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Hi again,
Well done on booking your place at the conference. You're going to have a wonderful time. See you there!
In the meantime, here's a little synopsis of property development.
To begin with, property development is profitable two ways:
1. Better Land Use
While land has perceived value when being used as a backyard (i.e. lifestyle), land becomes income producing when people can use it as a home (at least when it comes to residential blocks). Therefore, when the property development consists of a land subdivision, the sum of what's created needs to be worth more than the block as a whole.Remember this rule and you should be starting on the right foot: the greater the potential density of the development, the more valuable the land.
2. Value Adding via Building
The building side of developing is much trickier, and has many pitfalls. For instance, many people get caught up in what they build rather than looking at what housing product best suits the target market for the area. To borrow a fishing analogy, you will always come home with a great catch if you find out what bait the fish are hungry for and give it to them. So too in developing, if you do the research to find out what type of housing is most popular (# bedrooms, # bathrooms, size of living rooms etc), then provided you can built it and add to your project profit, you'll be looking good.Remember that you must always add more in perceived value than actual cost. If you forget this, you'll be eating into your profits.
Some of the risks of developing that people often forget include:
A) Your costs are now but your income is between 12 and 24 months into the future. Therefore, you need deep pockets to fund the cash shortfall.
Banks may lend 80% of the cost of construction, but in the majority of cases, this will be the last 80%, not 80% of ever dollar spent. For example, if your cost to build is $200,000, then you will need to come up with the first $40,000 yourself, and then bank will provide the last $160,000.C) Just because you think you can do it does not mean that you can. Property is sold on the basis of STCA (subject to council approval), which is a massive disclaimer! You must always do your own research, because although most things can be done or built, you will only want to proceed if you make at least your minimum profit.
D) Selling with plans and permits and banking a profit sooner rather than later can sometimes be better than going on and building. Remembering that a bird in the hand is worth two in the bush, a smaller profit that can be banked today without the risk of building may be juicier than holding on for top dollar.
E) Cost overruns are common. Unless you have experience, fixed price building contracts mean you may seem to pay a little more, but they are safer for new investors as the risk of overruns is borne by the builder.
Well, that's a start for you. Have a wonderful day.
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Banks may lend 80% of the cost of construction, but in the majority of cases, this will be the last 80%, not 80% of ever dollar spent. For example, if your cost to build is $200,000, then you will need to come up with the first $40,000 yourself, and then bank will provide the last $160,000.
