Property development attracts many people to dabble in it. It has an allure. In fact, it is seen as one of the most appealing sections of the broader building and construction sector, and for good reason. The basic premise of property development is to develop residential/commercial sites for the purpose of generating long-term profits. This may involve building on a greenfield site i.e. on an empty block of land or it may be renovating an existing dwelling to increase the value in the property. Ultimately a property developer may end up selling whatever they have built for profit or decide to retain the property or properties as an investment.
It’s easy to see why property development is a prospect with significant benefits for the investor. However, it is certainly not for the faint hearted or the anxious one. With high reward comes high risk, and the potential stumbling blocks and complex tasks are quite common. Acquisition of property, permits and access to capital are just a few of the many things a property developer has to deal with.
Despite these risks, becoming knowledgeable in the area of property development is key to success, and makes the role all the more worthwhile. Here are five proven tips to succeeding in property development.
Know the property market
As a property developer, you will be the one to purchase the land, so it is important that it is the right one. This choice becomes easier with experience and knowledge of the market. Some locations are more lucrative than others. Below is a criteria that can be used to make a selection:
- Population demographics
- The demand for properties in the area
- The price of properties
- Proximity to amenities, shops and other services
It is also important to keep in mind that property markets are not static in nature. Some areas may become less profitable over time, and others might benefit from the opposite circumstance. Therefore buying at the right time is also a key component, as you need to know the trajectory of the market.
Understand the risks and potential returns of a project
A concept known throughout different sectors is risk and return. This relates to the potential hazards and unwelcome outcomes associated with a project, which is directly tied to the return that can be received from it. A high risk-high return scenario is common within the property development sector. This is because of the amount of variables needed to make a project worthwhile, whilst also considering the chances of turning over a profit, which in most cases has higher gains from projects of greater risk. Being able to determine this balance is paramount.
Of course, high risk doesn’t always equate to high return. Sometimes projects fail because something went wrong along the way, which could severely damage your finances. Thus, mitigating that risk is an essential part of risk and return. This means undertaking your due diligence at every stage of the property development process to reduce, or to a greater extent prevent pitfalls from occurring.
Have the right team with you
The role of a property developer can be quite taxing, so you need to make sure you have the right people around you to achieve the best possible result. Heading a project means dealing with a plethora of professionals and services, such as:
- Financial Advisors
- Town planners
- Project managers
- Council approval
Property experts can also be of huge help, as their knowledge will help you with choosing the right property and other financial areas of note.
A good team equals a good project, and will ensure your projects are completed more than satisfactorily.
Learn from your mistakes
The truth about property development is that sometimes the first try isn’t always as successful as we hope it to be. Perhaps costs were greater than expected, or the property market took an unanticipated downturn. Success is achieved when negatives are understood, and ensuring we can prevent them from happening based on our past choices. Maintaining the drive to successfully complete more projects is a sure way of learning from previous mistakes, as you hone your skills and eventually develop properties that are to your level of satisfaction.
Know your limits
As with most things, being ambitious is a positive mindset to have, however one can never follow through with this to an unreasonable degree. It is important to know, based on factors such as your finances, time, number of projects completed etc. what you can realistically achieve. Many people do not start off developing multi-storey apartment blocks on their first try. A more cautious and useful approach would be to work your way up, starting small and finding your niche.
Property development is without a doubt a strenuous profession. However, by utilising these tips, you are putting yourself in the best place to become a success. Property development can be a lucrative endeavour but you have to lay the building blocks necessary to achieve that.
Parker Brent offers courses that can help you in your property development career. For more information, head to www.parkerbrent.com.au/courses/.