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Eric Brown has recently submitted his development application to the local council, hoping that sooner than later he could finally get the ‘green light’ for his bold ‘warehouse-to-luxury apartments’ development project in Lilyfield, New South Wales.
The development application (DA) must adhere to the rules stated in the Local Environmental Plan while also projecting a building plan that will benefit the developer as an investor. It would have been a little too complicated, if not impossible, to succeed in this step had it not been for his very own 'A-Team', Eric admitted.
He said: “Having them beside me, next to me when we fight this through council, is really reassuring. I think I'd have a few sleepless nights if I didn't have this team behind me to help me.”
Find out how Eric worked through the first steps of his third development project with the help of his invaluable team:
Do you think the building process will get delayed once you get your DA approval?
Eric Brown: No. I think builders are busy at the moment … I've got a builder lined up … but the funny thing is, because we haven't got the green light from council yet, or been through the planning panel, I can't give them start dates. Saying they're lined up, if another job comes in in the meantime, they'll take that and move on with that.
What kind of contract will you do with the builder?
Eric Brown: Fixed price lump sum … I think I have to for the funding … I don't mind the [principal] and interest, I don't mind percentage or cost-plus contracts with a builder I can trust, and I can't do it owner-builder because we've already done one within the last five years as an owner-builder, so that rules that out. It just makes the funding a lot easier if you have a proper lump sum fixed price contract.
Fixed price lump sum … It is a lump sum and you can't go over it. That's the costs that you pay the builder to build the structure.
What is your biggest concern at the moment?
Eric Brown: The problem is the funder won't fund [the building] because the funder will only fund it based on the specifications at the time when you fund that. That's part of the construction loan, and they'll want to know when the milestones are [and] when the payments are coming out—that's all pre-planned so you can't deviate from that plan or the funder starts getting nervous. It's all about funding at the moment.
How has this setup affected your need to be flexible as a developer?
Eric Brown: Well, I think if you fund it yourself … you've got a bit more flexibility. If you have to go through the funder for that and [there are] big changes, then you might have difficulty. In terms of changing walls around, you've got [to have] a DA approved for a certain design [changes] so you can't really change that … In terms of changing [the] colour of tiles or … [the] toilet, if it's easy, you just do it on the hop, and hopefully, you're not adding a whole heap of cost to it that then you have to go back to the funder and ask them for more money.
Being an experienced commercial builder, do you find it hard to avoid getting too involved in a project?
Eric Brown: I've done a bit of personal work over the years, and I think, one thing I've learnt [is that in order] to be successful, you have to be able to delegate with trust. I have a builder that I trust, and when I give him the job, I'm going to try and not micromanage him because I think I don't appreciate being micromanaged myself ... But the thing that I'll have to get right ... at the start with the architect is making sure that I'm comfortable with what they're specifying and the fixtures and the fittings.
How does a good architect help in budgeting?
Eric Brown: They will design things and design specifications to suit your budget. You may not want a six and a half thousand-dollar piece of marble in your kitchen [and] there are options that you can go to get a different piece of marble that might be $1500. There's lots of options you can play with at the specification stage that can keep your costs under control.
Phil Tarrant: But you’ve got to sort that out [right from the start and stick to it].
What makes a good architect?
Eric Brown: I definitely would go with an architect that has a fixed fee service … Usually, architects … work on a cost-plus basis, so the more expensive the build cost is, the more money they get from their fees. If you can find an architect that has a fixed fee, happy days.
[Some architects would say], "This is going to look amazing," then they just sell you on the aesthetics of the thing. I think architects, good architects also have skills with knowing what works practically because that's the beauty of it, when a practical solution is aesthetically beautiful.
Phil Tarrant: [It’s the architect’s job] to be the creative and thoughtful … To get the best result for the minimum amount of money spent.
As a property developer, do you also find it important to engage a project manager?
Eric Brown: Well, you can have external project managers if you want to engage one … [but] I trust the builder so much ... [so] that's not an issue.
I wouldn't say it's not a good thing to engage an independent project manager though. I'd say definitely check it out if you're interested in doing it, particularly if you haven't done one before. I think it's a great option [to have] someone [to] just manage it for you … I wouldn't write it off.
Phil Tarrant: There's a skill to being a good project manager versus the skill to being a good builder ... Two very different things.
What makes a good project manager?
Phil Tarrant: A project manager needs to have good processes, systems, planning procedures, delivery, communication skills, time management skills. This is project management. It gets hard. Whereas building, once you get started, how often [will] there [be] problems though? There's whether stuff doesn't arrive on time—a lot of things you can manage with good project management.
What are the benefits of having a good project manager?
Eric Brown: An external project manager … [takes] away [from] the emotional connection to the build. Building your own house, and you're standing there, it's always more difficult doing something when you've got an emotional connection. You can't make a rational decision based on some other factors like cost or time when you're emotionally attached to the process. It is always a lot harder to make those decision[s]. I think in an instance where you did want to detach yourself emotionally from the build, that'd be a great opportunity [to get a project manager].
How do you personally manage your ‘connection’ to your projects—enough so you’re dedicated to making it the best but not too much as to hinder yourself from making important decisions?
Eric Brown: I'm more connected to the building, actually, because I know if I create a quality product, people will come and they'll spend top dollar … in the area that I'm building. People will spend top dollar for a quality product. But, sitting on my other shoulder, [I] can't overcapitalise, like anything, so you have to be realistic.
What would be your advice for budding property investors before they make a purchase?
Eric Brown: I'd say real life—touch and feel. My architect, with our last project, took myself and my wife shopping three Saturdays in a row … [He] took us through Danks Street, through Alexandria, and so many different shops ... I loved it.
There were places I'd been that I didn't even know. I was thinking in my commercial head, ‘Oh shivers, I can use that for this project. I can use that product for this job.’ It was amazing and it was lots of fun. There was no pressure to buy. I wouldn't have enjoyed it if he had have said, "Right, now you've got to spend the money and buy it." It was just looking.
Phil Tarrant: You've got to make sure that you're [an] A team, so your development team is 100 per cent trusted and operating in your best interests.
Tune in to Eric Brown’s episode on The Smart Property Investment Show to know more about how his most recent purchase of a warehouse is performing two months on.