With the property markets ticking along nicely, many investors are looking at taking the next step and getting involved in property development.
While the process of property development can be a lot of fun, it is not without some headaches and significant risk.
When all goes well the results are fantastic, but if things go wrong they really go wrong, so let’s look at then hot tips to help make your project successful!
1. Sort out your “backyard” before you begin
Before starting down the path of your development project, get your finance pre-approved, have your ownership structures set up and have the core of your team of consultants selected.
2. Understand where you sit 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.
You don’t really want to complete your project in the depths of the next property slump!
3. Complete thorough pre-purchase due diligence
Undertake due diligence including checking the council zoning, as well specific property due diligence, including:
- the title for covenants, easements and overlays
- the neighbourhood character as well as adjoining buildings and trees
- the topography of the site.
4. Get your budget ship shape
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!
5. 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.
6. Surround yourself with a good team of experts
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.
7. Be realistic about your schedule
It’s not unusual for developers to be overly optimistic with their scheduling.
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.
8. Be scrupulous with your documentation
Put everything in writing, especially when dealing with consultants and contractors; this helps avoid misunderstandings and confusion down the track.
And keep very clear accounts. If your paperwork isn’t in order, it’ll only cause headaches further down the line.
9. Design your project with the end user in mind
To maximise your profits your project must suit its target market, which might not necessarily be to your tastes.
10. Don’t be cocky
Many investors make substantial profits through property development, however a good number of developers, 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.
To find your next potential property development, contact a Naked agent today.