Why Property Development?

Revealed…How to Avoid Costly Property Development Mistakes…

 

Property Development. Developing property can be both rewarding financially and personally if done right. However, there are pitfalls and costly mistakes if the development is not planned, it can be incredibly stressful, costly and unrewarding.

  • How to get into property development?
  • Is now the right time to get started?
  • Don’t buy or develop an investment property until you read this special report…

This property development reports purpose is to point out the most common costly mistakes made so you can avoid the not so obvious and potential problems when you decide to start developing a property.

Please take your time reading through every word carefully to make sure you avoid these costly mistakes…

Property Development – Not Understanding Value (in all real estate there are three points of value): 

a) Rental income

b) Capital growth

a) Tax benefits

To make the most of real estate value you must add value to the development in a cost effective  and efficient way. This is the key to ensuring your development is profitable.

Most value comes from how much the market wants a particular development and what the market is prepared to pay for that development either in rent or to buy.

Property development example of this is to develop a block of two and three bed apartments in a small boutique block in a blue ribbon, inner city area which has a demographic of mostly single professional people under forty years of age which do not have children…

This development would be successful because there are a large number of high income earners who pay either in rent or to purchase a low maintenance apartment in a boutique development close to the city and amenities.

If this exact development was built in a working class area with a demographic of mostly large families with limited income, then this same development would be over priced and likely to be over capitalized for the area, making it a failure.

By matching the market place with the building the market place wants and needs you can avoid the mistake of thinking you can profit from absolutely any development.

property development
Why property development? How to get into property development?
Is now the right time to get started?

Property Development – Not Investigating a Site Properly

It is not always obvious a perfect site may actually be a development nightmare. Investigating a site for is a very important step in getting your development approved.

A site is not just a piece of land. It has items such as drainage, flood and bushfire risk, soil contamination issues, flora and fauna protection, heritage and preservation orders. None of these items are obvious when looking at a site.

There are above and below ground services which needs to be checked on the site such as electricity, gas, telecommunications, and sewerage and storm water drains.

Do any of these service pipes, drains or cables compromise your plan for the site. What would be the cost move the services or provide more infrastructure? How would that affect your development profitability?

Development can also be hampered by lot configuration, site grade or steepness, land stability, and storm water drainage.

Drainage easements, where the right to drain through an adjoining property can be expensive as not only does the infrastructure cost money, but the neighbour may require compensation or could legally refuse permission.

Owners can spend upwards of seventy thousand dollars on development application for multi-unit development only to be rejected by council because major storm water pipe ran across proposed development and was not registered or shown on the plan or land title.

But the pipe was a major part of the council’s infrastructure collecting storm water from various streets and was registered on the council’s geographical computer system.

Unfortunately this a common mistake when planning a development. It is vital to investigate the site properly from a council and environmental perspective before spending too much money on plans and applications. 

Property Development  Skipping the Feasibility Assessment

Feasibility assessment sounds too complicated for many people but it should be done regardless of the size of the development, unless of course you are building your dream palace and you have so much money you don’t need to restrict yourself to a budget.

If you skip feasibility assessment you are not managing the risk you take. A feasibility study should be done as an estimate when you are comparing different sites, to decide if a site and the development is viable and likely to be profitable.

It filters out sites that don’t meet your needs, requirements, budget and vision. Smaller projects can just do a brief assessment and financial viability but major projects need detailed feasibility assessments.

Detailed feasibility assessments look at project concept, analysis of market, regulatory requirements, site analysis and environmental  assessment, cost estimates for land, planning, construction, letting, selling taxes and financial analysis of sales or leasing.

When a feasibility assessment is done you can make an informed decision about the profitability of the development. Most banks and financiers will require a feasibility study to support your application as a profitable, low risk investment.

Property Development – Under-Estimating Finance

Everyone has driven past buildings or lived in the same street where a building is progressing fast to a certain point and then it suddenly stops. The workmen are gone and a fence is erected to stop potential trespassers.

Most often the reason is a lack of funding. Finance was not enough to cover entire project from start to finish or someone has gone bankrupt and held up the entire building process.

Property Development – when you’re calculating the true financial requirement of a development, consider the different phases of development and the costs:

a) The initial costs of acquisition include land cost, stamp duty, bank fees, legal fees, surveying or building inspection fees, rates and taxes etc

b) The planning and development stage include costs such as consultant fees, development application fees to the local council, developer contribution fees, contingency fees, bank interest and holding fees, construction and building costs, architect fees and project manager fees.

c) At the completion of the building costs involved include bank interest on land and construction, selling and conveyancing fees, setting up a body corporate if required, rates and GST.

The development of any building requires services of many professionals all who require payment. The longer the development takes to finish, the more cost to the developer.

If all estimated costs are included as initial plan the development is much more likely to be successful and to be completed on time. 

why property development
Why property development?
Is now the right time to get started developing property?

Property Development – Not Employing a Project Manager

Although it is seems engaging a project manager for a development means more cost and you think it reduces profit, it actually is the most efficient way to get a development completed on time and to budget.

Even seasoned developers use a project manager accountable for getting the development completed than deal with problems and issues which occur during development process.

This is clearly illustrated in TV series Grand Designs (UK) where so many people spend their lifetime wealth on building their dream house but project manage it themselves.

In nearly all of the episodes where owners tried to manage their own projects, it ran over cost , over time and with unnecessary personal stress.

For sizable construction projects, its smart to use independent project manager which is a conduit between developer and building contractor.  Project manager holds various people accountable to their contracts, ensures responsible parties complete their part as agreed to in the contract.

A project manager can be involved from planning stages to construction and even through to sales, however most people engage a project manager at the beginning of the construction stage.

A project manager will oversee contract tendering, assembly of professional teams, contracts, risk and change management, ongoing negotiations and progress reporting to client.

This role also includes negotiating with external parties such as government bodies, certifiers, financiers, and others that are involved in the development.

A good project manager ensures everyone is informed and they can elicit co-operation from all the different workers and consultants involved in the development.

When looking to appoint a project manager, make sure they have good communication skills, are effective at negotiation, have experience, are problem solvers and have ability to see the overall project rather than just the issues that arise.

Unfortunately this a common mistake when planning a development. It is vital to investigate the site properly from a council and environmental perspective before spending too much money on plans and applications.

Check out other sections on for further information on property investments, project management of property developments at www.PropertyInvestmentsNow.com.au

Property Development

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