Property Development 101 – Part 2

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So, you want to be a property developer!

This can be a great way to make money, if you know what you are doing. The property development process can be a long a complex one. The more you have planned and thought about your project, the more likely you are to succeed. Remember the old saying, “A failure to plan is just a plan to fail”.

This “Property Development 101” series won’t be able to teach you everything there is to know about property development. For this you would need to read many editions of this e-newsletter, books, enrol in courses and /or have years of experience. However, if you read each instalment over the coming months, you will learn about the fundamentals of property development and it will make you aware of what questions you need to ask so that you can make an educated and informed decision.

In this series, I will be outlining the major steps involved in property development. These include:

Setting your goals

Research

How to find development sites

Choosing the best site

Drawings

Feasibility studies

Working with council

Selecting a builder

Finance

Project management

Real estate agent/property manager

Tax

In the first instalment, I outlined some strategies in relation to goal setting and research. This month, I look at how to find development sites and then choosing the right development site.

Searching and Selecting Development Sites

How to find development sites

The most common way to find a development site is to search the main real estate websites. Don’t just search for vacant blocks of land as you might miss out on some opportunities. Some properties that are listed as “houses” are 50 years old or more and the land that they sit on is worth more without the house on it. You might need to add demolition costs if you buy a site with an old house on it but if you input this cost into your feasibility study and it is still a profitable deal, go for it!

The ideal site for a beginner developer is one where the existing house can be retained and an additional dwelling built upon spare land. This reduces the risk as you can rent out the existing home during the development and you can also sell the existing home at any stage to reduce your costs. Most people will look for corner sites for this type of development but a property that has a wide frontage and a home to one side of the block just might provide enough frontage to include a new dwelling alongside the existing dwelling.

If you are keen to find property before it hits the open market, you can contact local agents in the area and register your interest. A common complaint from potential purchasers is that real estate agents don’t return calls but if you register your interest with five or six local agents, surely one or two of them will get back to you.

If you want to exercise even more control over the process, keep in mind that just because a property is not currently for sale, it doesn’t mean the owner won’t sell. They may not want to sell outright but offering the owner one (or more) of the new dwellings in return for their land just might mean that you have a great development site that others didn’t even consider.

Choosing the best site for your development

There is an endless supply of houses and vacant blocks of land for sale that could be built upon. However, not all potential development sites make for profitable developments. There are a number of factors that you should consider. These include:

Location: Is your site in the right suburb e.g. close to the city or the sea? Is the site near amenities such as schools, public transport and shopping facilities? If you are looking to build and hold, developing a site that is in an up-and-coming suburb is critical because you will be counting on capital growth in that area to increase the value of your property over time. However, if you are planning to build and sell, the suburb location is not as critical but you should still be close to shops, schools and transport. Whether the end user of your new property is a buyer or renter, many people place great importance on proximity to amenities.

Topography: Is it a flat block of land or is it situated on a slope? If your site is not level, consider the extra costs of cutting into the block or raising the levels to make the block level. To the naked eye, a block may look flat but even a difference in elevation of just 1 metre can add tens of thousands of dollars to your costs. In the end, a buyer will pay what they think the property is worth. They don’t care that you spent an extra $20,000 on levelling the site.

Size: Is your block large enough for multiple dwellings? Is your block wide enough? Size does matter in property development but there are other important issues. Check the zoning regulations of the local council or approving authority to ensure that you can develop your site.  Consider this example in the fictitious council of Utopia:

Block Frontage:    30 metres

Block Depth:         35 meters

Block Size:           1050 sqm

Utopia Zoning Requirements:

Zoning Minimum Site Area Per New Dwelling Minimum Frontage

Per New Dwelling

Complying Development
       
R1 600 sqm 18 metres Detached dwellings only
R2 550 sqm 15 metres Detached, semi-detached
R3 500 sqm 15 metres Detached, Semi-detached
R4 300 sqm 10 metres Detached, semi-detached, row dwellings

 

Consider your options in the above example.

If your property is in the R1 zone, you only have enough land and frontage to build one detached dwelling.

If your property is in the R2 zone, you have enough frontage to build two dwellings but not enough area. Therefore, you only have one option; build one detached dwelling.

If your property is in the R3 zone, you have enough land and frontage to build either two detached or a pair of semi-detached dwellings.

If your property is in the R4 zone, you have numerous options. You could build:

  • 3 detached dwellings
  • 1 detached dwelling plus a pair of semi-detached dwellings
  • 3 row dwellings

You might be in the situation where there are four identical sized blocks of land at the same intersection but due to the various zonings, the development opportunities are vastly different.

There is an art in finding development sites but there is a science in selecting the best site.

In the next issue I will outline how to get your plans drawn up and crunch the numbers.

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