Successful property developers constantly assess the commercial viability of all potential development property purchases. They assess how they can best add value for future profitable resale? Is it via renovations, subdivision or obtaining a planning permit for redevelopment.
If you’re considering entering the realms of property development here are some important brief insights to help guide your journey.
Do your research for prospective locations:
Selecting the right location for your proposed development is one of the most critical components to achieving success. The key is to conduct research. Your research criteria should contain 1-3 prospective suburbs to base your purchase decision on. Carefully selecting a smaller number of prospective locations will enable you to more accurately and thoroughly determine their comparative respective values, compared to say 10 locations – larger numbers are too cumbersome to systematically evaluate.
Seeking areas that are experiencing a growth phases is a key attribute to its suitability. Identify areas where the population is expanding and additionally have a high rental demand. Ideally areas in close proximity to the local amenities, public transport, schools, child care and retail are consistently appealing.
Converse with local agents:
Select 2 to 3 reputable and respective suburb credentialed real estate agents. Prise each agent for information on ‘what’s selling in the area’ and what trends are emerging in market place. Which dwelling configurations are in demand with buyers? Is it, 1, 2 or 3 bedroom townhouses/apartments.
Additionally, get a feel for each of your prospective area’s demographics as this will impact the level of finished product you will need to build – low to mid or high-level specifications?.
The majority of real estate agents will enthusiastically offer you their time, share their insights and also provide you with pertinent market information.
Budget perimeters are crucial to the commercial success of a development project.
The following are key considerations.
- How much can you afford to purchase the development property for? – include tax and GST
- What are your planning costs? Your budget must include estimates from architects, town planners and other relevant consultants
This cost component will contribute to determining the financial viability of a development. Astute developers must understand the key drivers of construction costs.
- Contact several builders and discuss costings for varying specification building levels - this information will give you a ball-park figure to include in your budget estimates.
- On completion of your town planning drawings, provide these to your builders so they can progress to a firm project cost estimate.
Marketing and sales costs:
This is one cost component some developers often neglect when scoping a potential project. Overall this cost centre can range from 1.0 – 4.0% of the sale prices, which can represent a significant portion of the end profits!
Market growth rates
Historically how have property values in your selected suburban locations been performing and what are their short to mid-term expectations? The answer to these questions are an important guide to determining the suitability of the location.
End sales values
How much are similar dwellings in your chosen location currently selling and renting for? - can similar or better sales levels be achieved with your proposed product? If the answer to these questions are both yes, then the respective location presents itself as a strong contender.
Property development finance is a different “animal” to standard consumer property finance. Obtaining development finance can be a complex and challenging activity, therefore it’s advantageous to keep probable financiers involved from the beginning of the planning process.
Locate only skilled property development financiers - they will assist you through all the requirements especially relating to documentation and financial prerequisites to obtain funding - skilled property development financiers understand the dynamics of this environment and additionally have a track record of financing successful projects.
To learn more about property development, visit our resource centre at: https://www.developmentready.com.au/blog