Join Australia's most dynamic and respected property investment community

Property Development Tip 2: Treat Property Development as a Business!

Discussion in 'Development' started by Be Developer, 23rd Nov, 2015.

  1. Be Developer

    Be Developer Property Developer Business Member

    Joined:
    19th Jun, 2015
    Posts:
    1,078
    Location:
    Australia
    Property development is a business. Very lucrative one!!!

    If you look at top 10 billionaires on rich list of most countries, you will see one or two on the list with property related business.

    Number 1 rule with Property Development is keeping the emotions out of the deal. For me location, price, spec, product is somewhat irrelevant.

    The Simple formula is:

    Land Acquisition Cost+ Total Development cost + Soft cost + Margin = Total Resale value (based on current market, adjusted with upward/downward trend).

    If you are looking at deals/sites/feasibility studies, apply above formula. (Regardless, your intention is to keep proposed development or not).

    keep business head on and always follow your business plan. It is very easy to fall in love with a property which is not going to get you the best return. Just because you like a property it doesn't mean it will be the right type of property to develop to either sell on or rent. You should have a list at hand with what you require from the property and stick to it.

    "I am doing a small project to learn property development regardless if i make profit or not" is an invitation to problems and stress! Try and avoid it.
     
    Last edited: 23rd Nov, 2015
    apk, Xenia, MTR and 2 others like this.
  2. MTR

    MTR Well-Known Member Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    7,478
    Location:
    Perth, Melbourne, USA
    Would also like to add start small and perhaps stay small if this suits your risk profile, bigger is not always better.

    MTR:)
     
    Xenia likes this.
  3. DaveM

    DaveM Adelaide Buyers Agent & KFC Strategist Business Member

    Joined:
    14th Jun, 2015
    Posts:
    2,111
    Location:
    Sydney & Adelaide
    Great post Be Developer, good to hear tips from someone who is very experienced like yourself.

    Quick question, what would you recommend be done if you buy a development site with plans to develop it into villas, townhouses, units etc and then it becomes apparent that council will not allow the development as others nearby are being knocked back based on neighbours objections.

    Would you suggest holding and hoping for a change of council decision/planning controls in the future, or just sell and take the loss on holding costs, stamps and dev consult costs, and move on to something else?

    Dave
     
    Mombius Hibachi likes this.
  4. Westminster

    Westminster Tigress at Tiger Developments Business Member

    Joined:
    13th Jun, 2015
    Posts:
    2,959
    Location:
    Perth
    ^^ what @DaveM wrote is situations I get myself into :p

    So I would say never buy something that only has ONE scenario that is profitable. I've had 2 projects get sidetracked by Council and neighbours. One I fought and won, the other I am going to Plan B on.

    Both had 2-4 viable options on them as back up plans.

    Agreed, I do shudder when I hear this. Yes your first is a learning exercise but always go into it with a good feasibility and strive for the best project/profit. It's hard to move onto project #2 if #1 is a dud
     
    Leo2413 and MTR like this.
  5. MTR

    MTR Well-Known Member Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    7,478
    Location:
    Perth, Melbourne, USA

    Unfortunately risk all developers face, no guarantees, not been in this situation but never say never, I am sure it has happened to many as WM mentioned and sure it will happen to me

    Why loss, still could be profit regardless.

    One way to mitigate this is to buy well, or under market value, or in the early stages of a rising market and buy a deve site which is lower entry level where rent will come close to covering mortgage so if you don't sell and hold its not killing you or onsell prior to peak

    Also there are a few other options that can reduce risk but if I tell you I would have to kill you:p

    Mtr:)
     
    Last edited: 23rd Nov, 2015
    Beanie Girl and Xenia like this.
  6. Waldo

    Waldo Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    222
    Location:
    South Australia
    You just described Adelaide perfectly :)
     
  7. MTR

    MTR Well-Known Member Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    7,478
    Location:
    Perth, Melbourne, USA
    Them fighting words:), I much preferred Syd, Melb, Perth these markets have drawfed any growth Adelaide has achieved over the last 3 years.

    nothing wrong with Adelaide and when I believe timing is right I may jump in, however I have been developing for the last 3 years and clearly there were better markets to make money

    MTR
     
    Beanie Girl and Xenia like this.
  8. Xenia

    Xenia Adelaide Property Manager Business Member

    Joined:
    21st Jun, 2015
    Posts:
    2,347
    Location:
    4/136 The Parade Norwood, South Australia
    jump in girl, jump in.
    we have great restaurants here :)
     
    Beanie Girl and MTR like this.
  9. Waldo

    Waldo Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    222
    Location:
    South Australia
    Clearly there were.

    I'm not talking about the past though.
     
  10. MTR

    MTR Well-Known Member Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    7,478
    Location:
    Perth, Melbourne, USA
    Neither am I, am still building, selling and buying

    If you care to share the deve deals in Adelaide then great, we all learn and benefit from this
     
    Beanie Girl and Xenia like this.
  11. Waldo

    Waldo Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    222
    Location:
    South Australia


    Ok, I'll bite :)



    Past three year of massive 'Dwarfing growth' of Perth versus Adelaide 3 years. Dec 2012 - Dec2015



    Perth: 5%

    WA real estate market - Perth property & house prices - reiwa.com



    Adelaide: 8.4%



    https://www.sa.gov.au/topics/housin...vice-for-buyers/median-house-sales-by-quarter



    If you need any more facts to support your opinion, please let me know. I'm happy to help :)
     
  12. MTR

    MTR Well-Known Member Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    7,478
    Location:
    Perth, Melbourne, USA
    Hi Waldo

    This is why I ignore stats because they are meaningless, timeframe you presented/posted wont give an accurate picture of what actually happened on the ground.

    This is what actually happened in Perth rising market was from 2012-2014 (mid).
    Falling market started mid 2014 and continued to fall to date.

    During this rise Perth had double digit growth in many areas, started lower end sub $500K, therefore anyone who purchased in Perth during 2012-14 (mid) experienced perhaps 20-30% gains, outstripping SA.

    How do I know? I was buying in the Perth market during this period and I live in Perth.

    Here is a thread on this subject from SS where Perthites explain what is happening and the reason we had the boom was because listings dropped as low as 7000, average is around 12,000. Comes back supply vs demand (Boom).

    Perth property listings - under 9,000 - Somersoft Property Investment Forums

    I should clarify I was asking whether you could identify areas in Adelaide where development sites were making sense at the moment where there was a possibility of 20% profit in a project, lower end.

    .

    MTR:)
     
  13. joel

    joel Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    784
    Location:
    Adelaide
    Do we?
     
    Xenia likes this.
  14. Xenia

    Xenia Adelaide Property Manager Business Member

    Joined:
    21st Jun, 2015
    Posts:
    2,347
    Location:
    4/136 The Parade Norwood, South Australia
    Off course Joel - where have you been? Lol

    Barossa, glenelg, Hyde park - excellent dining in SA
     
    MTR likes this.
  15. D.T.

    D.T. Adelaide Property Manager Business Member

    Joined:
    13th Jun, 2015
    Posts:
    5,596
    Location:
    Adelaide, SA
    Didn't you hear, it's the restaurants that make the residential properties go up :p
     
  16. AndrewTDP

    AndrewTDP Urban Planning Consultant Business Member

    Joined:
    1st Jul, 2015
    Posts:
    765
    Location:
    Newcastle
    Just on this, if the only reason they are being knocked back is neighbour objections take it to the Land and Environment Court.

    There needs to be planning reasons for refusal (i.e. non-compliance with controls) and without that, refusal is generally not appropriate. For example, if multi dwelling housing is permissible in the zone, and you comply with height, FSR, setbacks, car parking, landscaping requirements and the like then there is no justifiable grounds for council to refuse, as they set the controls to allow that form of development.

    If you are seeking to vary those controls, then you have a harder task. You can do a cl. 4.6 variation to vary standards in a Local Environmental Plan, but they are risky and do not guarantee success as they have to be well argued and based on merits (or discussion based on merit for varying DCP controls).

    This tends to be the case when the proposal is called before the elected Councillors rather than assessed under delegation by professional council staff.

    NSW comment only.
     
    MTR and Terry_w like this.
  17. joel

    joel Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    784
    Location:
    Adelaide
    Glenelg, the only place where a restaurant has charged me $9 for a glass of tap water on a 40 degree day
     
    Xenia likes this.
  18. Xenia

    Xenia Adelaide Property Manager Business Member

    Joined:
    21st Jun, 2015
    Posts:
    2,347
    Location:
    4/136 The Parade Norwood, South Australia
    it must have been really good tap water lol
    I used to own one at Glenelg - hope it wasn't ours :(
     
  19. Waldo

    Waldo Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    222
    Location:
    South Australia
    You chose the time frame not me?


    Yes I am well aware of the mini boom that perth had during this time (I also did quite well out of it). Similar to you I was keeping my finger on the pulse for perth & was watching the sale listings closely.

    However I am also well aware of the subsequent slide sideways that perth has experianced for the last 18 months.

    Regarding development in Adelaide - I'm currently doing one returning circa 23% (simple knock down & rebuild) & I know multiple other posters who have also posted up developments with similar returns on basic knockdown & rebuild 2.

    I'm not disagreeing that Perth has done well, however I would suggest that currently the market doesn't have much upside currently (as is has come off a boom). As well as Adelaide, I'm also a big fan of brisbane (was out bidded by 10k on a corner block recently) - that netted the developer who got that approximately 47% (before selling costs).
     
  20. MTR

    MTR Well-Known Member Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    7,478
    Location:
    Perth, Melbourne, USA
    we were talking about the best performing markets over the last 3 years, you think Adelaide was a superior market to Syd, Melb and Perth during 2012-2014, then great go for it, I hope you do well.

    If there are those doing well with developments in Adelaide that are making sense, great I have not seen any posts on this, if this is working post the areas I will check it out

    MTR:)
     
    Last edited: 24th Nov, 2015
    Xenia likes this.