Becoming a property developer?

what i did

sea change.

I didnt jump right in. Its my view this is impossible because from my experience from those that do dont even know what they are jumping into i.e. what people deem as a "Development" isnt anything more than "investing" or "sophisticated investing".

That being said if you have large quanties of money generated from other sources then perhaps you could in theory jump right in.

You must remember that developing is the culmination of many practices, knowledge and experience. Therefore if you havent built a single property then how can you know developing is for you?

I say this only because i HATE when people say comments such as "you must walk before you can run" i akways response by saying but we could all swim first and thats harder than both.

I am not trying to be corny but what I am trying to get at is treat developing like training for a marathon before you even pickup jogging you could in theory do it but how can you know if all the training\dedication is worth it before you even see if you can jog each morning.

Its like those parents that buy their kids a full gear for their first soccer training and then never kick a ball again after the first day.

In short developing is the ultimate end game (others will argue land development im a bit either/way) therefore before trying to make a dollar on a development, first buy and investment property, then build a house, then a duplex and so on.

Building experience is one reason for this path but if you havent ever built anything how do you really know its for you? The way i started was, exactly as above. (allbeit all done in a matter of 1 year) - see some of my OLDER posts to see my path...

Most people romanticize about developing, looking at towers and imagining their name on a crane, or on the side on a spralling banner, driving a flash car and living in a penthouse. Sorry to break it to you most of us drive a ute, are stressed beyond beleif, go to sleep and wake up with the one continued thought of what has to be done for the next day, never see their family, are constantly screaming at sub-contractors, etc etc BUT if you ask any of them they would all say as i do, we wouldnt have it any other way.

So in answer to your question, start small and build your way up (you will need the money generated anyways) and then ask yourself the same question, is this what i want to do because dont make the mistake of thinking developing is a part time job, its not and anyone that tells you ask them this regarding their own so called development,

question 1: how much did each unit cost you including interest\legals etc and then

question 2: how much did you sell it for then question

question 3: how long from DA to SALE then

question 4: (now this with a smile) divide the profit by the 3 years it took them to approve a duplex and ask would you work for $500 a month.

If they even know what their costs are would be an amazing step.. in the end of the day you have to dive in everythings relative building your first house is a MASSIVE step for some people... (im rambling sorry hope this has helped).

So my answer.. YES jump right into WHAT you know you want to do and read and do what YOU know what you must first be done. Too many interpret "jump right in" as ignorant bliss, this is a recipe to disaster, be humble, be reasitic and dont think your not going to make mistakes and when you do be courages enough to fix them.

Good luck
 
Mark C said:
Giving up FT work is "Foolish" & "Risky"??? That's one side of the argument.
Click to expand...

And a bloody good one! The phycological impact for the novice when the slightest problem occurs will be far more damaging when compared to a seasoned developer. That factor alone can bring a great deal undone and turn into a nightmare. I, for one, am a punter and some of the better deals i have completed have been that way cos i took a 'calculated punt'. And things do go wrong at times. And i know some wont be able to handle the stress that goes with it. Its the phycological factor that can make or break you.

Mark C said:
I am risking it all, it could still go either way but I'm having a hell of a go at.
Click to expand...

Sounds like fun. Good luck and i hope it pays off for you MarcC. Still, risking ALL on 1 deal doesn't give you much room for error. I would prefer to have enough seed for a few deals. That way one bad deal wont be the end of me. There's a common term used in gambling - "Risk of Ruin". Basically refers to the duration of time/(in this case deals) to bring you undone and force you out of the game. The name of the game is to stay alive as long as you can in order to increase your knowledge and then to apply this knowledge for bigger and better deals if you wish. I know many family friends and their friends going bust over that one big deal. Oh yeah, I did mention the phycological impact if you lose the lot too right? Can take you a loooong time to build the courage to give it another go. Despite all this, many a rich men have taken that "One Big Punt' which has paid off handsomely. Asked whether they would take that one big punt- well most wont do it again. Risk of Ruin being the common theme to their individual answers.

Cheers

Oscar
 
Twitch

I left FT work Oct 2004 and went into RE as a semi novice having a couple of years of buy and hold properties under my belt.

I started developing for myself with the 4 unit site in Mandurah.

I should also note that I worked as a Planning / Cost Engineer for the Oil and Gas industry for 12 years.

I applied my costing model to a larger deal (81 units) and sort finance. I was confident enough to put in a heap of non-refundable equity upfront.

Had a hell of time getting someone to approve total lend but managed ok in the end with some sticky finance clauses. I borrowed 125% LVR to cover all costs on this project. Another self funding project.

I put in at least 1-2 offers a month on development land, over the last couple of weeks I have negotiated to be the successful tender on a piece of land on the Gold Coast. I won from the 4th lowest bid. Again the finance on this project will be self funding.

It takes a lot of time to put these together and there is no way I would have been able to do this and work a FT job.

To grow so quickly needs some very inovative sollutions e.g. I use 8 differint lending institutions and I'm about to add to this. I'm also becomming very good at inventing cashflow.

It's worth noting I work longer hours per week now than ever before.

Mark
 
Tcocaro , mark

I think your last posts give a good idea of what's involved in being a developer.

Mark , obviously with your background you're in a good position to transfer your previous work experience into where you are going . Good luck .

We're just about to complete our second small development on Sydney's northshore , both subdivisions and a dual occ on the second. Nothing like what you guys are doing , but given the ccost of land around here , both well worthwhile financially. We didn't have any experience prior to the first one , however we had a reasonable amount of capital to start with , and good income to support the process.

We both worked during the first one, however my wife has stopped working in a " Job " since then.

Cliff
 
Just thought i'd contribute to this post as we've recently been through exactly that!

Hubby got offered a position as PA to an investor about 18mths ago and at the time we thought that was a huge once in a lifetime opportunity...so he resigned from his IT position and started working with this guy....to cut it short, this guy turned out to be dodgy and all went pear shaped and hubby resigned May 2006. We at that point had 2 choices, for him to either find another IT job or to have a go at property development. We were fortunate enough to have met and spent some time with Martin Ayles the month prior to his resigning and knew developing was the way to go for us. So we decided to go searching for development sites immediately......

Well we were losing hope! but glad we persisted because although it was 2.5mths of looking and submitting on average 10 offers a day, we finally found and secured 5 seperate development sites within the space of 2 weeks! We were over the moon as you can imagine but the next hurdle was finance! Finance has been a GIGANTIC learning curve and a MAMMOTH challenge (and this is an understatement!) but we got there in the end and have just sold all but 2 of the homes off the plan. The profit is definitely rewarding.

Hubby said now that he's gone through what he has this past 12mths, he can never go back to a job as an employee.....and i totally understand that.

We develop sites with 2 or 3 units (haven't tried 4) on any single site and in terms of time spent, i'd say initially there's alot of planning and council stuff to do but once construction was underway, hubby had so much time free....he was actually looking for things to do! I'm not sure if this is because we only stick with the 2-3 unit sites but its definitely not as bad as what people say it is.

I'm off on maternity leave next week and although i've told work i'm taking 12mths off, i don't intend on going back ever! and why would i when we make more money at home!

Hope this helps in some way!

Cheers,
Kim
 
Hi guys, fantastic response. I see the forums are still going strong like they were a few years ago. I'll need to go back and read everything again...like 5 times over to digest the whole lot and will post again with a few questions no doubt. From what I can gather, start small, ask a heap of questions, be mentally prepared when things go wrong, don't lose sight of your goal and don't give up your full time job until you start earning enough money from whatever you decide to do.
 
i'm very interested in any and every piece of information that mark c has to offer. Perhaps a new thread?
Am interested in the ideas for creating cashflow first up too?
 
some interesting points here..may i just say that Mark C becomes nominated for the "balls of steel award"? how did you go from 4 units to high rise in the gold coast and beyond??
my only piece of advice is to start small..it gives you a chance to get your toes wet before diving in..build up your wealth by accumulating your units your developing..sell off what you need to, to pay off the debt.. then it just snowballs from there..
anyway it worked for me..
:cool:
 
Even with developing just one house, I make sure I have plenty of capital. I did 3 houses at once a few years back and learnt my lesson. The repayments during construction, the holding costs before getting tenants or selling can make you or break you.

The thing is that with building costs so high at the moment, you have to do your calculations correctly. I have thought about multi unit developments but for the time it takes to get subdivided and plans to go through council, the holding costs...the profit isn't a lot more than for a single house and I only have to sell one house to realize gains instead of 3 units.

I only develop one house at a time. I don't work anymore. I agree Kim that once development is underway, you have a lot of spare time. But even with organising finance and initial things...it's so much easier with one property. My bank manager is brilliant...I just let her know how much I need, send her the contract and go in to sign the docs when it's ready....so there's minimal to do on my part. That's the only benefit of having all loans with one lender.

If I am going to multi develop, take on all that stress and have no spare time...it defeats the purpose of property development. I do it so to have lots of time, make money and enjoy what I'm doing.

By doing it one at a time, we keep the properteis as IP's and sell an IP every few years when we need more cashflow.

This year is a good year for us...last year we struggled a bit. This year our income consist of
a) One income from work $40k taxed
b) investments (funds, cash etc) $20k taxed
c) Sale on on IP $150k gross taxed but we did live in it before.
d) One development $80k net equity IP will probably keep as an IP.

Holy that's $295k...first time I worked it out! don't know where all the money went. We used it to pay down IP's which are all positively geared now.

Last year was significantly less and a bit of a struggle in terms of cashflow
a) One income part time $30k
b) investments $5k
c) one development $100k equity (kept as an IP)

With one house it only takes about 8 mths from buying the land through to selling or renting. Once building starts, it only takes about 15 weeks (medium sized low set). Council approval takes approx 4 weeks. It's usually the mis communication between us, lender and builder that causes delays!

I love building...looking at plans, design, landcsape designing, and shopping. We are at lock up stage and I'm busy shopping and getting trades people lined up to finish off the house after handover. I just worked out that I got really nice roman blinds and those trendy roller blinds, some wooden blinds for a whole house of about 26sq for $450!! Got them at the target sale back in feb at 70% off! Will get my handy man to fit them all for $200.

Doing this ourselves save us about $10 to $20k but I won't be able to do this anymore as the next IP is too far away. I'd have to get a turn key package.

We are on one low income so imagine how much better it would be for a couple on high income!
 
Yes I agree MarkC should have his own thread!

I just want to know the reason you high rise developments? is it coz you want to be in the big boys league? is it coz you want to form a corporation and aim to publicly list it one day? is it for pride, recognition? purely financial reasons? own business, controbuting to society, creating jobs?

If I was to do something like that I'd have to sort out my reasons first. Atm, it would be purely financial and that's a bad reason coz I don't think it's good to be too greedy and chances are that I would fail.

I can see your passion, your hard work, and the fact that you took such risks....I think you really have what it takes.

I was a bit like you in the beginning, maybe being a novice was actually a good thing in hindsight...bought up 4 blocks of land without even considering finance, stress, hard work etc but that's what it takes to reap the bigger financial rewards. I definately had more drive and passion back then.

Now that I am more knowledgeable, I am not as risky as before and probably aged, tired and lazier ...doens't help with an active 2y.o that give sme enough stress and no support from hubby at all.
 
sue,
what i fail to see is why u think single houses are more profitable than multi unit developments..you gotta remember..for a feasibility sake..construction costs remain fixed per sq metre..BUT where you win on multi units is that the cost of land per dewelling comes down..
e.g..you buy 1 block of land for $450k..i would buy a development block for $450k..you can fit one house on it..i could (depending on zoning etc) could fit say 2 + units on..lets say i could fit 4 units on it..that makes my land component 450/4= $112.5k per unit..where as you are paying $450k for one unit..
from there you add your construction costs..not forgetting units are smaller than houses and get less money for them..BUT the profit is there..
catch my drift..thats why develepors always try and cram as many units as possibile onto a parcel of land..because the land component per site should be as small as possibile..do the math..you dont think people like harry trigaboff got rich by making single houses on single blocks of land do you?? :eek:
I think Mark C is heading in that direction!
 
Muney - I think you misunderstood. I don't think single houses are more profitable than multi units. However, there are probably more things that can go wrong with multi units...the big one is delays which can amount to be quite costly.

Single houses is what I prefer and I am just sharing what I know on Somersoft. People here can make the decision themselves as to what they want to develop.

With all these property development companies around that have gone down....what do you think caused it? they took people's money, giving them 1st mortgages security, 2nd mortgage security etc went and bought up $100 mil + worth of developments and years later, profit has not been realized, they can't cover interest costs and the company collapses and thousands lose their money inc myself.

Although property prices have gone up....bigger developments actually haven't gone up that much. I know a developer who did a sub division for I think 130+ blocks of land, don't have enough money to build and re-sold it to another company and came out breaking even after all holding costs. They have many projects like that where the wholesale value hasn't gone up much.

The ironic thing is that this guy started off building one house at a time, graduated to sub divisions then went into the big boys league. But I think he got too greedy, lost millions of mums and dads money but somehow he still managed to have a publicly listed company on the ASX...now the shares are trading at $0 and he handed in his resignation as MD.

For example I had a look at one recent project but didn't find it feasible.

Land $200k for duplex
Subdivision $50k
Duplex $150k each (cheap side already) 2 or 3 br
Total $400k
Time to complete - minimum 1 year
Rent $200 p/w each
Worth about $230k each on completion
I'd have to sell both to realize $60k profit. Yield is ok. May cost more for delays.

On the same block of land if I were to build one house only

Land $200k
Building $150k
Total $350k
Time to complete around 8 mths
Rent $400 to $420 p/w
Worth about $420k on completion

For all the people here advocating starting small...I think this is a pretty safe way to do it. You could even develop whilst working a full time job.

I don't consider myself a developer nor am I doing it to become filthy rich. I've also had people here ask me for advice then turn around and said they want to aim for bigger and better things coz my deals are too small....fair enough.
 
Johnnyboy

Get your toe's wet and start with something small. Build a duplex or 2 small houses. Deal with the tradies and builders and see if its for you. Its not easy but in the current market its rewarding.

It's not difficult however can be frustrating at times.

$ needed for a duplex = 130KLOC or cash + loan of 360K - 380k

Wayne
 
Land 4 duplex ranges from 220 to 250k

Construction with the cheaper builders (turn key inc tanks) 270k-ish

total 520k-ish

80% = 416k

20% dep = 104k

Then you have the extras for council, soil, plans, interest, etc = 25k

Wayne
 
stockt12 said:
i'm very interested in any and every piece of information that mark c has to offer. Perhaps a new thread?
Am interested in the ideas for creating cashflow first up too?
Click to expand...

Not sure about a new thread I think everything I do is pretty simple by design and can be described easily here.

Creating Cashflow

On each development I have (3 at this stage) I pay a Project Management company to look after the project, I use borrowed money to do this. As it turns out I happen to also own the management company, so I pay myself as project director.

Otherwise I would be waiting for each development to mature before I see any income. The project I have in Manly Qld will take 2 - 3 years before I see any profits, thats a long time between drinks.

I now need help to keep these projects under control and am in the process of finding a PA to assist. Her/His income will also come from borrowed funds.

I guess it's a way of spending the profits in the project before they exist, this could be regarded as risky but given the equity in each project it hardly makes a difference.

The more projects I have underway the more income I can produce. When I settle my latest project (mid November) I'll be drawing an income twice what I was being paid working full time.

Mark
 
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