finish. You have to decide whether you have the time available and skills required to manage the project yourself. In most cases, I would recommend you hire a professional. I have seen many clients attempt to do it themselves only to find it’s not as simple as they think and it ends up costing them more at the end of the day because of their inexperience.

Assuming you are managing it yourself, start by approaching the consultants you’ll need. If it is a land subdivision you will need surveyors. If it’s construction, you’ll still need surveyors but possibly at a later stage. And if constructing units or townhouses, you’ll need to decide whether to engage a builder directly or an architect or building designer for the project.

In Inner city “trendy” locations buyers will typically appreciate the style and flair a quality building designer or architect can bring, and they will be willing to pay a price premium. If you are going direct to a builder, comparing quotes can be difficult so ensure you develop your own understanding of costs. And don’t focus exclusively on cost. Time to complete the construction and work quality are very important criteria to consider when selecting a builder (remember time is money).

Depending upon the size of the project, it can take anywhere from 6 months to 3 years. It requires a great deal of determination, can be stressful, and to really be successful you often need to undertake many developments of which not every one you’ll win. So if your development doesn’t go to plan, learn from your mistakes so that history doesn’t repeat itself.