Lessons from the downturn - when development goes wrong

I wanted to share a recent episode with everyone as I feel like it could help others on a similar path. It is a reminder that sometimes even the best laid plans can fall apart, and this became abundantly clear in our recent Dulwich Hill duplex project as we prepare to settle on the final dwelling.

For those of you that know me or have followed some of my past threads, I have built several projects previously and have gained a good level of experience and knowledge over the years.

My story | Leichhardt project | Annandale project

But sometimes external factors totally out of your control, like the change in market conditions can come along and ruin your plans. Here's what I've learnt in the last 12 months which have shifted my perception and essentially given me a different outlook in life.



Lesson 1: Have a great team, buy the right site, do your due diligence...but you also need luck

There were a fair few things that caused delays on this project that couldn't have been forseen, from minor issues around carpentry delays to larger ones in waiting for Sydney Water to approve an asset relocation to mystery water seeping into the land to incompetent Council staff. Sometimes delays in a rising market are lucky and you will get more at the end, and sometimes delays not only increase your holding costs but drop you right into a downturn as you finish.



Lesson 2: Location, location

In a strong property market, location becomes less paramount as buyers are willing to overlook issues just to secure a property. However in the current market, this project was in an odd street that was relatively narrow and opposite the rear garages/yards of some properties. Didn't seem like a big deal, till it was time to sell and it became a barrier.



Lesson 3: Buffers are important

If we didn't have a buffer, we'd be stuffed. The additional holding costs around the delays, the additional costs associated with solving some issues, the additional time it took to sell the dwellings, they all required us to dig into contingency and additional funding, which luckily we could access. I can't stress the importance of having a financial parachute in place when you're doing development.



Lesson 4: Perspective

In development you try to do the right things to make money, but sometimes you lose money as was the case here. However I also had a health scare during this time which was possibly stress related and suddenly I got some perspective. For me it became less about a successful project and more about 'escaping' unscathed with my health (physical and mental), family, relationships. I was surprised by the toll that my work was taking on my health without me noticing.



Lesson 5: Moving onto greater things

So I've realised that development doesn't always go well. Its like when the market is rising its easy to forget a time when it wasnt, and when projects are going well it feels the same. But now development is going to play a more secondary role in my life (I'm sure we'll do it again - but just not in a hurry!). Instead of building properties, I want to put my focus into using my skills and experience to help others and build a strong business where I can do that. I feel like I'm really moving forward into positive territory and leaving a lot of the turmoil of this particular development behind.



I've included pics of the development, it still came out the way I intended and is something I can be proud of, but sometimes things don't go your way and you have to accept your failures and move forward.

Hope others can get something out of this. Thanks for reading!

 

How much did you lose? I lost heaps of money the last few years lol.

 

Sorry to hear about it.
I'm glad you had buffers in place as they are very crucial when developing. When Perth markets went south there were lots of developers who were still in build mode when end values started falling and they had no options left to them.
Thanks for sharing. It's good to share the hard lessons so that people can see that it's not an easy journey.

BTW your end product does look great.

 

Glad it didn't work out too badly Mel. I don't think anyone saw what was coming in terms of the credit screws being tightened to the max.

Health and family is paramount. Without that, money is nothing.

 

You might have been better served making extra repayments on your mortgage

 

Development looks fantastic guys and its a shame you didn't make a profit but you have come out of it much stronger and wiser.

You can't really teach these things or read about them in a book - you sort of need to experience it and live through it.

 

good on you @Meristone, it only makes you stronger.

Bigger and better things ahead.

 

Thanks for sharing this honest account, very valuable learning for others

 

I'll second that. Seems these days everyone is ultra successful...a few moments on instagram shows how wonderful everything is.

Your story, where the product is top class but the returns fell short, is a great level setter for all. Thank you for sharing.

 

In a rising market delays which increase holding costs can be glossed over when recounting the experience because the market went up during the delay time by more than the extra costs. But as you rightly say in a downmarket the time delay has the compounding effect of increasing holding costs and also reducing the end sale price as it takes longer to get the finished product to market.

 

That looks like a great project - hard to picture that it was not a success.

From the other thread it looks like you are just 27A - did 27 do the same project with you - or did you have both ?

 

We definitely wanted to hold onto them, but at the end of the day I don't see this market changing in a hurry and made the decision that holding the cash offered more opportunities down the track.

 

The other thread is a different (successful) development, guess it has my 'signature' style so they look quite similar. So this one was both 27 and 27a.

 

Despite the outcome, they look sensational! You should still be proud of yourself. Your story will help people just as much as if you'd made a profit.

 

Thank you. It was a hard story to tell, but I think its important to show the other side of development and the very real risks which too many success stories gloss over.

 

Amen to that.

There are some on this forum who make out that property development is a “walk in the park” and one can’t help but succeed.

All investments have risks. Thanks for sharing your story which shows how things can go wrong with developments.

To end on a positive note, in life, I have found my greatest successes have followed my greatest failures.

So it is important to not only learn the lessons from one’s failures but to have the strength to plough forth and apply those lessons in the future. Otherwise failures are a complete waste.

IMHO, that is how one becomes truly successful.

 

Thanks for sharing the lessons. Finished product looks great.

 

Thank you for sharing. Its refreshing to read someone not saying 'Things turned out exactly how I had planned' - which is the opposite of what I mostly read and have a quaint chuckle.

 

@Meristone now that I have meet you twice you have it in you to bounce back and kill it next time round #youcandoit