Any help on my potential development venture is much appreciated.
I am new to property development, but have come accross a property in QLD that looks good for dual occupancy. Am in negotiating stage, there bottom line figure is a little more than average for the area, though it is a larger than average block. There is one house on the land, with room at the side for another. The block is too small to sub-divide though a good size for dual occ.
In theory, this “unused” land at the side is almost for “free”, minus fees to council, draftsman, water, builder etc. etc.
Anyway have done some rough numbers, and by, maybe, adding a re located house the propects seem borderline to fair in achieving +ve CF situation. (I’m far from being an accountant)
My question is this:
These are the basic requirements for a basic (first) development where value adding to ther property can make a poitive cash flow situation, are they not? So I should just go ahead and buy it, right? (the price is about 10 -18% higher than average size blocks in the area)
What can go wrong?
Cheers
What can go wrong?
Great question, so let me give you a list
Firstly may I say I know where you are coming from. With little upside in the general property markets for the foreseeable future, I see many investors looking at property development as a possible way of increasing their profits.
Property development has recently been made popular by a number of seminars or workshops which suggest property development is lucrative and easy.
I have been involved in property development for over 20 years and I would agree that it is potentially very lucrative but I know it is far from easy. Over the years I have seen many inexperienced property developers and quite a few that I thought were smarter than me go broke.
So what are the types of risks involved in property development?
Some of the significant risks I have come across include:-
• A downturn in the property market leading to lower property values or increased holding costs until the development properties are sold
• Increases in interest rates resulting in increased holding expenses;
• Increases in construction costs during the project. This was particularly obvious during the recent boom. Many inexperienced developers think they have entered into a fixed price contract yet are hit with cost variations;
• Changes in the supply and demand ratio for real estate market such as we are currently seeing in the inner city apartment market which depresses property values;
• Unexpected disputes with building or trade contractors or unions which can cause costly delays to a project;
• Changes to the laws relating to property development such as the laws relating to zoning and town planning restrictions on land use, environmental controls, landlord and tenancy controls, user restrictions, stamp duty, land tax, income taxation and capital gains tax. Changes to any of these could adversely affect the profitability and viability of your real estate development projet;
• Unexpected delays and increased holding costs may be encountered when town planning (DA) approval is required for a development. Councils are currently very slow in assessing development applications and they reject many development / town planning applications. Not obtaining an approval or obtaining one on unfavourable terms is a growing risk for developers. The cost of obtaining approval or fighting council’s rejection in a court of appeal is continually rising;
• Some inexperienced developers find that some of the improvements they have made to their properties do not result in an increase in value. They learn the hard way that increases in value do not necessarily occur in line with expenditure on improvements;As you can see many of these risks are outside the control of the developer.
I know, because at Metropole http://www.metropoleprojects.com.au we act as property developers for our own projects and as project managers for many clients (we are currently involved in over 90 development projects around Melbourne.)
We are aware of the risks involved in a development project and this helps us minimise them so that our clients do not get any unpleasant surprises.
Most of our projects are successful, but I have to be honest and admit that we also into the above problems in some of our projects and they are not as successful as we initially hoped.
We must learn from all our developments. Learn what went wrong and minimise the risks of this occurring again and learn from what went right and repeat this if possible.
Michael Yardney
METROPOLE PROPERTIES
Author of Australia’s leading property e-magazine.
Join over 10,000 readers each month.
FREE subscription http://www.propertyupdate.com.auI am currently doing my first subdivision in Brisbane and it has been a very challenging experience and still is. Just going ahead and buying it without more research could get you in a lot of strife.
As Michael mentioned, there are so many things that can go wrong and it is best that you are aware of them. I am presuming the land is zoned to accept dual occupancy?
My subdivision involves moving relocatable homes and it is a lot more to deal with than just building a new home. Finance is also tricky,so make sure you have this sorted out before you go ahead.
Good for you for taking courage, but it would benefit you to talk to someone like Michael. Unfortunately for me, I wasn’t aware of his services when I started mine.
So far, I have managed to keep my head above water and looking to finish my first home by early February. I am relocating and renovating one home whilst I wait for the seal of titles. Cross fingers the second home will be finished by the end of March.
Although there is little profit in this project – I have learnt a lot, the hard way.
Happy Hunting
DianaWazi
I have done many a development in Brissie over the years (both big and small) as well as financed millions of dollars of Development deals.
Be happy to look over your numbers and make any suggestions.
Richard Taylor
Residential & Commercial Finance Broker
Ph: 07 3720 1888
[email protected]
http://www.yourstatefinance.comRichard Taylor | Australia's leading private lender
hi wazl
not like MichaelYardney I’m small fry but post or email you data.
I need land value
build cost
council fees.
resale value ( check with three sales agents in the area)
structure (company/trust/ personal who ever)
I agree with MichaelYardney as to problems but ha I’m still here and yes you will get problems but I don’t do anything without min 22% profit and banks won’t lend under 20%(and that not fluid use of the pen as we all do that)
most of mine are min 25%.
best is to post and there are alot of wizards here that are alot better them me.
but ha I’m a wall flower.here to help
If you want to get involved in some of the projects I’m involved in email to [email protected]
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