In the fourth instalment of my series on development, I'll walk you through each step of the development journey.
Becoming a property developer, even dabbling in the idea of development as an adjunct to a more passive property investment career, is not as simple as it seems.
New builds require extensive legwork and preparation, and that’s before the first clump of soil is even turned on site.
Note: As a hands-on developer, or even as an armchair developer who employs project managers and a team of consultants, you must embrace various roles and responsibilities in order to get the job done and get it done right.
Understanding these roles begins with understanding every stage that’s involved in the development process itself, from conception to completion.
Although there are a distinct set of complementary steps that every property developer must follow in order to achieve the best possible outcome, the process is rarely completely linear.
It is important for the developer to remain flexible and have the capacity to problem solve and think on their feet at all times, as at any point plans can go awry.
While the process may vary slightly from project to project, in essence, all property developments must go through the following stages:
- Concept stage
- Town planning
- Working on drawing and documentation
The nature and magnitude of a property development often compel the constant repositioning of one or more aspects of the concept in a developer’s mind and/or renegotiation between the developer and other participants in the process.
With large sums of money at stake and extensive timeframes over which a development evolves, all aspects need to be managed carefully as the cost of making a mistake can be extraordinarily high.
It is therefore important to note that a successful developer must be able to handle and thrive under intense pressure and uncertainty.
With this disclaimer in mind, let’s take a closer look at these eight important stages of a property development project:
Pre-purchase is a fairly obvious first step in the development process.
As the name suggests, it involves seeking out a block of land or an established house site that has sufficient potential to either refurbish the existing property or obtain development approval to construct multiple dwellings.
At this stage, it is important to already have your finance in place or at least have an understanding of your borrowing capacity so that you know your limits and what you should be looking out for.
After all, there’s no point deciding to demolish an old house and knock up five townhouses in its wake if you could not possibly obtain the necessary funding to do so.
You should also have a team of consultants organised who can advise you as to the project’s viability.
This should either be a development manager who can coordinate the entire process and a team of industry professionals or individually; a solicitor, architect, surveyor, town planner and estate agent to give their honest assessment of end values and marketability of the completed product.
Once you've found a potential site, the next logical step is to come up with a concept.
What can you put on the site?
How many units?
What restrictions are there?
To ascertain what can be constructed on your chosen allotment, you must first assess the local council's development and planning policies.
Often these documents are freely accessible by logging onto the local council's website, or alternatively, you can visit their offices and ask to see a hard copy.
At this time you should carefully gauge the market demand in your chosen area; in other words, what type of dwelling would sell or lease well because let’s face it, you want to design and build a project that has optimal marketability.
You must also undertake a detailed analysis of the neighbourhood character, as maintaining the traditional nature of an area is an important consideration for the local council and their town planning requirements and regulations.
Tips: It’s a good idea to consider any neighbours to your site and potential objections they might have to the project.
Taking these factors on board and attempting to address them before you begin construction can save valuable time and money down the track.
Finally, you need to put pen to paper and do some sketches of your proposed site allowing for; setbacks, driveways, private open space (as required by the council and the State Government planning code), garages and parking spaces and room for turning circles so that residents can drive out in a forward motion.
By undertaking this exercise you will be able to determine how many units and of what size can fit on the remaining land.
Ultimately the final decision to buy or not to buy your proposed site will invariably come down to the number crunching of a pre-purchase feasibility assessment.
I will discuss the pre-purchase feasibility in further detail in Part 10 of this series, but as a general rule, this critical assessment should include time scales, all costs including consultants and construction as well as likely end sale values and the profit margin you desire.
This will enable you to work out what the land is worth to you.
Of course, if the development is viable based on the site, it is then time to consider putting an offer in and going for it.
Obviously, this stage involves buying the land at a price that will allow you to make the necessary commercial profit that deems the project viable.
I will take you through this phase in greater depth in a later article in this series and explain how to negotiate the best possible deal.
Your architect will be required to draw up plans that fit in with the relevant state planning codes according to your area as well as the local council’s development guidelines.
These days, as a result of the increasing complexity of the development process and associated rules and regulations, a surveyor and town planner is involved at this stage too.
Be prepared for a wait, as it may take up to 12 months before you actually get your hands on that all-important Development Approval (permit.)
Once you have finally received the Development Approval for your project to proceed, it’s time for your architect and engineer to document the working drawings to allow you to then obtain a building permit or Construction Certificate.
Be prepared for more waiting as this stage can take about three to four months.
During the pre-construction stage, you will be busy acquiring quotes from prospective builders and of course bank approval for the development loan.
Finally, you get on-site to build your project, paying the builder progressively at the completion of each stage using drawdowns from your bank loan.
Although this stage can last anywhere between six and twelve months, depending on the size of the project, it’s the most exciting aspect of the development as you see all of your hard work coming to fruition.
Upon completion, your project is either leased or sold.
As mentioned in part one, retaining your development as an addition to your high-growth portfolio and borrowing against its end value to progress to bigger and better investments and/or development projects is undeniably the best way to grow your portfolio and wealth over the long term.
In Part 5 of the Series, I'll walk you through Financing the Project, including how much money you'll need to start off with, how to secure funding and how much you can borrow.
If you want to learn more about the property development process you may be interested in How To Get Started in Property Development.
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