How to get started in property development

Michael Yardney About Michael Yardney

Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He has been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au

Many real estate investors are keen to step up to the next level and get involved in property development.

They think “I’ll buy a block of land or old house, pull it down and build a number of townhouses, units or apartments. And then maybe I’ll sell some, keep some and move onto the next project.”

It all sounds so simple. But there is a lot more to the development process than what you see happening on site. In fact most of the success of any property development is underwritten long before you commence construction.

You see…property developers follow a sequence of steps from the moment they first conceive a project to the time they complete the physical construction and begin ongoing asset management.

While the sequence may vary slightly, usually the development is broken up into the following elements:-

  • coming up with the idea
  • refining it
  • testing its feasibility
  • negotiating contracts
  • making a formal commitment
  • constructing the project
  • completing the project and finally
  • managing the new project

Let’s look at these in a little more detail.

How to get started in property development

While the development process varies from project to project, in essence these are the steps we follow at Metropole Property Strategists: -

 1.     Why?
The first step is to understand WHY you are getting involved in property development.

Do you plan to sell the property for a quick profit?

Or are you planning to develop your property, manufacture capital growth and rentals returns and then keep your high performing property (my preferred strategy)?

 To learn more about the process of property development read our 19 part Property Development Guide by clicking here

2. Pre Purchase stage
This is when you start looking for a block of land with potential for development.

But before you even start looking there’s a few things you need to do first:

(i)            Understand in which entity you will purchase your. Will it be in your own name, in a company, a trust or maybe you’ll be involved in a joint venture? Obviously you’ll need your accountant’s input to help you decide.

(ii)          You should also have a finance preapproval in place so that you understand your limits, as well as having the reassurance that you can complete the project and retain someone all of the units on completion.

(iii)        You should also have a team of consultants organised who can advise you as to the project’s viability.

If you hire a development manager they will coordinate the whole process or you’ll need to engage a solicitor, an architect, a surveyor, a town planner, an engineer and an estate agent to advise honestly on end values and marketability.

 To learn more about the process of property development read our 19 part Property Development Guide by clicking here 

Next comes looking at potential sites to purchase and some number crunching in a feasibility program.

We include time scales, all costs including consultants and construction costs, as well as the likely end sale values and the profit margin we require

And the we add a bit extra for contingencies, because unexpected costs crop up in every project.

We plug all these numbers into a feasibility software program which enables us to calculate the residual land value – the most we could afford to pay for the land to make it a viable development project.

If the project is viable, in other words financially feasible, we then consider making an offer to purchase the land on favourable terms.

3. Purchase
At this stage we buy the land at a price that allows our clients to make a commercial profit.

4. Town planning / Development Approval
Now our architect draws up plans that fit in with the planning regulations and accords with the local council’s development guidelines.

Due to the increasing complexity of the development process, a surveyor and town planner are often involved at this stage.

5. Working Drawing and documentation.

Once the Development Approval (DA) has been achieved our architect and engineer document the working drawings to allow us to obtain a building permit (called a Construction Certificate (CC) in some states.) This stage can take 2 to 3 months.

6. Pre Construction
We now obtain quotes from a number of builders and organise finance for the construction phase of the project based on the builder’s fixed price contract.

7. Construction
This is the stage when we finally get on site to build our client’s project, paying the builder progressively at the completion of each stage. The construction stage can take between 7 to 12 months depending on the size of the project.

As you can now tell, while many people consider that construction is property development, it is really just one of the stages of the development process.

Construction is what a builder does; remember most developers are not builders so the never really get their hands dirty. They are a bit like the producer of a movie. They come up with the concept and then orchestrate the entire project.

8. Completion
Once the construction is finished, a plan of subdivision is completed and the project is refinanced and leased and held in the long term (my preferred option) or sold.

While this is the last stage of the development process, we always advise our clients to begin with the end in mind – have an exit strategy right at the beginning of the project.

In conclusion:

While property development can be very lucrative, many beginning property developers get themselves into trouble because they don’t know what they don’t know.

They step into a potential minefield without doing sufficient homework, so in future articles I will go through each of these stages in much more detail.

 To learn more about the process of property development read our 19 part Property Development Guide by clicking here

At Metropole Property Strategists we have clients who become what we call “armchair developers” and use our project management services to run the whole project for them – some even live in a  different sate or overseas. Others don’t complete the whole process, but on-sell their project with development approval and take their profit and start all over again. Others buy land with a Development Approval in place, fast tracking the whole process.

Why not find out more about how you could get started in property development. Just click here and we’ll be in touch


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Comments

  1. Great summary Gavin, but you’ve glanced over the two most difficult property development processes: (pre)sales and funding. The reason many developments never get off the ground in not due to poor town planning or delays in getting development approvals – most developments never get off the ground because they can’t secure funding or they can’t them sold.

  2. Thanks for the comment Asaf
    If you check out some of Gavin’s other articles in the property development section of this website, you’ll find he goes into much more detail about each stage, including the challenges.

    You can find our property development articles here: http://propertyupdate.com.au/category/property-development/

  3. Gavin Taylor says:

    Great insight, Asaf –
    What you say is true – and it has everything with getting the right product to market at the right time. Town planning is part of preparing the right product. So there are a number of variables that the developer has to get right. No matter what industry one is in, it is always hard to sell something if it is the wrong product, if it is the worng timing or if the market is over-supplied. The fundamentals of busness apply to development as well, which they should.
    As Michael has noted, there is a lot more detail available in other articles.
    Thanks for your feedback.

  4. Real Estate Professional in Illawarra says:

    I think you have a great knowledge about the development of property . Will you please share some more reviews ?

  5. One can get a vast knowledge from this topic about building and acquiring property. Thanks for the post.

  6. hi, i found this to be a very interesting field to explore. any tips on someone like myself who’d like to grab the opportunity of property development? It’s always been my dream to build apartments for sale or rental. Your advice will be greatly appreciated.

  7. I have already built an sold one property and now I am building a second one here in South Africa but my concern is that I do have an idea and a potential to become a registered developer and grow in this industry because I have got so much interest,please guide me as to where and how to get started,your assistance will be of great apreciation.

  8. joseph obakeng nkwe says:

    how do i go about buying a block of flats, and were can i get funding if i don’t have any

    • Hi Joseph
      We’ve bought 28 separate blocks of apartments for clients over the last 5 years – it’s a great investment strategy.
      But it requires a substantial amount of money and if you don’t have any, you shoudl probably set more modest goals to start with

  9. Dr Thabane Ocean Malatji says:

    hi
    i am a young dr who just started with internship this year january. i am being paid well and saving enough but i want to be a property developer in 4 to 5 years time (e.g building town houses) and the reason for my saving is to build myself a capital in the form of money. i can see that with the little i am saving i wont be able to make my dream come true at that given time since i would have saved about R500000. how will i go about finding augmentation once i’ve got the money I mentioned? or is there any other way that i can be funded even before i reach that 4 or 5 years period, please help me

    • Thanks for the comment.
      Many investors want to get involved in property development, but it’s the peak of the triangle, something only really available to a few who have developed years of experience, built a large asset base and have good cash flow.
      It’s unrealistic to expect to achieve this in 5 years

  10. Thank you for this posting. I am a master student of real estate and have decided to become a developer. I ultimately want to manage the entire development process and my own company, but first I need experience with each detail of the process so thank you for beginning to break it all down. What roles I should take on in order to learn the most and get the widest and deepest amount of experience is my next Q. I was surprised to see you had a product to sell at the end of this article because it was so informational for me. I think information and offering real value is the best way to attract your customers. ;)

    • Lauren
      IF you’re serious about getting involved in property development as a career you’ll find your theoretical education will only get you so far. Find an internship with a property development company and learn on the job – it’s the best way to do it.

      • Hi Michael, re your reply to Lauren, can you priovide a list of property development company? Thanks

        • Thanks for reading this post and your comment Henry. You don’t really expect me to list all the potential employers Lauren could approach do you? I don’t know where she lives, her qualifications or aspirations. I’m sure if she’s studying development she’ll know where to start

  11. Expert Real Estate advisor in Illawarra says:

    Recently I invested a hefty sum on a property. Thanks for this information. I guess it’s high time for me to start a property development business.

  12. Unique Property Management services by Bunbury Real Estate says:

    Gavin has a good experience in the field of real estate. His property strategies are beneficial for property investors.

  13. Hi I have been an eastate agent for long and have been woeking with property developes and I also want to become a property developer. I have learned how property developers do and working as one them. With this experience, can I be able to become an independent developer

    • Johannes
      Working with a developer as an estate agent is very different from being a developer and having your own money on the line.
      A property developer needs a myriad of skills over a number of disciplines. My best piece of advice- start small because you’ll learn 80% of your lessons in your first 2 or 3 developments.
      If you make it through those, you’ll be well on your way

  14. Building Certifiers Brisbane says:

    Wow! What a great post.

  15. Thanks for the article. This will definitely help in the process of real estate development. Great guidelines to follow.

  16. Weighbridge Suppliers in Doha says:

    there are a variety of factors that the designer has to get right. Regardless of what industry one is in, it is always complicated to offer something if it is the incorrect item, if it is the worng time or if the industry is over-supplied. The basic principles of busness implement to growth as well, which they should.

  17. Private Building Certifiers | Building Certifiers - Certification Brisbane says:

    There is no doubt that when great minds are put together to formulate a response to an issue they can achieve anything.

  18. Hi Michael,

    I’m 19year old German student and finished school last year. I’ve just figured out that I would love to work in property development later on. Reading our article just confirmed my interest. However I’m very incertain which would be the right bachelor study to get there. Economics, architectectur, urbanistics? Can you help me? Thanks!

    • Marie
      There is no specific course for property development, however architecture or project management are good starting qualifications to get a job with a property development company and lean on the job

  19. Hello, I have read all these posts, some great advise in their. I myself am busting to start developing property. I am coming form a complete different field but I’m obsessed with real estate. I am wanting to start small by buying blocks of land building houses and renting them out, and selling some.
    my dream is to buy big land and doing subdervision to Make lots of smaller blocks. I am about to start a cetrificate 4 in real estate to give me some knowledge, before i start but reading previous posts should I also look into project management courses as well.? Any advise please?

    • Kristy
      The advice is start small as you’ll make most of your mistakes and learn many lessons in the first few developments and you’ll need much more money than you think

  20. Brendan says:

    Michael, what advice would you give someone like me who is looking to move from the UK to Melbourne to do Property Development – which is what I am doing now. I will be looking to invest around A$ 1.3m. I understand the business in the UK as I started it in 2010 with no funds and have developed and built the business to date. I agree with what your saying about starting small and building up. Any help would be appreciated.

    • Brendan
      Some of the things you’ve learned in the UK will definitely be translatable to here, but there’s a lot to learn about how the system works here.

      While the funds you have are substantial, in my opinion, you’ll need more than that if you plan to make property development a full time living

  21. Hi Michael.

    I really enjoyed this article and your approach to development.

    I just finished one of your books which has helped shape my entire investment strategy to buy and hold.

    Please keep producing this great content!

  22. Cordelia says:

    Hi Michael,

    I am a property economics student in Sydney and I am currently undertaking some research into the development process. Yours and Gavins articles are both great. I just have a question. It might be a little too specific, however we have been reccomended to ask professionals in the field for their advice. From planning to handover, how long do you think it would take to complete a residential development project with 30 lots each comprising 450m2? I understand there would be some variables such as council approval and market factors contributing to how successful the house sales are, however, what would your rough estimate be?

    Thank-you
    Cordelia

  23. I think the first step of the process outlined above is very important. Answering the question of “Why” you are getting involved in property development will lay the foundation of how you will proceed with the process.

  24. Hi Michael,

    Great article!
    I live in Brisbane and always thinking of buying a plot, pull down and rebuild.
    1. Could you list the advantages and disadvantage of developing in the CBD fringe vs suburbs (say 20km from CBD)?
    2. Do you think $800k is enough for a small project on 600-800m2 land?

    Thank you.
    Graham

    • Graham
      Some areas in Brisbane are ripe for development and others are not – this is not the forum for this type of advice.
      If you’re interested why not contact our Brisbane office on 1300 203030 and speak with Shannon Davis. he knows the Brisbane market backwards

  25. Hi Michael

    Does your e-book detail the step/sprocess and legalities involved in developing an estate property. We are a family of four siblings who intend developing a fully fledged estate for all of us to live on and not for sale. We envisage the estate to be quite expansive and possibly include a church as a subdivision.

    What is your advice i.r.o. our plans?

    • No it doesn’t – you’re looking for a lot of very specific information from a free ebook aren’t you?
      However it gives a great introduction to the process of property development

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