Starting in Property Development...

Hi Everyone

Long time lurker on this forum, first time poster.

I am a business owner in the IT industry (50/50 partnership) and have always had a keen interest in property. Currently i am building my first PPOR with my partner, and the experience so far has been good (touch wood).

I am in a lucky enough position where my company has close to 7 figures in the bank in cash, and given that we have no foreseeable use for these funds for business growth or other investment, i have started to look at alternate ways to make money - property development.

I am under no illusion that it is smooth sailing, or anything is guaranteed - especially in this uncertain market we're in.

I guess i'm looking for some advice for people that may of been in a similar situation to where i am, and were eager to dip their toes in the water and how that experience went and what they learned.

Is it even worth considering development at the moment given the times we're in? My goal is to make at least $100k net profit (before tax) and split this evenly between myself and business partner. Is it preferable to find a block of land and build 2-3 townhouses? Or is it better to find an existing house with renovation potential and a large enough yard to sub divide?

Some pros and cons i can see at the moment:

Pros
- Potential to get a great deal given lull in market and can offer competitive terms given liquid position
- No reliance on finance
- Have a quality builder lined up

Cons
- Uncertain market times, some forecasts suggesting 30% drops which may completely erode profit
- Lack of experience
- Utilisation of company funds to fund project may not be straight forward

By the way i am in Melbourne

Thanks and look forward to some advice

 

I don't get why you would choose to do this when you're onto a good thing with your business in an area you're experienced in.

That's like me suddenly developing a keen interest in IT and trying to start an IT business, after building my own PC and having a good experience so far.

 

I understand your point but isn't this the same as telling someone with a well paying job not to consider doing some projects on the side and instead to focus 100% on their career advancement instead? You're also assuming many variables such as current job satisfaction etc

I also believe that the skills i've learned through business, as well as having experience building myself is more transferable to property development than the example you've given.

It's a challenge no doubt, but i'm keen on opening up other avenues of wealth building and learning

 

I would say there's not enough transferable skills. I personally think property development for profit requires years of experience with property investment/buying/selling, plus additional technical experience/education in things like planning regulations.

Its a matter of how much time and learning you're willing to put in of course, but I don't think you can think of it as a "side thing" that will reliably make any money (and potentially will lose you lots of money).

So how much spare time are you willing to sink in? To get started I recommend reading this forum daily for 6 months and home opens every weekend for development sites and practice feasibilities.

 

Sounds like you're wasting alot of opportunity with that much money sitting in the bank. It also sounds like you've ruled out some ideas for the money and are attracted by property developing. You're also realistic enough to realise that it's not easy money, and some developers don't make money or lose money.
I'd say if you're interested in learning more about developing join a local forum in your area, Melbourne has a large network of developers. Hopefully some Melbourne developers on this forum will jump in and reply.
Most importantly get a mentor/coach with PROVEN, CONSISTENT results in profitable developments. Paying a mentor $30k for example will give you access to many years of real life experience (good and bad) and useful networks. Now is the time to educate yourself and get into a position to be involved in great projects as they come up.

 

Hi @vaultdweller,

Im a melb based land surveyor/developer, happy to chat if you would like.

Below is a post i wrote on another thread for a poster with a similar goal as yourself:

""I remember reading on here, someone said there are two things that can make or break a development, they are planning and finance. For finance, speak to a broker and read the finance section. If you do a search for development finance you can get up to date pretty quickly. (This isnt as relevant for you if you can self fund or lower the LVR).

For planning, there are a few things i would suggest, buy 'the victorian planning system' by stephen rowley. He is a lecturer/phd of planning at rmit uni. Its a planning uni book, and summarises the whole planning system in vic. Even if you only read the intro, it will be worth the cost, it gives a great summary. Also learn the planning schemes, look up clause 55 and study it.

Most council websites give a summary of the process, know what a development planning permit, subdivision planning permit, certification and statement of compliance are. RFI's, advertisement, referrals. When you know the basics, if you want to get really indepth, read 'the subdivision act users guide', which is provided online and was prepared for surveyors/planners/council officers to understand and apply the planning and subdivision process.

As far as feasibilities, you should create and build your own. Knowing your numbers and how they work together is key. Using someone elses is a shortcut that will hurt you in the long run. As for getting build costs and sub costs, there are heaps of threads on here that have given rough ideas. But i found the sub costs posts on here very misleading, some posters have included some costs, and others have not, possibly attributing some of the sub costs to the build costs. Also the sub costs are very site specific, are services easily connected or not, are there council or service authority contributions required or not etc. Getting a site you are interested in and doing a full feaso on it, speaking to consultants and getting their budgets, that is the best way to learn the costs.

Build up your general development knowledge, easier said then done! I would suggest reading the development and legal section of this forum daily. This post should have probably been in the development section. I cant tell you how much ive learnt from this forum. Use the search function, most development topics get discussed at some stage.

There are some great podcasts, specifically 'the property developer podcast' by a melb based developer, who started the podcast because he found developing lonely and wanted to share the journey. 'The constructive finance podcast' by dan holden, who is a gun commercial finance guy who interviews other developers and consultants. 'The property couch' by two guys that are brokers/buyers agents, they are great for general property knowledge and can be funny. If anyone knows any others please post, i would love to add another development podcast.

There are some development meetup groups in melb, become a member on 'meetup' and do a search for property development and you'll see a few. I go to rob flux monthly meetup (property development network, and sometimes the BCG accountants development meetup. Rob fluxs is my favourite and i speak to other developers i meet there almost weekly.

Good luck and looking forward to seeing how it goes.""

 

What interests you, is it the designing and buiilding, and seeing something created from your ideas and thoughts?
Are you mainly motivated by the profits and have seen taht it can be a winning strategy if employed correctly?

There are alot of options out there for someone with as much start up capital as you, you could look to build some NDIS property what will have incredible yields, if you were to start up a company and build them inside the company you could potentially use the proceeds to borrow further and expand.

 

Behind 60% of more small developers is an IT person I reckon
I don't know what it is but I often find an ex IT nerd like me being a developer as well.

 

I know you are VIC based, but would any similar resources be available to NSW?

 

Only know vic.

Maybe @bmc @Scott No Mates @Sackie @Mel Morgan @Shahin_Afarin @Gavin Ng might be able to help. I know there is a another nsw planner on here who might be able to help as well, but ive gone blank on his name.

 

So true, i reckon at least 25% of the people i meet at developer meetups are current or ex IT.

 

Then other 25% are engineers

 

Find good people (particularly a town planner and perhaps a surveyor in the first instance) and talk to them honestly about what you are wanting to achieve. Pay for anything more than very basic advice. Don't rely on the idea that you need to find someone "local to the area"...

 

There is usually an essay long post that I write for people who want to get into developing so I'll see if I can find one rather than retyping.

The one thing that you absolutely need some advice on is structure (legal, accounting and borrowing). Currently you have money in your business entity. It is probably not a good idea to develop in that same entity for risk management reasons. So you will need advice on how/if your business can lend that money to another entity and how that new entity would be able to borrow the remainder of the funds to complete a project.

Once you know the best way to structure this then you can start thinking about the best ways to utilise that money.

 

@Westminster you made me laugh! You nailed it: engineers & IT guys I guess all depressed by the job they do looking at ways to escape the daily routine.
@lixas4 what meetups did you use to attend (not now I guess with lockdowns in place

 

So true. After 20 years in IT, I myself plunged full time into property development/construction. Enjoy every minute of it.

 

Why the heck would you have cash in a trading company - let alone this much?
Best to seek some legal and tax advice about getting it out.

 

I got to rob flux's monthly meetup, and there is an accounting group called BCG that do one or two meetups a year, they also have a development podcast that is pretty good.

 

I do it my way. Find a block in a position people would like to live in. Find a volume builder with a great floor plan, 2 garages, 2 living areas and dining area, Fab master with huge wir and ensuite and main bathroom. Do costings for what similar existing houses in that suburb sell for. If it works out for 20% or more profit I'm in. Build with mass builder and you have all capped costs, no nasty surprises. Hire landscape gardener and do fab garden. Style house and put on market. People love turn-key buying. My costings always include whether I can rent it out for what repayments on interest-only are if I cant sell. I self-finance. I make really good money and have fun.