Have you thought about taking your real estate investing to the next level and getting involved in property development?
Many investors have because there are many benefits open to those who “manufacture” their own capital growth through property development. I’ve explained them in other articles in this series.
No matter how large or small the property development project, developers tend to 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.
Of course each property development is different, but in general it can be 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.
While the process varies from project to project in essence the steps are as follows;
1. Pre Purchase.
This is the stage when you look for a block of land with potential for property development. You should already have all the preliminaries in place. You will know in which entity you will buy your property and you should have pre approval for your development finance so that you know your limits.
You should also have a team of consultants organised who can advise you as to the project’s viability. These should include a development manager who can coordinate the whole process or individually, a solicitor, an architect, a surveyor a town planner and maybe an estate agent to advise honestly on end values and marketability.
2. Concept stage.
Once you find a potential site, now you must come up with a concept for it.
What can you put on it? How many units? How big? What restrictions are there? Are there overlays or covenants on the title?
To find out what can be built on the block you need to assess the local council’s policy towards development and see how many new dwellings can be put on the block. At Metropole we tend to have these documents in our office but they are generally available over the internet at the local council’s web site, or in hard copy form from their front desks.
You should also assess what the market wants in that area and what would sell or lease well. It is important to design and build a project that is marketable.
You must also undertake a detailed analysis of the neighbourhood as an important consideration of town planning is keeping the neighbourhood character.
Then you put pen to paper and do some sketches allowing for setbacks, driveways and private open space (as required by council and the planning scheme). Next place garages and parking spaces and leave room for turning circles to drive out in a forward motion as required by council. The land that is left over after all of this will determine how many units and of what size can fit on the block.
Next comes some number crunching in a feasibility program. Include time scales, all costs including consultants and construction costs as well include likely end sale values and the profit margin you want. This will enable you to work out what the land is worth to you.
At Metropole we use Feastudy, Australia’s industry standard property feaibility software.
If the numbers show the development is viable we would then consider negotiating to purchase the property.
At this stage you buy the property at a price that allows you to make a commercial profit.
4. Town planning / Development Approval.
Now your 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. This stage may take up to 8 months before you get a development approval.
5. Working Drawing and documentation.
Once the DA has been achieved your architect and engineer document the working drawings to allow you to get a building permit (called a Construction Certificate (CC) interstate.) This stage takes 2 – 3 months.
6. Pre Construction.
At this stage we obtain quotes from builders and 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 draw downs from our bank loan. This stage can last 6-12 months depending on the size of the project.
Congratulations – now your project can be leased or sold.
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