As our property markets slow down, more investors are interested in becoming involved in property development as a way of “manufacturing” capital growth.
The problem is that along with the big profits there are many potential risks.
So in today’s show I’m going to share:
- 7 reasons you should consider getting involved in property development
- 13 risks you must be aware of if you’re considering getting started in property development
- 8 tips for budding property developers
The benefits of becoming a Property Developer.
- Easier finance
- Tax benefits.
- Higher rental return
The risks of becoming a Property Developer.
Some of the significant risks of property development I have come across include:-
- Buying the wrong property – not appropriate for development.
- Buying the right property at the wrong price
- Buying at the wrong time of the cycle and not having the finance to hold on to your project
- Not doing a detailed pre purchase feasibility study – and missing out lots of figures.
- Building the wrong end product – too expensive, or not right for market demographics
- A downturn in the property market leading to lower property values or increased holding costs until the development properties are sold.
- Interest rates rising during the development process resulting in increased holding expenses and therefore lower profits.
- Increases in construction costs during the project.
- Changes in the supply and demand ratio for real estate market as we are currently seeing in the inner city apartment market. This of course depresses property values and reduces your project profit margin.
- Unexpected disputes with building or trade contractors or unions which can cause costly delays to a project.
- Changes to the laws relating to property development could adversely affect the profitability and viability of your development project.
- Unexpected delays and increased holding costs may be encountered when town planning (DA) approval is required for a development.
- Some inexperienced developers find that some of the improvements they have made to their properties do not result in an increase in value.
As you can see many of these risks are outside the control of the developer.
Hints for budding Property Developers.
Here’s some advice for new property developers
- Some property investors move into the realm of property development not understanding the rules of the game are very different.
- Property development is a great way of building a high growth, strong cash flow property portfolio but you need to approach development will realistic expectations.
- Currently the tighter finance climate is making it hard for property developers to fund their projects. It is likely you’ll need much more equity and serviceability than you think you’ll require to get started in property development.
- A great place for budding developers to start is by getting involved in property renovations, in fact that’s how many experienced developers initially learned their trade
- You’ll learn much of what you’ll need to know and you’ll make most of your mistakes in the first 3 or 4 projects you undertake so start small and don’t overcommit financially for your first few projects
- Property development is a great way to manufacture or create equity, it’s not a way to make an income (a living) from adding value and selling.
- Get a good team around you.
- The best tip is last – join us at my property renovations and development workshop on October 20th and 21st – it’s a training event not a sales event and comes with my personal guarantee
Why not learn from a team that’s currently involved in over 50 medium density developments and has completed over 700 developments.
Join us at our 2-day Property Renovations and Development Workshop, on October 20th and 21st we’ll take you through everything you need to know to manage your renovation team, and give you the skills to step up to the big leagues as an investor and property developer.
Why not click here to find out more and reserve your seat?
Links and resources:
Some of our favourite quotes from the show:
“Rather than buying properties at retail, when you become a property developer you can acquire your investments at 15- 20% below their market cost.” – Michael Yardney
“The really smart developers don’t sell their projects. They refinance them against their new higher value and take out their extra equity, this equity that they have manufactured by developing property and use it as seed capital for their next project.” – Michael Yardney
“If undertaken correctly, property development can be very lucrative. If you buy your development site well, your investment will always be underpinned by the security of real estate in a prime position. – Michael Yardney
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