In the previous episode of the Smart Property Investment Show, we told you how to research property development before getting in the development game. Now we tell you how one investor turned it into his career.
Neal Ashworth, director of White Gorilla Developments joins The Smart Property Investment Show host Phil Tarrant to reveal his insights and tips in property development, providing key tips and tricks for listeners.
Neal chats to Phil about the step by step process of getting the best chance of maximising cash flow and how to excel in the property development industry.
They delve into a case study relevant to property developers, discussing the possible obstacles, outcomes and solutions listeners can transfer into their own journey.
They also reveal the trigger of transition from building a portfolio to becoming a property developer.
You will also hear about the worst case scenarios and how to overcome them, why negotiation is vital and how many experts you really need.
If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: Facebook, Twitter and LinkedIn.
If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!
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Announcer: Welcome to the Smart Property Investment Show, with your host Phil Tarrant.
Phil Tarrant: Well, g'day everyone. It's Phil Tarrant here, I'm the host of the Smart Property Investment Show. Thanks for joining us today. Not really too sure how I'm gonna go today with this particular chat. I've been thinking about it over the weekend. If you haven't tuned into it yet. It went up today actually.
I did a podcast with a guy called Eric Brown, who is right in the middle of a development niche in a west of Sydney in a suburb called Lilyfield and he's having some challenges with it. Go and listen to the podcast, 12th of Feb, he's pretty frank and honest about how he's tracking with this particular development. I appreciate his insights and his honesty about just how bloody hard it is to get this stuff done.
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 don't really understand just how hard it is to not only get a project up and underway but most importantly make a few bucks out it. A lot of people can go and develop places whether it's a duplex or a number of townhouses or it might even be a larger scale development. Often you hear the good stories but you don't really hear the bad stories. My sentiments is that sometimes the bad stories are just as prevalent as the good stories, but they generally get swept under the rug.
I've been thinking about this a lot over the weekend and I want to put a bit of a spotlight onto it. Trying to work out where to start with it. What I thought the best thing to do is actually get someone in the studio who knows about this type of thing, a lot more than I do. I don't profess to be an expert all on property development. The sort of stuff I do on our portfolio for the Smart Property Investment Show is very much just some really cosmetic renos and stuff, so I wouldn't claim to be a developer at all. Chatting with Erick Brown over a series of podcasts I've done with him, he's dabbling in a particular type of development, he's at the moment trying to transform a warehouse or formerly ... I think it was some sort of aluminium window shop into apartments and he's having some troubles getting it through council. A lot of financing issues and stuff.
It's not easy. If you want to go into development I'd go in with your eyes open, expect to go through a pretty serious learning curve. For us in our portfolios something we'll get into in a point in time. I feel as though I don't have the time and the bandwidth with to really immerse myself into it to do it properly. That said though, there is some companies around that you can ask all this stuff to, and that's who I've pinned down today to come and have a chat with us. A guy called Neil Ashworth from a company called White Gorilla. Is it Ashworth or Ashwork?
Neil Ashworth: Ashworth.
Phil Tarrant: Ashworth, so I got it right. Neil, how you going mate?
Neil Ashworth: Good day. Good.
Phil Tarrant: Thanks for coming in. There's a rambling preamble about trying to introduce you into this particular podcast, but rightfully, I think, the glitz and glamour of developing property is the harsh reality behind it, right? It's a hard slog, there's a lot you can get wrong. It's hard to get it right. Is that fair?
Neil Ashworth: Well yeah, there's a lot of people out there want to get into that development process but they don't know where to start, don't know where to go.
Phil Tarrant: You've got a bit of a twang to your accent, where are you from?
Neil Ashworth: I have yeah, so Manchester, England.
Phil Tarrant: You're a Manchester guy are you?
Neil Ashworth: Yeah.
Phil Tarrant: Yeah, there you go.
Neil Ashworth: Originally, yeah.
Phil Tarrant: Yeah.
Neil Ashworth: But I've been here 18 years, so I am dual. A dual citizen.
Phil Tarrant: Passport. Talk to us about White Gorilla. You're essentially a developer for hire, so people will want to do some development and they'll go, "I can't do this." And they'll hire a guy like you in to do it. Okay.
Neil Ashworth: That's right. I can just show them all the steps. I developed property for myself, for my close friends and family, and then I can also do it for clients on their behalf. They can use their own funds. I become like a service, a business for them for hire and I take them through all the steps that I did my own developments. I do it on client's behalf's.
Phil Tarrant: Okay, so I didn't bring you in to plug your business so I've brought you in to give you all your secrets so our listeners can learn how to be a developer. You happy to do that?
Neil Ashworth: Yep.
Phil Tarrant: Alright. There's different scales of development, right? For a lot of our listeners they might be talking about buying a 1,000 square metre block somewhere and putting two, three, four townhouses on it. Let's use that as a bit of a scenario because I think it's something that the majority of our audience would understand and appreciate. For many of them that's their goal. As a bit of a case study, let's go down that way. What do you do? How do you find the right block in order to put a development on? That's probably where most people start, is it?
Neil Ashworth: Yeah, it starts with that search brief, so find the site that's going to perform to turn it into four separate townhouses. Once you've done that search brief, you've got that site, just match it with the client's dollar, what they want to spend. Then what the end result is if it's three, four townhouses, what the timeline is, when that can be completed and when the client wants that money back or their investment return. Then just put all those pieces together, just that search brief, put it together and your feasibility study.
Phil Tarrant: Okay. Maybe I'll bring it back here a step. Who should be doing this sort of stuff? How sophisticated in this do you need to be? How many properties do you need to have already? How long do you need to be in the game before you can confidently go about doing this?
Neil Ashworth: Oh as long as you got the serviceability to take on another loan, finance, or you have the cash to support it. Normally it is the guy that's got the principal place of residence. He's got may two, three, or four investment properties. He can either refinance them, pull the money from that or just step it up from that investor to a developer.
Phil Tarrant: Okay. For people that you work with who want to go down this path. What's normally the flash point or the transition point where they go from buying established dwellings and maybe doing the reno and building their portfolio that way to, "hang on a second, I actually want to be a proper developer". What normally is that trigger?
Neil Ashworth: It's just because they have been doing it for a few years. They deal with their accountants, their advisors, and they have got the portfolio up to a certain level. Then all the rent returns, then all the percentages of growth, they just want to step it up to the next level. They can use that equity, they can use what they've already got, then they can see how much this next model will bring them in return. They can add extra properties to their portfolio.
Phil Tarrant: So would you recommend someone that's new to property investing to touch development
or would you say ...
Neil Ashworth: Let them do it for a little while, come back to me later.
Phil Tarrant: So let's stick with this case study. One thousand square metres, three or four townhouses, pretty common garden stuff. Depending where you buy, the rules of the game in terms of what properties you can put on to ... What type of dwelling you can put onto what properties. What would be that first step when you're assessing a potential development site?
Neil Ashworth: Just knowing controls, the development control plans, the overlays, the height limits, what that floor space ratio is for each of the sites. Knowing what you can put on that piece of grass, to know what you can spit out and sell at the end, and that forms ... You can buy this for thousand square metres, you can build four in it. It'll look a bit like this. You'll sell them for X. There's a profit margin you want to go at.
Phil Tarrant: And when you're looking at a particular block of land, whether it's got an existing dwelling on it or there's nothing on it, you're carving it up. Will a council give you the go-ahead to do something before you actually acquire it, or will the council normally only say, "Yeah, we'd be happy for you to lodge a development application on that basis but we cannot promise that we will approve it"?
Neil Ashworth: You don't go that far because you know the rules, you know the controls already, that's why you've picked that search for that area because you already know what you can do. You've got a pretty good idea that that site can be developed. You check with the architects first. You check what can be built. You get that not from the architect, that's the designing tent, that's what you think you can build it. You do all that before you buy it. And then you try and get that loan settlement so you can do that design process and get it submitted.
Phil Tarrant: Okay. So a council will never give you a 100% guarantee that you can do something ...
Neil Ashworth: No. You have to go through that process. The risk and just knowing what you can do by the history and the consultants that you put together at the beginning from that study.
Phil Tarrant: So, again the same scenario, what sort of team should you be putting together when you're doing development? So obviously, Mister Investor, say it's me, who do I need within my team of people to give me the best chance of, number one, acquiring a block of land that I can develop, and number two, maximising the assets I can put on that, and number three, having some sort of realistic financial outcome that is beneficial to me. Who do I need?
Neil Ashworth: Just number one, your own financial planner, advisor, to know that you've got the capacity to do that. That's in your plan, where you can pull funds from. And then what structure to set it up in, what's best suited to you and your conditions. Then you're all set. That gives you dollar, search, brief timeline. Then you can come across and get me on board, then I get the consultants on board, which is the architect, surveyor, everyone to take that process through.
Phil Tarrant: Okay, so you'd be like a project manager, right?
Neil Ashworth: Yeah.
Phil Tarrant: You'd manage all the different …
Neil Ashworth: Client project manager, right. I'll put all those consultants together.
Phil Tarrant: You're like a spreadsheet guy who does Gantt charts and just has everything intricately mapped and managed.
Neil Ashworth: Correct.
Phil Tarrant: Okay. Investor, guy like yourself who can project manage, and architect. So an architect ... For a lot of our listeners that understand the development process, you would bring an architect prior to ... Would you bring in an architect before you start looking for the block, or you need the block before you can actually get an architect in to say ...
Neil Ashworth: Well I've got different architects for different areas, different zones. If the search is for the area, then I'll pick the architect saying, "I'm thinking of buying this." Double check what you can put on it. He'll give me a quick once over of "I think you can do this. Here's your designing tent." So he's on board early cause he knows more of the controls.
Phil Tarrant: And the controls ... You would have an architect that is familiar with the particular ...
Neil Ashworth: Area.
Phil Tarrant: Area that you're investing in, and therefore they should know how wide it needs to be, how deep it needs to be, what the height restrictions are, what zoning it is, so pretty much you're getting all the benefits of someone's expertise that's done multiple developments.
Neil Ashworth: Pretty early on, before you buy it.
Phil Tarrant: And potentially knows the people in council that would be approving a DA. That's important. I want to produce a development in a particular area. I get an architect in to say "This sort of stuff you can put on." Then you would go out and look to secure that block of land.
Neil Ashworth: That site, yeah. Which might be through a treaty or it might be via an auction or however you choose to buy it. However it's going to be sold. Try and get it priced at auction, try and get rid of that auction campaign boiling pot, and then secure the right price.
Phil Tarrant: Once you settle on ... so from when you buy a place, say you a buy a private treaty.. You buy a place and it settles, gives you a number of weeks to get stuff sorted out. So what should you be doing during that period of time?
Neil Ashworth: So in that time is getting those... getting to an architect plans and permits, and getting all that paperwork together and ready to submit. And also getting your finance to get rid of a settlement. And if you pick a bank you don't submit your plans before you get the loan, but if you get a private lender you can do all that early. So it's just little tricks on how to do that for that best outcome.
Phil Tarrant: So often you might see a block on the market for a year or more waiting for a development application. Do a lot of investors actually look to secure a block that might have an existing development on it that you can keep rented out?
Neil Ashworth: Yeah, even in that feasibly, so you just go with $450 a week rent, whatever it is. That's in the plan for that 12 month period. You can speed it up by buying something that's got plans and permits already approved. So that speeds it up by about 12 months.
Phil Tarrant: Okay so, often you can actually buy a block of land where someone else has done the hard work in terms of the DA
Neil Ashworth: Yeah, but you don't get as much money because you're giving those guys profit. So the ultimate is to buy your own site, you design it, and go through that full cycle. Or speed it up with plans and permits, and then you can get your finances a lot quicker and start building straightaway. So like a 12 month process.
Phil Tarrant: Okay. And it depends, some people might want to move fast...
Neil Ashworth: That comes out in the client search beforehand. What do they want to do? How do they want to see it?
Phil Tarrant: Okay, so I've got a block of land. It's mine. I might have to... I've got my design development application in with the relevant council and it's waiting for approval. I just wait. I can't do much else. I can't start doing any work on the block.
Neil Ashworth: No, just leave it until you get approval. There's a lot of back and forth in that time, which I take care of.
Phil Tarrant: Yeah, and I think when we spoke to Brown on the 12 of Feb, he's right in the middle of that back and forth right now, where he's struggling to get his DA through and he's been rejected I think once, maybe twice. He has a number of steps in place to push it through to a development application. The final... One of those steps, and the most expensive, is a Land and Environment Court. You want to try and avoid going there, so if you can do all of the hard work prior to purchase during the search phase and actually understanding the council's requirements for developing particular blocks, it can be a lot simpler. So it doesn't need to be a huge headache, but should you expect it to be a headache?
Neil Ashworth: Yeah, you make sure all that, what you design... You're not gonna go down that avenue. You know you're gonna get it past. You don't push the limits. You just design it correctly for the... Get it approved and get the maximum sale.
Phil Tarrant: So for those of us that aren't familiar with the development process, you get your DA approved, you get notified in the post, probably a big yellow envelope that says, "Mr. Tarrant, we've approved this. You're good to go." What happens then?
Neil Ashworth: Well then you've got to open up those documents to make them a construction document. It's really... The council just approved like the overall design. Then you've got to do tender docs to put it out to the market and construction docs, so the thing can be built. There's a tender process.
So you go out to the builders, interview the guys, sign that builder up, set up a contract with a timeline, and then manage that build process.
Phil Tarrant: Okay. And what sort of contracts are typical when people are doing residential development?
Neil Ashworth: HAA or the Master Builders, really. Or you can go down the route of AS4000.
Phil Tarrant: And normally a builder would give you a fixed price, or cost plus, or?
Neil Ashworth: No, you want it to be a fixed price contract with a programme timeline with all your schedules and all your fixtures and finished already in that contract. You don't want to be doing any cost plus.
Phil Tarrant: Okay, so a fixed price contract, that means, irrespective what happens, whether it rains for a month...
Neil Ashworth: Yeah, all those things are in that contract. You say the rainy days. You say what's gonna happen all in that paperwork before anyone starts.
Phil Tarrant: Okay. And for people who aren't comfortable, confident dealing with legal contracts, that's gonna be quite a scary undertaking for them. What should people be looking for when they are looking at a sort of building contract? Because there can be very confusing...
Neil Ashworth: Well yeah, cause it goes back and forth, again, a few times. Cause it's all getting the HAA and the Master Builders to get to the builder, so you got to go with your solicitor, what can you change. And you just negotiate, change it, and you all agree.
Phil Tarrant: So, you get a builder on board and everyone's happy, you sign the contract, say we love each other. And in the moment, we've both got the great intent to make this a nice, simple process, might not be that way. What happens then? So do you get the builder to even start working?
Neil Ashworth: You get a demolition party.
Phil Tarrant: Okay. You have to have a demo party, is that correct?
Neil Ashworth: Yeah.
Phil Tarrant: Case of VV, smash down the walls, have some fun.
Neil Ashworth: Yeah, definitely.
Phil Tarrant: Well it's probably a good point, right? This is obviously very serious, what we're talking about here...
Neil Ashworth: Yeah, and then you can enjoy the process, too, right?
Phil Tarrant: Yeah, so you gotta enjoy the process, right? So you start the building process and, if you're... You've got your contract correct and it should be drawn out over a period of time. So every week there should be more signings that take place.
Neil Ashworth: Correct.
Phil Tarrant: Yeah.
Neil Ashworth: So when the slab's pulled, you go and inspect, you get all your sign-offs, and then you release a payment of works complete. So one of the biggest risks is that builder, he goes under or something happened, so you don't release funds until there's a line in the sand every time. But you get your paperwork, engineers sign off, the services guys sign off, and then you release payment.
Phil Tarrant: Okay, so you release payment when the build's up to a particular point. And if there's any problems in the process and that business goes under, that means you've paid for what you've done and you can bring another builder in to finish.
Neil Ashworth: And then the next guy, the builder that wants to come along, he's got everything that he's happy to take on, cause it's signed off and there's plenty left on the plot for him to complete.
Phil Tarrant: So some dangers or issues that you hear from people developing is that builders sort of go under or they have cash problems and can't complete the build for whatever reason. How prevalent is that? Does it happen a lot?
Neil Ashworth: It does. But then you do your checks in that tender process. You do your go out to the markets in the process, that goes back and forth. You select that guy that's got the history, that's got the workload. You see what he's doing for the next two years. You check his insurances and see where he's at and where his business is at and what that risk is before you engage him.
Phil Tarrant: Okay, so you can mitigate a lot of the risks.
Neil Ashworth: So in that tender process, too, the guys up hard will go to one side because you're too hard to claim. So then, you don't want those guys anyway. So it's a good process to go through.
Phil Tarrant: Okay, and don't always go with the cheapest order either?
Neil Ashworth: Yeah. So in that process, once he's doing the work, if you get what you want, he gets what he wants, it's all in that contract. You give enough information. He's got all this stuff, there's no questions. Then he's happy. You get a good product finished at the right time. It's good for him cause he can go on to the next from this one with money. And you get a good product, good relationship.
Phil Tarrant: And for people who... Not a lot of people are gonna develop in cash, so they must have some level of debt. So they might have debt on the lend and construction to facilitate the build phase. So how involve do lenders get? I imagine they want to see a watertight...
Neil Ashworth: So you want those guys in early. If you get a private lender, then you want the private lender in when you buy the land that you're gonna develop, so that then they're ready for it. But if you get a bank then it's just different, because you have to buy out the first mortgage to do the construction finance, so it's a bit messier further down the line when you can't put your documents in as quick, because it's a different loan.
So you get those lenders on board early whilst you're in that search briefs, so then you know exactly what those interest payments are so you can put them in feasibility.
Phil Tarrant: Okay.
Neil Ashworth: Because you need those guys to service and provide those funds, so get them in early.
Phil Tarrant: And what's sort of lender appetite for these small residential developments these days? Is it up there or they sort of...
Neil Ashworth: Yeah, there's guys who do a certain dollar band width and there's lenders that do a different band width so you make sure you choose the right lender for the right project.
Phil Tarrant: So you get your guy in and he builds your townhouses to a point where everyone's satisfied. So you're satisfied that you can actually either sell them or lease them out. The lender's satisfied that the job's been done and they're happy to give you the rest of the finance. What happens next?
Neil Ashworth: Well project's complete and then you either... Depends on that client. If he wants to sell them off, you do a slow release auction campaign and build that excitement, sell the biggest one last. But if that client wants to hold two, sell two, then that's the process and he leases those two out and that's how he builds his portfolio. So he buys those sides at cost, but he's got an asset of the market. So that's good if he holds two, sells two just to grow his portfolio that way at cost. So that's a good model for that for him.
Phil Tarrant: And when do you work out whether to build these as shrouded assets versus just...
Neil Ashworth: All in the title. So you split all that up in the beginning, cause that's bad for the banks too. If the banks see it as one line, then it's not as attractive. The risk is divided by four, or whatever the division is. So it's bad to split up and you get more money at the auction.
Phil Tarrant: And can you get different lenders to finance different builds then? So could one lender construction finance two of the properties and then one other lender rather than keep it all together?
Neil Ashworth: Yeah, but you'd be paying too many fees. It's too messy.
Phil Tarrant: So we've just painted a really quick visual picture, I hope, for our listeners around developing. We've spoken about a case study where buying a block of 1000 square metres and putting properties onto it sounds easy, sounds like lots of moving parts, sounds like a nightmare to manage. Where do you see this is going wrong the most? At which part of that process is the biggest danger for investors?
Neil Ashworth: Obviously the market changing, but that means everyone's in the same boat. But each of the points, when you do the full cycle, there's always an exist strategy. So you've always go the land; you've always got that asset. And then you can do plans and permits, and if something changes, you can sell the land with plans and permits. You build it, you keep them or you can sell them. So once you've got the finished product, you either sell it or you lease it.
Phil Tarrant: And working with your clients through this process, you obviously have lots of experience. Where does that break down? If you have a breakdown in communication with someone that you're operating on behalf of with a development, when does that normally happen? I assume it's that investors don't know what's going on, or is it education piece anywhere in particular?
Neil Ashworth: No, it's been alright actually.
Phil Tarrant: Yeah, that's okay.
Neil Ashworth: Yeah.
Phil Tarrant: And the people that you've worked with in the past, they've gotten crazy assets doing this, yeah?
Neil Ashworth: Yeah, they've just purchased it, secured it, carried on. They just carry on with their normal job, and I just report in with their feedback to the client, and give them updates at each stage.
Phil Tarrant: Okay, interesting. And when you're talking about potentially doing a development, have you often said, "You know, it's not really for you. You're too inexperienced."
Neil Ashworth: Yeah, if it's not the ready topic line and they're not ready for it. They've gotta have the appetite for it and know what it's all about. And it's not the big miracle high-rise stuff. It's just what they're geared for and what their risk appetite is for.
Phil Tarrant: And what do you recommend is the best way for people to hold... This is general in nature, this particular podcast, so we're not giving any particular financial advice. But how do people usually hold these assets? Are they in trust structures or are they... Do they own them individually?
Neil Ashworth: No, they sign a PTY, or a new particular PTY for that site or trust. Again, it's their advice, but really, most people do it in a new PTY or a trust fund.
Phil Tarrant: And often... We've got some blocks of land sitting in a portfolio that we will do something with at a point in time. The reason why we acquired these assets was for this particular reason. But often you find a group of investors will pull their resources to undertake your development themselves. So rather than one investor owning a whole block and taking the whole things themselves into a trust structure, often you might get sort of three, four, five investors sort of pulling up and coming together. So how do they typically structure that?
Neil Ashworth: So again, they'll structure it on however they invest on their side of things. But then everyone will just tip money into the pool, or into a trust fund, or a new PTY again. And they're just... Again, it's written up with dividends with what they own. They own the percentage share with that business, or the unit share trust. They'll own those percentages and that becomes a trade in entity. And then purchase a loan in the entity and it all goes through that.
Phil Tarrant: And then the process, it's the same process?
Neil Ashworth: It's exactly the same, yeah. I manage it on their behalf, report back to the investors, the bookkeeper reports back when it's sold and it's written contractually.
Phil Tarrant: And often if some guys in that path structure it that way, there is a guaranteed endpoint. So, everyone says, "Yes, we will sell everything at the end of it all." They'll all keep on...
Neil Ashworth: Yeah, there's an agreement and if something happens along the way, they'll be written... So if investor one, something happens and he wants to pull it out, they draw a line in the sand and value that where it's at. Value that PTY. Give them all the money back on paper as soon as the buyback ends. There's all exit strategies within that structure as its written.
Phil Tarrant: And if you have a number of investors banding together and creating some sort of unit trust, it's the unit trust that owns the assets, not the particular investors. So, is it hard to transition them to individual sort of titles and individual ownership? Is that a difficult thing? Cause I imagine there's some sort of stamp duty or some sort of tax consequence.
Neil Ashworth: Well you do it when... Yeah, when you do that design with accounts, you split it all up at the time.
Phil Tarrant: Well it's complicated stuff.
Neil Ashworth: It's good fun.
Phil Tarrant: Yeah, it is good fun. So, Phil, we're painting this picture of undertaking development and we used a very base case study, which I think is probably relevant for most of our listeners and easier for them to understand and see... For someone considering undertaking development, and nothing too significant, just something that costs more, how do you know you're ready for it? If you're gonna sort of inwardly look and go, "Okay, I like the idea of it, but do I have the time to invest in it? Do I have the financial capacity to invest in it? Do I have the right connections to invest in it?" How do you know you're ready?
Neil Ashworth: I say to each of the clients, investors, just see your own... Go see a financial planning advisor, just to see where you're at with all the stuff that's going on. And then what you're gonna refinance, where you're gonna get money from, timeline... Get all that advice ready so your stall is set and you're ready for it.
Phil Tarrant: We'll put a lot more focus on this in the future for our listeners. We've been getting a lot of feedback recently. I think they've liked those couple of podcasts we've done now with Eric Brown. On the last one, we shared a new story that was developing on the 12 of Feb and we'll do more of this and keep the questions coming. Is there anything specifically you want us to answer or anything you want us to ask, people who are currently doing this, whether they're like Neil and currently work in the game and imagine charges services for it, that's how you make your money. Or investors... sorry, developers themselves.
We'll get them in the studio and find out because the market is changing at the moment. You see a lot of transition in property prices and particularly in the city of Melbourne. Everybody's been talking about the softening of those markets for quite some time and now we're starting to see a little bit. It's still moving along quite nicely, but we're going into the data around it. It changes all the time.
But for a lot of people who have secured good assets over the last number of years with development in mind and may be coming to period of time when it's starting to make sense to look at undertaking those... As Neil spilt out, you might be sitting on a development block right now, but it can still take upwards of 12 months to get your application to Neil and to get going. So nothing happens fast when you're developing, right?
Neil Ashworth: Right.
Phil Tarrant: Alright. Well, we'll get you back on and then we'll get some questions answered specifically from our listeners. So, if that's you, email the team editor at smartpropertyinvestment.com today. We'll get back to you and get them answered. Also, we brought a lot in development at smartpropertyinvestment.com/development, you'll see all the stuff that we're producing around developing residential property. Just... Something sort of running hand-in-hand with this, but also, adjacent is people who buy open plan apartments. We're talking about something very different here.
We're talking about undertaking this work yourself and realising the benefits of the risks you take in developing. And hopefully you wanna get a good return on this stuff, versus buying off the plan when you're buying off a developer with higher end prices. And obviously, all the hard work's gone into it and the developer's made their money.
Just quickly before you leave, Neil, and we have light numbers... To actually do a development and make it worth your while... So we're talking to same scenario, 3 to 4 townhouses on a 1000 square metre block, if your account allows you to do that. Going into it, what sort of percentage should be looking for as an upside on this? I know it's hard to work it out, but it's gotta be under 20%, just don't think about doing it?
Neil Ashworth: Yeah, yeah that's right. 22% and above, or 25% and above is great. About 22% and above. Just like that example is a million dollar lend, million dollar build, 3.2 sales, something like that is what to look for.
Phil Tarrant: So you wanna have at least 22 to 25% upside benefit, because you've always gotta be ready to...
Neil Ashworth: Yeah, so you could do that percentage. You stress test it and do the percentage up and down. See what can be.
Phil Tarrant: And what's the easiest thing to control when you're doing a development? Because there's a lot you can't control like the market, or interest rates, or whatever.
Neil Ashworth: The contractual side of things and what you wanna see in that end result. What you can't control is that timeline from the council. But to help with that, you just own everything that you know is gonna get past and what they're happy with. So you just keep with those controls. Everything outside that is just normal commercial negotiations.
Phil Tarrant: And, from my understanding, with development, your architect's pretty important. If your architect knows the game, knows the council, knows what gets past easy, it can take... speed up things considerably in terms of DA, financing, et cetera, and save you quite a few bucks as well. So how do you know if your architect's any good? Cause a lot of them tell you they're good, but...
Neil Ashworth: Yeah, so you have to go through a few and get your chosen few for the right area for the right council for the right sites, style, budget.
Phil Tarrant: So if you want to look at two or three architects, what would be the three questions you'd ask each of them to make sure they're right for you?
Neil Ashworth: See how many times they've been to Land Environment Court, see all the projects they've been through, what was their timeline. Get that history from them, what were they knocked back for, and grill them to see how well they perform.
Phil Tarrant: So if they've gone to Land Environment Court, that's bad.
Neil Ashworth: Well, they might wanna fight it and win, because they know they're right. But really, you want that straight away from those guys to see how many designs they started, and how they started, and what their role was, and what was the change history. If it was mostly the same throughout the process, they know the rules and controls. They're in tune with the client and they produced what they first started with.
Phil Tarrant: Okay, and would you ask them how they're gonna charge you?
Neil Ashworth: Yeah, cause you need to know all... All the big items, you need to know about when you first start. Correct.
Phil Tarrant: And how does an architect normally charge for a development?
Neil Ashworth: Most of them do the percentage on the end cost, but then... I don't wanna... I'm not interested in that, because they'll design a way that end costs will go up, so he gets more money. So again, just create the feasibility you want with those fixed prices, so you know what you're in for when you start. So fixed price.
Phil Tarrant: So an architect will want percentage because then it's a matter of finishing and they get paid more money. That then might not be conducive to doing it in the market.
Neil Ashworth: Yeah, you've got control of those kind of consultants. Keep them on your side.
Phil Tarrant: Keep them on their toes. And that's why a lot of people just go straight to you, right? You look after all that sort of stuff.
Neil Ashworth: Yeah.
Phil Tarrant: Alright, Neil. Appreciate you coming in.
Neil Ashworth: Indeed.
Phil Tarrant: I haven't checked out your website, but I'm sure it's got a lot more info on it. What is it?
Neil Ashworth: whitegriller.com.au
Phil Tarrant: Well, there you go. No worries mate. And I do appreciate it, and we're gonna get a lot more into this over the period as well. So, do get in contact. If you're not subscribing to our daily morning marketing intelligence, being the first to know what's happening in property investment and development, smartpropertyinvestment.com.au/subscribe. If you like social media, and that's how you get your info, just search "smart property HQ" to track us down.
And please... Yeah, keep tuning in. We've had a massive increase in listens over the December, January period. We're now sort of in the middle of February and it's blowing me over just how engaged this podcast is. I imagine a lot of that is people sitting around the beach, I hope, drinking pina coladas and listening to the Smart Property Investment show, thinking about the future and how they're gonna create wealth through property. So keep at it, keep with us, and let us know what you think. Until next time, we'll see you then.
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