An Insight into Property Development
One of the most enjoyable parts of starting InvestRent has been the opportunity to share my experience in the property market with interested clients and associates who are looking to expand their knowledge base.
Interestingly, most are intrigued by the process of property development. While I hesitate to nominate myself as having all the answers; a common definition of a successful developer is one that has profitably completed multiple developments in differing financial climates.
I've been involved in various size developments in my family company for over 18 years, ranging from 8 small units through to 3 stage 63 townhouse comprising land subdivision. I've learnt a lot along the way, and continue to learn new things with each development.
The number one question that I'm continually asked though is 'where to start?' It's actually not a very straightforward answer, so I'm going to break it down over a couple of blogs, to maybe make sense of what can be a complex process.
1. Knowing your Market. This is threefold; firstly, prices and secondly, demographics and how that affects your market. Lastly, council planning schemes and the various zonings that apply.
In starting in property development I would seriously encourage most to start focussing in an area that they have studied intimately for a long time and know it intuitively. For most, this would usually be easiest in the area where you would live. If where you live isn't conducive to development, you need to understand trends and fluctuations in an area you think would be.
This is critically important. Any profit in a development has to be made at the start when you purchase the land. Within a suburb, prices can vary significantly from street to street. This can mean a well purchased block of land in one street can be an overpriced lemon in just the next street back, even if it is the same price.
This is where average and median house prices can be misleading and needs to be assessed in a street by street proposition to ascertain a sites true development potential.
Demographics also play an important part in assessing a development site. The average age, income, family size, employment status of a target market etc should dictate the style of development planned. For example, Tweed Heads has the fastest growing population of 65 and over in NSW and single person households. Clearly, in the longer term there will be a growing trend for well located, affordable dwelling types that meet this demographic need. While there will always be a need for family homes, longer term price growth in this market will most likely be less, due to the forces or supply and demand.
While it is probably impossible to know by heart the intricacies of council zoning maps and planning schemes, it is very important to have a broad understanding of council's policy to certain areas. What may be permitted on one site area may change significantly to a site just one block away. The importance of paying for good advice to confirm your thoughts on a sites development potential cannot be overstated. A $250 meeting with a town planner could save you hundreds of thousands of dollars with the right advice.
Next article- Having the right team....
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