Property Developers

[Boyler_Room]

I wasn't quite sure where to post this, and this seemed like as good a place as any.

I was wondering who on here has done any/many medium to large scale residential property developments. I was hoping if there were someone on here floating around that they'd post a little bit about the initial process involved in taking the devlopment from an idea in your head thru to starting construction.

And, as a side note... I actually have a couple of sites in mind and am looking to team up with someone who has done a couple here in Adelaide in order to start building a track record for myself, and learn the ropes from an experienced campaigner.

 

[investor]

Hi Boyler room

I don't consider myself a property developer yet but I'll tell what I know.
What you are considering in getting yourself into is the most complicated, risky and stressful aspect of property, but by far the most rewarding. This is where the BIG BUCKS are.

If I am considering a development I don't see why u shouln't at least double your money. That is if the site + building cost are 3M then your resales should be 6M. You may think that is impossible but it's not. It just depends on how much u buy the site for. That's the most important thing.

Firstly you must become an expert in the area you are looking to develop and I don't just mean rental yields and property values. You should go to your local council and buy the DCP(development control plan) and the LEP of that area and read it carefully. They usually come in a folder and cost about $100.

U need to know the following to say the least

1. Zoning : does it allow multiunit development
2. Minimum site area and frontage for multiunit development
3. FSR (floor space ratio)
4. Height limit
5.% of site coverage
6.open space requiremnts
7.access and parking requirements per unit
8.% of mix between 1, 2,3 br units
etc etc

Once u are familiar with all these and more then u can pretty easily look at a site and roughly work out what u can put on it. Then you have to consider construction costs. I consider them at roughly $1500 per square metre.

This is where u may consider the advise of an architect if you are really serious of buying a raw site that hasn't already got a DA.

So say u buy a site for 1M and u can put 20 units on it. That comes to 50K per site. At $1500 psm an average 2br unit of 80sqm comes to 120K. That's 170K per unit. Can u get 300 to 340K for that unit finished ?

Once you are happy with your site and you have confirmed everything with council your architect and possibly a builder then put an offer in subject to council approval. You can ever try offering an option to buy, that means giving 5,10,20K depending on the size of the development non refundable to the vendor for a 12 month period. Then lodge with council and if everything goes well settle after 12 months. If this doesn't work because most vendors don't like it then try and get at least a 6 month extended settlement with the ability to lodge plans into council during the settlement period. Usually that's possible on a development site.

Once u exchanged contracts immediately get cracking with your achitect to get the plans ready and lodge with council. You have to first get your DA and CC (construction certificate) before you can start building. In the interim also start getting your building quotes. That can take a while so get cracking.

It gets complicated but if u want to BE BIG u have to THINK BIG.

Regards

 

[stirling]

In SA, Development Plans are available at the following site

http://www.planning.sa.gov.au/edp/start/start.htm


Stirling Reid

 

[Sunstone]

Dear BR,

JoannaK and Michael Yardney are developers.

My thread on Good Property Books although now a bit convoluted also provides some help.

http://www.somersoft.com/forums/showthread.php?s=&threadid=97

Cheers,

Sunstone.

 

[Michael Yardney]

Hi Boyler room
For not being a developer, Investor gave you a pretty impressive list.
Sure there is good profit in property development, but not to the degree that Investor suggests in his posting.
In good times a development project may show a 20 -25% profit margin on development costs - but not the 100% margin suggested.
The list of things you need to know is pretty long and the list of things you don't know you don't know is probably even longer.
At the end of each cycle inexperienced investors try to become developers and frequently go broke.
So my little bit of advice is start with a smal project and use a professional development manager to guide you through your first few projects.
And that doesn't mean an architect - you need someone to coordinate the architect, surveyor, town planner, councils, other authorities, builders, geotechnical engineers, drainage and structural engineers, agents etc.
In fact we have broken down the development process into 395 steps in Microsoft Project to ensure we don't forget something.

 

[investor]

Originally posted by Michael Yardney
Hi Boyler room
For not being a developer, Investor gave you a pretty impressive list.
Sure there is good profit in property development, but not to the degree that Investor suggests in his posting.
In good times a development project may show a 20 -25% profit margin on development costs - but not the 100% margin suggested.
The list of things you need to know is pretty long and the list of things you don't know you don't know is probably even longer.
At the end of each cycle inexperienced investors try to become developers and frequently go broke.
So my little bit of advice is start with a smal project and use a professional development manager to guide you through your first few projects.
And that doesn't mean an architect - you need someone to coordinate the architect, surveyor, town planner, councils, other authorities, builders, geotechnical engineers, drainage and structural engineers, agents etc.
In fact we have broken down the development process into 395 steps in Microsoft Project to ensure we don't forget something.

Hi Michael

Firstly I would like to express my appreciation once again on your excellent newsletter. It is very difficult to obtain info like that especially when it comes free from a person as experienced as yourself.

Now I agree with you totally development projects in good times may show 20-25% in fact Harry Triguboff (meriton) on TV recently claimed his profit margin was 10% !!!
Somehow on the size of his developments I think he is fibbing alittle bit.
The reason why I mentioned 100% was possible is because I was fortunate enough to purchase a building(after doing my research) raw or I guess wholesale as you suggest on your website and by simply creating plans and carving it up into multiple sites I have doubled the value of the property. The agents now value the property on a per site basis according to the plans rather than as a single property.

I am now however pretty stuck, partly because I don't have the time and partly because I don't have the knowhow even though I do have a vague idea on the development process. As an investor I don't want to turn into a developer only to go broke.

Now you mentioned development managers in your post. What do development managers charge to take on a development ?

I have heard and this is from friends that managers charge a weekly retainer for the duration of the development as well as a percentage of the cost of construction.

If this is so then isn't there an incentive there to
a) delay the development process as much as possible and
b) increase the construction costs as this would increase the commision ?

I would be more comfortable with an incentive that decreases construction costs and increases resales.

Your comments would be much appreciated

Regards

 

[Michael Yardney]

Thanks for the kind words investor
Congratulations on your little project.
Your comments are interesting.
You can see the profit margins the big developers are working on by reading their annual reports (for listed companies like Mirvac, Australand, Villaworld) They are often around 10%- 12% on their total sales.
As for development managers, we work on a fixed fee per project so that there is no incentive to make the project run overtime as you suggest.
Further we get a large part of our fee at the end of the project when our client makes his profit, as a further inducement.
I also think that your suggestion of a sliding scale dependant on performance sounds fair.
We base our fee on the estimated time involved in managing the project as well as the extra value we add to the project. If we can make our clients $100,000 that they never had, why wouldn't pay us a substantial fee.

 

[investor]

Hi Michael

You are right I believe that if you want to make money you have to give some, it's just the cost of doing business.

Do you take on projects in Sydney ?

If not can you recomend any development managers here in Sydney ?

2 or 3 would be appreciated if possible .

Thanks

Regards