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After years of purchasing existing properties, many investors look into property development as the next big step in their wealth-creation journey. How do you find the right block to develop?
Developing properties gives great benefits to investors, including a maximised cash flow, but with great rewards come great risks, according to Smart Property Investment’s Phil Tarrant.
He said: “I think a lot of property investors often get drawn in by the glamour and the sizzle and the attractiveness of being a property developer but [they] don't really understand just how hard it is to ... get a project up and underway [and] make a few bucks out it.”
“Often, you hear the good stories but … sometimes, the bad stories are just as prevalent as the good stories—they generally [just] get swept under the rug.
“It's not easy. If you want to go into development … go in with your eyes open [and] expect to go through a pretty serious learning curve,” the property investor added.
Aside from your serviceability and financial capability, two of the things that will be instrumental to your success is the location of the block you will develop and the type of properties you will build.
White Gorilla Developments’ Neal Ashworth recommends that investors start with a search brief and a feasibility study in order to gauge the potential of the area as well as their development plan. Many property investors start their development journey by buying 1,000-square metre blocks where they can build two to four townhouses.
According to Neal: “Find the site that's going to perform to turn it into four separate townhouses. Once you've done that search brief [and] you've got that site, just match it with the client's dollar [or] what they want to spend.”
“Then … [determine] when that can be completed and when the client wants ... their investment return. Then, just put all those pieces together … [in] your feasibility study,” he explained further.
In order to determine what type of dwelling you can build on your development site, Neal suggests getting to know the development control plans, the overlays, height limits, floor space ratio, and other policies that are applicable to the site based on local council guidelines. Knowing these guidelines will help you determine how much you need in order to build successfully, how much cash flow you can generate, as well as the properties’ possible selling price once built.
Aside from doing your own research, look into seeking the help of property professionals to ensure that you have a good plan laid out for your development application. The local council will never give you a 100 per cent guarantee on a site’s development potential, which is why it is important to study and discuss possible obstacles, outcomes, and solutions early on in your development journey.
Neal said: “You [should] know the rules … the controls … [and] what you can do.”
“Check with the architects first [to know] what can be built [within the guidelines] … Then, you try and get that loan settlement so you can do that design process and get it submitted,” the property professional added.
While it is quite impossible to know the exact returns you can get from a development project, you can manage your risk and maximise its potential by conducting a thorough feasibility study—know the history of the site, get familiar with local council policies, and consult with the right professionals.
Tune in to Neal Ashworth’s episode on The Smart Property Investment Show to know more about the step-by-step process of getting the best chance of maximising cash flow and how to excel in the property development industry.