Former Olympian Ed Fernon returns to the Smart Property Investment studio to give listeners the inside track on the ins and outs of property development.
In this episode, Ed joins host Phil Tarrant to explain why property development is a long-term game that requires preparation, and why doing the necessary “grunt work” behind the scenes will benefit prospective property developers by enabling them a better understanding of their market – influencing not only their decisions during the construction phase, but the ultimate outcome of their development endeavours.
You’ll hear all of this and more, in this bonus episode of The Smart Property Investment Show!
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Phil Tarrant: All right. It's Phil Tarrant and here's just a quick bonus episode following from my chat with Ed Fernon, property developer, excellent guy, who is now doing quite a lot in the development space. Ed, how you going, mate?
Ed Fernon: Very good. How are you?
Phil Tarrant: Good. I just wanted to pick up the chat that we had and you can check it out. It's the episode before this one. We had a long discussion around your development that you're doing up in the Blue Mountains, the Katoomba Golf Club. So, tune in. Check it out. It's really good story from Ed and he shared some of his thoughts and observations about transitioning from sport to property developing and some of the skills he used to do that. So, it's a good chat. It's a quick bonus episode.
I want to have a chat to you about some of the key tenets about getting a development right and also a quick chat around a quick chat around rezoning. So, for our listeners who are contemplating moving into property development or are already a developer looking for the next big project, what are those two or three things that you need to get absolutely right to be successful developing?
Ed Fernon: Yeah, right. That was a very good question.
Phil Tarrant: It is.
Ed Fernon: Well, I think first I'd like to start that real estate really is a micro-market. You see a lot of in the news and in magazines and things talking about Sydney. Or how's Perth going? Or how's Darwin going? I think a lot of people get carried away with those kinds of things and go and buy in Brisbane. I can tell you this. Hundreds of micro-markets in Brisbane, even the fact even in Sydney now, a lot of people saying, "Oh it's already reaching its peak."
But, there's pockets of Sydney that are probably well above the peak, but also showing some great growth potential even when talking about re-zonings and things like that with councils. Putting the infrastructure in that they are all across Sydney. Sydney's going through an amazing change at the moment and there are a huge number of opportunities for people.
So, I think one being, be really aware of the micro factors that are influencing a certain area. Just because it’s your local area, that might be good, but always going out to look at a development I'll be looking at what are the infrastructure in the area? How many Day In applications have been put in by other developers? Are there going to be other supply issues? And also try and get some feedback on trying to do a lot of due diligence and do as much as you can on spending as least amount of money as possible to get as most information. I really do on a lot of the preparation on the site and try to limit capital outlet whether that's a deposit, trying to structure better terms with an owner, or whether that's going through and getting consultants. Maybe they need to do a JV with a consultant. Or maybe with an architect you provide a deal with the architect so they can provide the plans and you can get in and purchase the property or control the property.
Phil Tarrant: So, some of the people you work with in partnership are open to more to creative ways to structure the design. Just paying them a fee for a service.
Ed Fernon: Being open-minded in property is one of the number one things. I mean, I'm trying to be creative in what I think outside the square. Trying to expand the pie where possible. Create win-win scenarios. I always, when I go into deals and when I speak to potential sellers and when we're buying, I'm always ... My first thing before I even look at the property or what it is it's what's important for this person? I've got to create a win-win situation because if they're not benefiting from the deal then you might as well walk away. And often terms are more important than price.
Phil Tarrant: So, obviously property developing, the hopes is to make a few bucks. So, you transform a property into something which is new, multiple properties et cetera. How important is it to understand what you create and its ability to sell that on the market in that particular area? So, matching the development to the characteristics of other properties in that marketplace. How do you get that information? Just from local real estate agents?
Ed Fernon: Yeah. Local real estate agents are a great source where any time we're looking at a different area we try and sit down with all the local real estate agents. Get their input. Find out what sells well. There's particular areas where one and two bedroom apartments are just selling like hot cakes. And then there's other areas where they're doing terribly well because people want houses and they want a different product. So, really knowing your product, as well as knowing your market is pretty bottle in that sense.
But, if you actually break down the development cycle and what's required from go to woe. There's so many different processes. I mean, people always talk about property development as building and development. That's what comes to mind, but there's a huge number of stages even before that in terms of finding the sites, negotiating the deals, plans, permits, approvals, and a lot of people just go through that and don't even worry about the risk associated with the development. And then there's the selling side of things and the completion project management. You can't do everything, so finding good people, if you're going to do the whole thing, finding really, really good solid people who you trust in those different roles to provide those other services that you're not doing. Or just saying, okay, maybe I'm really good at negotiating deals or putting plans together. I'll just focus on that rather than trying to do all of it yourself. And I think people often try and go, do it all themselves and then they fall into a heap because they don't have the knowledge or the experience or bad luck or that kind-
Phil Tarrant: So, would you say then that the most successful component of a development is actually understanding the stop point and the end point and making sure that you know what you're doing before you even break ground or even buy property. Or even start thinking about buying property.
Ed Fernon: Yeah. I think you certainly need to know your endpoint. What's your strategy here? What's your exit strategy? What are your strengths and weaknesses? Having an understanding of where you're up to as well. There's no point going into a deal if you don't have a clear understanding of what your bringing to that deal. And everyone's unique and that's why you can't really talk ... You got to talk in generalisations unless you know someone's specific situation. But, finding your niche is really important and then also where you have those weaknesses, being able to partner with people who can bring their strengths to the table.
Phil Tarrant: So, it's actually that collaboration element because a lot of the time you hear about development horror stories, rather than all of these successful ones. I know that a lot of people make good money through property development, but it is quite a dangerous exercise that's fraught with a lot of pitfalls and pit holes and a lot of people, sort of, level with it on a develop it. Whether it's the builder guy's basket doesn't complete or they can't get finance or no one actually wants to buy the development. There are so many things that can go wrong and it's not for the faint hearted.
Ed Fernon: Yeah. Absolutely and that's why there's plenty of ways to reduce your cash flow, so also the time frames. There could be another GFC at any moment and you're two years into a three year build and it can happen. So, trying to limit your cash flow and understanding your cash flow. Having a contingency of being able to, as I talked about, have a real clear idea of your strategy and being able to be flexible as well, to know your end game.
Phil Tarrant: And we had a real quick chat in the last time we spoke around rezoning and I think this is often an area which is not really thought of as much as it should do by property visits, whether they're just buying properties, whether its houses for rentals or potential development sites. The rezoning, so city's going through a bit of a process right now where they're looking to get greater densities in certain areas, so that's where our population needs places to live in.
In Brisbane, Melbourne, there's a lot of rezoning happening there as well as state governments planning for a future, which involves a lot more people. How do you go about finding those areas which are shifting because properties next door to each other can have different re-zonings and they can change the price of that property by often 100 per cent.
Ed Fernon: Yeah. That's right. You can have identical properties right next door to each other. Same land size, same number of bedrooms, same building and they can literally one is double the value of the other one. So, going through local governments and councils and things like that you can often find a lot of those areas. And being astute to local government incentives, as well as state government where their infrastructure upgrades are going to be, but also just being quite savvy around your knowledge. What is your investment timeframe? So, starting with yourself and saying why am I investing? What is my goal? Where do I want to get to in three, five, ten years’ time?
And then looking at all the infrastructure. So, there's so many different, whether it's the Northern Beaches Tunnel or West Connects or all those different upgrades. You look around where the entrances to those tunnels are going to be and what that's going to create for different traffic flows and the upgrades they're doing in Parramatta right now. There's all these different areas right around Sydney, even with the light route, that there's properties and areas are going to become more connected shortly and why are you going to live in Kogarah, which is going to be double the price of say La Perouse or Little Bay if the light rail extends all the way down there and for five minutes more are you going to be bothered paying double the price?
So, I think it's worth having a look at. I mean, Redfern's a great example. Look at the amazing change Redfern has gone through.
Phil Tarrant: The new transportation through there.
Ed Fernon: Yeah. It's been amazing. And people made a lot of money in that market, but there's this plenty of other Red Ferns out there right now and it's more rapid more so than it's ever been in Sydney's history. More infrastructure happening now than ever before.
Phil Tarrant: I think the key points that you've made there summarised that property's a long-term game, so it's about identifying areas in the future, which are going to grow. And you may need to hold a property for two, three cycles before you can realise the true potential for it. And that might be development potential and that's obviously your game, but it's about doing the groundwork as well, you know? You've got to actually burn the shoe leather and do a lot of research to actually understand and work out what are the drivers for infrastructure development? How long that takes. How that's going to influence the prices. Where you buy. When you buy. How you buy. It's a full time job.
Ed Fernon: I mean, anyone who's gone through and bought a property, at the time of buying a property the stress and the amount of work they had to do all the due diligence, meet with the agents, negotiate the deal, doing piston building, and all those other factors. Getting finance. It's such a big process.
Phil Tarrant: Yeah.
Ed Fernon: A lot of people just go in there. They do that and then they're done and they're like, "Oh, gee. That was a stressful process."
Phil Tarrant: I won't do that again.
Ed Fernon: I won't do that again. And yes, it is. I agree with that, but I think being in the game with the cold face the whole time and being able to stay continually educated and if you want to ... Just, if you want it to be easy and you don't want anything to worry about in terms of doing any of the work. You got to put your money in the share market. But if you want to be engaged, if you want to have control over your money and you want something that you can see benefit from in terms of what you're actually doing and being able to control that asset, then I think property's a great vehicle to do that.
Phil Tarrant: It's good, a good way to summarise. Ed, thanks for joining with this bonus episode. Remember to go back and check that out, that other chat where we spoke about Ed's development up in the Blue Mountains. It's a good story and Ed's going to come back and chat to us as he embarks further on that process. And it's really another couple of you years before that's up and running and humming on all cylinders. But, I appreciate you coming in.
Ed Fernon: Thanks very much.
Phil Tarrant: Remember to check out SmartPropertyInvestment.com today and we'll run all the social stuff as well and those reviews on iTunes. So, keep coming guys. Thank you. We'll be back again soon. See you next time. Bye-bye.
Disclaimer: The information featured in this podcast is general in nature and does not take into consideration your financial situation or individual needs and should not be relied upon. Before making any investment, insurance, tax, property, or financial planning decision you should consult a licences professional who can advise whether your decision is appropriate for you. Guests appearing on this podcast may have a commercial relationship with the companies mentioned.