Have you ever thought of getting involved in property development?
More and more investors want to become property developers.
We’re experiencing a period of lower capital growth at the moment, so investors want to “manufacture” some capital growth, want to get better rental returns, and want to get their properties at wholesale.
This is the first of a series of podcasts over the next couple of months explaining more about the property development process that I will be conducting with my son, Bryce Yardney, who now manages the property development department of Metropole and who, over the years, has been involved in hundreds of property development projects.
We’re going to start with some of the rules you need to understand if you want to get involved in property development.
Then, in my mindset moment, we’re going to talk about one thing successful investors do differently to those who aren’t as successful.
The rules of property development
- Get all your ducks in a row before you start
Before starting down the path of your first (or next) development project, get your finance pre-approved, have your ownership structures set up and have the core of your team of consultants selected.
- Understand where you are in the property cycle
As a development project often spans two or more years, understand where you sit in the property cycle and pay attention to the big picture economic factors that will affect the real estate market.
- Do careful pre-purchase due diligence
You need to undertake due diligence including checking the council zoning, as well specific property due diligence – things like checking:
- the title for covenants, easements and overlays
- the neighbourhood character as well as adjoining buildings and trees
- the topography of the site.
- Get your budget right
Do a detailed feasibility study – be realistic rather than optimistic and include all the little costs beginners tend to forget.
Then allow a contingency in case unforeseen costs crop up, because they always will!
- Don’t overpay
It’s important to buy your development site at a price that allows you to make a fair profit; otherwise you’re immediately at a disadvantage.
- Get a good team around you
Your team is likely to involve a property lawyer, accountant, finance broker, architect, real estate agent and a project manager to oversee the whole process.
And remember…if you’re the smartest person in your team, you’re in trouble.
- Be realistic about your schedule
Setting realistic time frames will help you budget more accurately and remember to set aside some contingency money in case unforeseen problems stretch your schedule.
- Be meticulous with your documentation
Put everything in writing, especially when dealing with consultants and contractors. This helps avoid misunderstandings and confusion.
And keep very clear accounts. If your paperwork isn’t in order, it’ll only cause headaches further down the line.
- Design your project with the market in mind
To maximise your profits your project must suit its target market – not necessarily your tastes.
- Don’t become overconfident
I’ve seen many investors make substantial profits through property development; however I’ve seen even more developers, some much smarter than me, lose it all through overconfidence or undertaking just one more development before the cycle ended or a project with too little built-in profit margin.
Hopefully these rules will help steer you on the path of property development success so you won’t run into many potholes.
What all successful people do differently
There are so many sayings we just take for granted as true, but it’s important to really look at them, because sometimes they don’t make sense. What’s the point of having a cake if you can’t eat it too? Shouldn’t the Trojans have looked that gift horse in the mouth?
Today we’ll look at two sayings that you may want to reconsider.
- Don’t put all your eggs in one basket.
Common wisdom suggests that you need to diversify. But is that really correct? Successful people specialize.
Why not just take good care of your basket?
Diversification is a protection against ignorance. But successful people focus their concentration on one single earning activity and become an expert in that area.
- Don’t always be on the lookout for new opportunities.
If you’re like me, you’re getting new opportunities in your inbox every day.
Opportunities can be like obstacles if they take your focus away from what’s in front of you right now.
It can be exciting to chase the next shiny toy, but to become a successful investor, you’ve got to do the same thing over and over again.
You’ll only become an expert by doing one thing one hundred times, rather than doing one hundred things once.
Links and Resources:
Metropole’s Strategic Property Plan – to help both beginning and experienced investors
Join us in October for our annual Property Renovations and Development Workshop
Learn more about how to become an “armchair developer” using Metropole’s property development management services
Some of our favourite quotes from the show:
“Don’t trust your memory, and don’t allow other people to get it wrong either.” – Michael Yardney
“To find success, you’ll sometimes have to dismiss common beliefs.” – Michael Yardney
“I’ve made more by saying no to perceived opportunities than by saying yes to them.” – Michael Yardney
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