So, you want to be a property developer!
Property development can be a great way to make money, if you know what you are doing. The property development process can be a long and complex one, from finding a site and selecting the builder to financing the deal and building and selling. Property development can lead to significant profits but it can also lead to significant losses so 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. However, if you read each instalment, 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 educated and informed decisions.
In this “Property Development 101” series, I will be outlining the major steps involved in property development. These include:
Setting your goals
How to find development sites
Choosing the best site
Working with council
Selecting a builder
Real estate agent/property manager
In the first instalment I outlined some strategies in relation to goal setting and research.
In the second instalment I detailed some methods on searching for development sites and then some considerations when selecting the best site to develop.
In the third instalment I provided an insight in to the design and drawings for a development.
In the fourth instalment I looked at one of the most critical components of property development, the feasibility study.
In the fifth instalment, I outlined what to do when working with your local council or shire so as to obtain approval for your development.
In the sixth instalment, I addressed a number of issues you need to consider when selecting a builder for your project.
In the seventh instalment I touched on some of the major considerations in relation to property development finance.
In the eighth instalment I discussed the benefits of project management.
In Part 9 of the Property Development 101 series, I outline why and how local real estate agents and property managers can assist you.
Whether you are going to sell or rent the properties, you will need to find a good local real estate agent/property manager. I have underlined the words ‘good’ and ‘local’ because if you are planning on spending hundreds of thousands of dollars or more on a development, you want to make sure you get reputable advice from an agent/property manager who has been working in the local area for a while and understands what people want.
Many people would look for an agent/property manager when the properties are nearing completion. I’d suggest you seek out your agent/property manager before you start. An experienced local agent/property manager who understands new properties should be able to answer many of your questions before you even break ground.
I strongly encourage you to also do your own research. You need to confirm what the agent/property manager says, through other forms of research. For example, if your research shows that all new dwellings that recently sold for a premium price were all three bedroom single storey dwellings but your agent/property manager says you should build a five bedroom mansion, find a new agent/property manager!
Questions to Ask
You should ask your agent/property manager a multitude of questions as their knowledge can assist you in a variety of areas and could save you a lot of time and money. “Which questions should I ask?” I can hear you say. I’m glad you asked!
Below is just a sample of 10 questions you should be asking and reasons why you should be asking these questions.
- What is the ideal size of the units? You need to know how you can maximise your profit as there is no point building extra-large homes if no one will pay you extra for this. For example, a 150 sqm dwelling may sell for $500,000 but a similar dwelling which is 180 sqm also sells for $500,000. If $500,000 is the most anyone will pay for a dwelling, you don’t need to build anything bigger than 150 sqm.
- Should the units be double or single storey? Mature aged buyers/renters would prefer not to climb stairs so a double storey property is not as appealing to them as a single storey property.
- If I build double storey, should the main bedroom be downstairs. I would say that in most cases the answer is “Yes”. However, if your block of land is quite small, you may not have a choice and all the bedrooms have to be upstairs.
- If I build double storey, do I need to include a balcony? Balconies cost more to build but your buyers may be willing to pay extra for properties with balconies as it provides them with an extra outdoor living space.
- How many bedrooms should I include; 2 bedrooms plus a study or 3 bedrooms? Different demographics have different requirements. Singles or young couples generally go for smaller properties because that is all that most of them can afford.
- Is just one, two-way bathroom sufficient or do I need to include two bathrooms? In some cheaper areas, you can probably have just one bathroom which can be accessed directly from the main bedroom and from the passageway. In other areas, buyers/renters may want a separate en-suite plus a main bathroom.
- Do I need to include a bath in the bathroom? Young families would appreciate a bath and they may be prepared to pay more for the property.
- Is a single garage okay or should I design a home with a double garage? I don’t know of any property where a double garage doesn’t add extra value. However, due to Council restrictions and frontage, you may not be able to fit a double garage.
- Do I need to include a walk-in robe or is a built-in robe sufficient? Walk in robes take up extra space and if you are building on a relatively small site, you need to maximise every square metre. Except for luxury properties, most buyers and renters are happy with built-in robes.
- Do I need to include wardrobes in every bedroom or is a wardrobe just in the main bedroom sufficient? I find that tenants generally prefer wardrobes in every bedroom.
The 10 questions above are just a sample of what you should be asking your local real estate agent/property manager. But remember to confirm everything they say with your own research.
Next month’s instalment will be the last in the Property Development 101 series. I will be outlining some tax considerations that apply to property developers. If you want to save some tax (and who doesn’t), be sure to read next month’s article.
Written by Peter Koulizos – lecturer and author – www.thepropertyprofessor.com.au