Developers what have your learnt so far??

[MTR]

As a relatively new developer I thought it would be a good idea to start this thread, hopefully we can all learn and share experiences, tips - good and bad.

What have I learnt so far -

Make sure I employ a top draftee even if it costs me more, its no fun when they miss items on the plans/drawings and then you end up wearing the additional costs. My draftee left out the over head cupboards and meters, going to cost me probably an additional $3000 over the 3 properties.

Taxes take a huge chunk out of the deals, CGT, GST, stamp duty. I am now trying strategizing - if I sell 2 keep one on my recent project I will be cash flow positive by around $10,000 pa net. However its still a balancing act between holding cash reserves and also ensuring that my trust is showing profits.

Markets change, so when you start a project and it is perhaps boom times there are no guarantees of the same on completion. Still trying to work out this one, so if the market is turning going south, would you sell OTP to mitigate this risk??


MTR

 

[INVSTOR]

I haven't developed yet but purchased first development block 16 yrs ago. My tip would be to not sit around too long making sure you get everything right/perfection, just do it!

 

[beachgurl]

My current dilemma is whether to have a project manager on site and pay the extra money or do it myself remotely. The tightarse in me wants to do it myself but realistically I could save time and therefore mortgage repayments by getting a PM on board.

Agree with timing. Sometimes you can miss the boat on a boom by taking a bit too long. I did a flip last year and I agreed to a delayed settlement to give time to the vendor to find something else. I missed the peak prices and lack of supply by about 2 weeks. Cost me around 20k I reckon.

 

[Mindmaster]

Plan for delays - Even with a great team and excellent preparation, delays are unavoidable. Make sure you have the finance/cashflow to handle delays and the flexibility to deal with changes in development completion dates.

 

[nhg]

By PM, do you mean the builder? Wouldn't you need one anyways unless you have a builders licence?

Only doing baby stuff atm, but definitely find the right Architects/Engineers/Planners. Can fit that extra house on the block because they know that one loophole or know how to get it through council.

Saved myself ~$20k by avoiding purchasing an easement and the pipework that went with it by finding someone who knew the rules. Took 5 engineers before I found the right guy.

Used that same guy to then get a friends subdivision through council. Nobody including many developers and builders touched this site in a prime area for over a year, they didn't think it was possible. Just sitting there. From purchase to sale, took 7 months and he made $400k.

 

[westminster]

Tax: a necessary evil to learn but one I wasn't ready to do at the beginning.

Holding vs Selling: there definitely is a strategy to this. I can see the pros and cons of both. A pro of holding is that you don't have to pay GST and Income/company tax and you can then get a LOC against it to create 'cash' for the next project rather than selling to create cash. I don't have the long term answer on this but at the moment I'm going to sell rarely unless its a development like Highgate where the rent won't cover it and we proposed from the outset to sell all.

Design: is very important. It makes a small space seem larger and more inviting.

PPOR Goggles: are like beer goggles and make you want really nice finishes in your IP. Stick to basics which meet the needs and don't over capitalise.

Think Outside the Square: run the numbers of many many scenarios for one site and you will be surprised what happens. The ability to think outside the rhombus makes for a very profitable site.

Don't be Afraid to be the first: when there are no comparables this means you get to set the market yourself. Not such a bad thing.

Get a Good Team: accountants, people's who experience you trust and value, designers, builders, REAs, PMs etc. Ensure that they can work together cohesively to make the project work.

Be Open Minded: you don't know what you don't know. Be open to listening and exploring other people's ideas

 

[HD_ACE]

Everything takes longer than it should.

From getting the dome installed to getting trees removed to getting finance approved and building contracts sorted.

Get prices locked in or paid for early as they tend to increase half way down the track because of a number of reasons they can come up with.

Compare apples with apples to ensure you understand they pros and cons of both sides.

Dont be scared to ask for help or pay for profesional advice to help you along the way and to educate yourself.

All part of the fun

 

[MTR]

Tax: a necessary evil to learn but one I wasn't ready to do at the beginning.

Holding vs Selling: there definitely is a strategy to this. I can see the pros and cons of both. A pro of holding is that you don't have to pay GST and Income/company tax and you can then get a LOC against it to create 'cash' for the next project rather than selling to create cash. I don't have the long term answer on this but at the moment I'm going to sell rarely unless its a development like Highgate where the rent won't cover it and we proposed from the outset to sell all.

Design: is very important. It makes a small space seem larger and more inviting.

PPOR Goggles: are like beer goggles and make you want really nice finishes in your IP. Stick to basics which meet the needs and don't over capitalise.

Think Outside the Square: run the numbers of many many scenarios for one site and you will be surprised what happens. The ability to think outside the rhombus makes for a very profitable site.

Don't be Afraid to be the first: when there are no comparables this means you get to set the market yourself. Not such a bad thing.

Get a Good Team: accountants, people's who experience you trust and value, designers, builders, REAs, PMs etc. Ensure that they can work together cohesively to make the project work.

Be Open Minded: you don't know what you don't know. Be open to listening and exploring other people's ideas

I think really good points here, baby steps to start off with but its interesting if you have a couple of wins I think it makes it easier moving forward and starting to look outside the square being creative.

 

[LoneWolf]

Tax: a necessary evil to learn but one I wasn't ready to do at the beginning.

Holding vs Selling: there definitely is a strategy to this. I can see the pros and cons of both. A pro of holding is that you don't have to pay GST and Income/company tax and you can then get a LOC against it to create 'cash' for the next project rather than selling to create cash. I don't have the long term answer on this but at the moment I'm going to sell rarely unless its a development like Highgate where the rent won't cover it and we proposed from the outset to sell all.

Design: is very important. It makes a small space seem larger and more inviting.

PPOR Goggles: are like beer goggles and make you want really nice finishes in your IP. Stick to basics which meet the needs and don't over capitalise.

Think Outside the Square: run the numbers of many many scenarios for one site and you will be surprised what happens. The ability to think outside the rhombus makes for a very profitable site.

Don't be Afraid to be the first: when there are no comparables this means you get to set the market yourself. Not such a bad thing.

Get a Good Team: accountants, people's who experience you trust and value, designers, builders, REAs, PMs etc. Ensure that they can work together cohesively to make the project work.

Be Open Minded: you don't know what you don't know. Be open to listening and exploring other people's ideas

Thanks WM, wise advice given here

 

[MTR]

Everything takes longer than it should.

From getting the dome installed to getting trees removed to getting finance approved and building contracts sorted.

Get prices locked in or paid for early as they tend to increase half way down the track because of a number of reasons they can come up with.

Compare apples with apples to ensure you understand they pros and cons of both sides.

Dont be scared to ask for help or pay for profesional advice to help you along the way and to educate yourself.

All part of the fun

Hi HD
What I have noticed is the larger builders/spec builders place lots of pressure on clients and use the strategy of building price rises by xx date to secure deals.

When I was looking at Ventura ID there was pressure to sign up due to prices moving, however the smaller builders for whatever reason don't press the button as quickly.

Not sure if this is same for others, but my experience.

I agree with you - "Everything takes longer", I have a larger buffer now for holding costs. I guess also comes down to when you are building due to weather issues etc.

 

[albanga]

As a 1st time developer in the process I can share the following:

Respect Your Council and Neighbors - By this I mean try to do things right by these people. If you do you will find you will have little if any objections and you will get things through council nice and quick (less holding costs).

An example is the previous owner of my block, bought it and then submitted to council for triple story duplexes. My neighbors a lovely old couple who have lived there for 70 years were going to lose their entire north light so naturally objected. But when you mess with an old couple you get the full brunt and they got the whole street to object! A year after the property was bought, the market crashed and they sold it to me for 100k less than purchased for (Even ripped up the carpets and painted it for me ). When i purchased it I formed a friendship, explained what I wanted to do which was mindful of there home and not at all obtrusive and they actually encouraged it

Sloping Blocks Do Cost Extra - Others may be familiar with my previous storm water posts but basically my block slopes to the rear and I have none. So as part of my construction I need to have pumps to get it up the curb to the hill. The cost is around 14k but I have heard I got lucky as it could have been 30k. Also the slope has meant more complex foundation which again has increased costs. I estimate the slope has added 30k to the build.
That being said sloped blocks usually sell for less so do your maths, if you can get the block for 50k cheaper and it costs 30k more on the build then you have a 20k buffer and potential profit.
Also call council before you buy a block and check there is storm water.

Try to be detailed with your inclusions list for builder quotes - This is the current stage I am in (not yet started the fun stuff) but my initial brief to builders was quiet vague and it is taking me ages and a lot of back and forths getting a proper list so builders are comparing apples to apples. If I knew what I wanted from the start I could have sent a comprehensive list and most likely would have chosen a builder by now.
All that being said though for a 1st timer like myself not working in the building industry this can be challenging as you don't know what you dont know.

 

[westminster]

Hi HD
What I have noticed is the larger builders/spec builders place lots of pressure on clients and use the strategy of building price rises by xx date to secure deals.

When I was looking at Ventura ID there was pressure to sign up due to prices moving, however the smaller builders for whatever reason don't press the button as quickly.

Not sure if this is same for others, but my experience.

I agree with you - "Everything takes longer", I have a larger buffer now for holding costs. I guess also comes down to when you are building due to weather issues etc.

I have found this too. A fixed price is more of a fixed price even if you've spent 9mths in council and your HIA contract was signed before that.
I've been in that situation with both and the small builder said nothing, the large builder pulled "according to our contract we are allowed to increase the price after xx days if the situation is beyond our control. Your fixed price is now $3423 more, pay up". Being the little **** that I am I refused and we got into a bit of a discussion and they ended up backing down.

So another lesson is learn to say no. Like insurance companies, some companies will pull anything for their own benefit. Learn to disagree and fight for your case. Sometimes you'll win, sometimes you won't but if you back down at the first little speed bump you never will.

 

[tcocaro]

Above all other advice I could give I cannot understate the importance of a true feasibility. What I mean by true is, accurate, honest and reflective of reality. Do not get trapped into thinking your development is somehow better than the rest and will therefore achieve a much higher price making the project work - it wont.

Once you have an accurate feasibility the next equally vital bit of advice is, ensure you have the money. Developments no matter how small can easily absorb every last dollar from your savings, equity, credit cards, family, families credit cards, families equity and then plus some.

Entering into any development without the necessary funds will mean that if anything goes wrong, you will be on the back foot. The decisions you make wont be based on whats right and wrong they will instead be based on what is cheaper and quicker quickly turning your project into S _ _ t.

In short, ensure you do a feasibility grounded in reality and ensure you have the funds to bring that plan to fruition.

 

[jroth]

I'm curious how people find the right professional team to assist them. Is it through trial and error (i.e. after potentially costly lessons on who not to use), word of mouth references, or something else?

 

[Feradd]

I've found it challenging to get the right end sales value. During my feasibility stage I felt that the selling agents were being overly generous with their valuations either to get my business or to generally talk up the market. It's a bit more difficult in my case because there are no similar comparables as it's in an up and coming suburb with new developments in the pipeline.
My next exit point is to sell the DA to a builder if I can't get more comfort on the valuations.

 

[Brady]

I've found it challenging to get the right end sales value. During my feasibility stage I felt that the selling agents were being overly generous with their valuations either to get my business or to generally talk up the market. It's a bit more difficult in my case because there are no similar comparables as it's in an up and coming suburb with new developments in the pipeline.
My next exit point is to sell the DA to a builder if I can't get more comfort on the valuations.

Pending the development could have issues with the finance if you're not getting the right valuation which can happen pretty easily without comparable sales.

 

[wylie]

Pending the development could have issues with the finance if you're not getting the right valuation which can happen pretty easily without comparable sales.

Did you mean to use the word "pending" or did you mean "selling"?

 

[Brady]

Did you mean to use the word "pending" or did you mean "selling"?

Meant to say depending on the development. For some a valuation shortfall would be an issue, sometimes there is enough 'fat' in the deal that doesn't always create an issue.

 

[MTR]

Valuation is key, we did some homework to find out what comparable sales were just in case we had to use these, I guess you always have to have a plan B in place if the vals come under ie move along find another lender, put more fat in the deal.

 

[MTR]

I'm curious how people find the right professional team to assist them. Is it through trial and error (i.e. after potentially costly lessons on who not to use), word of mouth references, or something else?

Research, networking with other developers, referrals from investors, always view the builders projects.

I mentioned this in my previous post but I'll say it again, design is the most important aspect. If you have to pay a little more for the right person just do it, wish I did.

MTR