Would you like to build your wealth faster by undertaking a property development?
I know it is high on the wish list of many investors that I speak with.
While there is certainly greater risk, the rewards can be substantial and it has certainly fast tracked my property portfolio, along with many of our clients.
One of our clients has just completed a development recently in Brisbane, so I thought I would share the result.
In this article I shared more than 12 months ago now, I told the story of how we secured the initial site for him – via Auction with 45 registered bidders.
It was in an A Grade suburb of Brisbane and more importantly within one of the most prestigious, in demand streets – hence the large crowd!
As you can see below, we certainly weren’t attracted to the property itself!
It was uninhabitable and pretty much a knockdown.
No, what attracted us was the fact it was an 810sqm block that can be subdivided into two smaller blocks of 405sqm.
In fact, the benefit here was that it was already on two lots and therefor a much simpler process.
Fast Forward the 12 months or so and today we have the finished product, two modern, stylish, contemporary, brand new homes with high owner occupier appeal.
I guess there is always a sense of emotion and nostalgia when looking back on the before and after photos.
But in my mind there needs to be a purpose or outcome that is being achieved.
Here are my thoughts;
There are two clear reasons to undertake a development and quite often the majority of investors confuse the two.
1. For an Income
Many investors believe, that by undertaking a development or two, it will assist them to leave their day job and make millions.
This could be no further from the truth.
It becomes solely about profit and turnover, I would suggest it is also highly risky.
Even when they get it right and a profit is made, they then have to hand over a considerable amount of their profit as;
- Sales Agents Commission
- Marketing and Advertising Costs
- Income Tax
- Capital Gains
In many cases, close to half of what they end up making, they are forced to part with.
There is also the risks around understanding the price, project management, target market… and the list goes on.
Not to mention the market risk and in most cases, it could take a year or two until completion and you may end up in a completely different market.
This is not a strategy to build long term wealth, it is just another way to create income.
2. To Build Wealth
This is the strategy that makes the most sense to me and the strategy I have used to fast track my wealth creation.
This is a significantly lower risk strategy and it is not solely about chasing profits or income.
It is more about building longer term wealth.
Lest start by looking at the various quadrants below.
There are two types of returns from property, capital growth and yield (or rent).
Typically investing in an investment grade residential property attracts high growth, but generally a lower yield.
Commercial property is generally the opposite, with a higher yield, but much lower growth.
Clearly it would not be worth investing in a low growth, low yield investment, they are generally purchased for lifestyle reasons.
Finally, and obviously, the best type of investment is the high growth and high yield investment, there is only one problem…
They are like Unicorns and do not exist… Unless you believe in Unicorns of course!
The beauty of property development is that you can take a high growth, low yielding residential property and turn it into a high growth, high yielding asset.
In fact, as in the case study above, you now have two – high growth, high yielding assets.
Two brand new assets in a strong high demand, high growth location with a significantly higher rental return.
You cannot do this with any other form of asset.
Now you have two of the best type of assets money can buy – why would you sell and pay all those fees I highlighted.
Add to that a huge amount of depreciation and tax benefits.
Why wouldn’t you simply rent the properties out and get access to the equity to widen your asset base further and potentially repeat the process.
There is always a sense of romance and nostalgia when it comes to property development and it is always a popular talking point.
But there is a need to distinguish between doing it for a living versus building wealth.
Relying on development for your salary can be hugely risky, it is be very unforgiving and is clearly not for your average investor.
Undertaking a development to build wealth is very different and can be very rewarding.
By having a team around you that is known, proven and trusted, you can lower the risks substantially, while maximising your return.
It becomes less about maximising profits and more about finding the right state, suburb and street for longer term capital growth.
Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on
If you’re wondering what will happen to property in 2020–2021 you are not alone.
You can trust the team at Metropole to provide you with direction, guidance and results.
In challenging times like we are currently experiencing you need an advisor who takes a holistic approach to your wealth creation and that’s what you exactly what you get from the multi award winning team at Metropole.
If you’re looking at buying your next home or investment property here’s 4 ways we can help you:
- Strategic property advice. – Allow us to build a Strategic Property Plan for you and your family. Planning is bringing the future into the present so you can do something about it now! This will give you direction, results and more certainty. Click here to learn more
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