Property Development Full Time?

I know i might be subject to a few insults based on my following comments but:

I currently have $250k-$300k in cash, only work part time so low serviceability

Looking to do property subdevelopment full time!

With no experience only attitude/dedication and wanting to learn

with realistic goals,

how do i start?
 
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This has been covered on here so many times already. Use the search function. You may run into servicability issues with the banks if you need to borrow to do it.
 
Dream to be a full time Real Estate Developer

OK you have a dream to become a Full Time Real Estate Developer. That’s an excellent start.!!!

To realise that dream you need to determine where you want to go, how long you will take, what skills & knowledge will you need along the way & what you will need to do to get there. To turn that dream into a goal you will need a plan, with action steps and a deadline (what you will do & when).

What does success mean to you?? What does full time mean to you??? What does Developer mean to you??? What do you see as your role in the development process??? Why do you want to do this???

In essence Real Estate Development is quite simple. All you need to do is identify a gap in the market & fill it at the right price.

You need to understand what the market wants, what’s currently being supplied & at what price point. This is where you start; by learning lots about your chosen sector (commercial, industrial, residential) that you are passionate about & the location you have identified that you want to play in.

Because the development process usually has a lead time of between 6 months and 3 years, anticipating future demand is also important.

There are other decisions needed including if you are going to “develop & sell” or “develop & hold / invest”.

The key to successful real estate development is leverage and maintaining cash flow through out the development. Leverage usually comes from borrowing. Maintaining cash flow comes from income producing investments, personal income (salary & wages) & borrowings.

Real estate development is also a numbers game. The Development must stack up. And it must stack up before you make any investment. Its not wise to invest first then work on a plan to make it stack up later.

You will need to be an expert in the area that you want to work in. You will also need to surround your self with the best development team you can afford (but that comes much later).

Start by reading lots of development books, real estate investment & development magazines, reputable property reports. Go to reputable property seminars & courses. Check property listings online & on site. visit lots of sites. Get active!!! Study those that have been successful at what you want to do.

Most successful developers started small, and then built from there.

PS I have posted a few items on property development / real estate development over time. You may want to have a look at some of those. There are many good posts on development on this site.

Philip
 
Start by reading lots of development books

Some great advice there Philip. Any books in particular spring to mind? I know the usual property investing ones, but thought you might have some that lean more towards property development (rather than investing basics) on your mind?

Cheers
Greg
 
Real Estate / Property Development Books

Any books in particular spring to mind?

Depending where you are at:

An Intelligent Guide to Australian Property Development by Ron Forlee is basic / for the beginner.

Professional Real Estate Development, The ULI Guide to the Business by Richard Peiser is more advanced.

Philip
 
Where to Start in Real Estate Development

In answer to the email received about "where do I start":

In real estate / property development you need to control at least one of the following:

1. a development site
2. a client that has a specific need for a development site,
3. capital,
4. knowledge.

Most budding developers start small with a renovation that is large enough to warrant a Development Application. This way the budding developer gets experience at 1. controlling the site, 3. controlling the capital & 4. building knowledge.

If you don’t currently have one of these then the key questions are:
1. what are your strengths? &
2. what value do you see you can bring to the table?

Understanding & then leveraging your strengths is a key component in development.

I would recommend starting your development path by doing lots of research both online, visiting properties up for sale and by reading books. I have been in development for over 25 years & I still read heaps of books & publications. Always have & always will. Knowledge is redundant very quickly, so its essential you keep up to date.

Understand there are lots of spruikers in property, as in many industries. So choose well what you spend your time reading, attending & viewing.

I believe that if you get 1 great idea from a book, seminar or short course & you implement it, then it has been worth while.

Many people want to work for a developer, however the number of development jobs are few & far between. Usually a developer is looking for an expert or a specialist in a particular area.

It is very useful to be working in an area of the property industry i.e. in a trade, profession, selling, managing etc. this way the crossover into development can be very is clear.

So if you are not in the industry, get involved by keeping up to date with what is going on within the industry.

Possibly the easiest ways into development is by owning (controlling) an investment property or your principal place of residence & doing a job on that.

If you can find a mentor that is actively involved in the development industry then this can really fast track your progress. Unfortunately most highly experiences people in development are very busy. Think about family, relatives & friends of friends that are seriously active in development.

Remember if you can surround your self with an outstanding development team of professionals without breaking the bank. The team makes a huge difference & they don’t have to be on your payroll or working on your projects full time.

As always the best way of learning is by doing. Get the fundamentals sorted before you jump. Then go hard & don’t look back.

Philip
 
Cashflow.

Property Development requires deep pockets. Yes you may make 30% CG on $1M in three years. $100k a year YAH!!! but you also had 2 years and 11 months of no income.

Start small and learn.

Peter
 
Development ROI

...Yes you may make 30% CG on $1M in three years.

This is an excellent point Peter has made. Lets look at this further.

Assume you borrowed at 80% completion value (i.e. 20% investment) on a development project with a completed value of $1.3m as mentioned above. So your capital invested is $260k

You make the same return Peter mentioned of 30%, being $300k.

Investing $260k and returning an extra $300k is 115% return on capital invested.

That looks like excellent return on your investment!!!

What do you think???

Philip
 
This is an excellent point Peter has made. Lets look at this further.

That looks like excellent return on your investment!!!

What do you think???

Philip

Hello Philip,

Thanks for the calcs but my point was more that if in any time in the two years 11 months until the payoff, you run out of cash, you can be lose the lot.

I have been in development 15 years as a designer, builder and occasional developer and seen many with cash and experience fall over even with a great site when things go wrong. It can be a divorce, an injury, a change in bank funding rules.

The sharks then circle......

Case in point: I know someone with a great, very profitable business, but no prop experience got into a small site deal as a 25% share and 4 years later has lost his business to the Bank calling in his guarantee only because the other 4 partners have no real assets worth chasing and he was cashed up.

Dont get me wrong re PD can be a great investment but it is not for the faith hearted. It is big gamble stuff. Sadly API Mag never shows the disasters.

Peter
 
Very, very true. I know builders who do their own developments in resi property.
I do know that towards the end of the project, one in particular was paying 5k holding cost per week, until project was sold.

The sucessful ones I have notices are old, and fund construction costs with cash they have. All those years prior they were reinvsting profit back into the next project and so on. That is one way to reduce risk but will take time.

Agree with what Peter says, you must have cash flow. If you can't pay the bills, builder will stop working.

I think that developing sounds so lovely, but the amount of professionals you need around you to complete project does seriously eat through profits. The longer it takes to sell for eg, the smaller your profits get.
 
Cash Flow is King

Peter & Minx,

You are both absolutely correct, you must have cash flow. This goes for real estate investment, property development and every single business.

The reason why most businesses fold is also because of cash flow. So what’s new?

While it’s true there are many successful older developers. They have been around the traps. They have seen the ups & downs. However, these developers are successful because they do proper feasibilities, understand the figures, buy well & know the market.

The majority of them, even many of very wealthy high net worth individuals that we work with maximise their leverage by bank funding (or equivalent) for their acquisition & construction costs. This is how you maximise your ROI (Return on Investment).

Once again this is no different to any other business.

But this business is not exclusive to the well established. There are many young developers that have done exceptionally well too.

Let’s be clear here, a large amount of development feasibility by non professionals across Australia and off shore is done on the back of a envelope. Purchase cost + build cost – disposal cost = profit. This may work in a rising market, if the market is rising fast enough & luck is on your side. But if its not, then look out.

Buying wisely is also essential. And many properties don’t stack up at the prices the vendors are asking. You have to do your homework, do your leg work to find an excellent property. The bargain of a lifetime comes by about once a month & even more often if you are focused, put in the effort & know what you are looking for.

Don’t get me wrong; real estate development is not for everyone. But if you are into property investment anyway I ask you why wouldn’t you want to maximise your returns by adding value to your property??? Development is simply an adding value vehicle. The choice is yours.

Philip
 
Dear Philip

I think you feel I am anti PD and against your comments? I am not.

Your advice above was very good and absolutely right, especially being in a related industry to learn the ropes which is what I did and still do. PD and PI is the bonus, my business is my cashflow.

My post was pointing out what in my experience catches most new/inexperienced developers and that is the holding costs and cashflow.

Peter
 
Failure is NOT an Option

In answer to the email received:

If you are new at development I would recommend that you do heaps of research, read every book you can get your hand on & attend every credible property development seminar you can before you folk out your hard earned savings for a development site.

If you have done a lot of real estate investment in the past then I’m sure you will have gained valuable knowledge from that. Then you just need to focus on development skills (as above). If you haven’t got development or real estate investment experience, the start building your strengths in the investment side first. Build you knowledge so you become an expert in your chosen filed.

Once again property developers tend not to take on apprentices or assistance. For every job with a successful property developer there will be 10,000 applicants. If a developer was going to employ someone, that individual would usually have a very specific specialised skill or expertise i.e. a gun & specialist in shopping centre management, expert development management, corporate leasing, sales, feasibility etc. chances are they have been in the industry for many years & are an expert in their field (i.e. site selection, planning, construction, management, sales or leasing).

Most people that are very successful have done so with a lot of focused effort, dedication, passion & perspiration. While they may have had help along the way, the very successful are ultimately very driven people. It’s not a 9 to 5 job. It’s what ever it takes, till it’s done. They are not tired; they are driven. They are not kicking back watching TV; they are working in a project. They have clear written goals + written plans & take consistent & constant action. Finally they don’t ever give up, as failure is not an option!!!

Philip
 
Do all real estate development sites stack up...

You have looked at a coupe of properties in your local area & found they don’t stack up…..

Well done!!!

This is a very important 1st lesson in development: Not all properties stack up.

Welcome to the world of development. If every property stacked up & there was high demand, then everyone would be a multi millionaire property developer.

You need to look at a lot of real estate to find properties that stack up. Expect that out of 100 properties, 10 will look promising, 5 will stack up & be worth putting offers on, 3 you could do a deal on.

The properties that don’t stack up are usually for two reasons:

1) The land cost is too high - It is not uncommon for land holders to have unrealistic expectations about what their property is worth, or
2) The build cost is too high – either the product you are proposing is too expensive to the location or the assumptions you are making in relation to the build cost are too high / unrealistic for the area.

There are plenty of figures floating around relating to build costs ($ per townhouse/unit, sqm rates etc). But they are just assumptions, and assumptions are appropriate in the hands of those that understand them.

An alternative is to get a QS (quantity surveyor) to work out the cost of a build. However, this is also an estimate, though far better than a $ per townhouse/unit, sqm rates from the internet.

The only way to know the actual build cost of a project is to have a “fixed price lump sum contract” signed by a builder for a specific project. Don’t be fooled that cost plus or open book style contracts from a builder are a reflection of true costs either. They are nothing of the sort!!! Cost plus provides little certainty in scope, time or cost for the developer. And absolute certainty for the building contractor.

A good way to get a feel for the construction cost is to talk to builders involved in the current construction of a specific product with in a specific location you intend to develop. Keep in mind that this is an estimate only.

There is also a 3rd reason why a development may not be feasible, and that’s because of demand. What’s the point in developing a product that no one wants? This is where homework & research into your proposed product is essential.

Finally, don’t think that just because others are developing sites in your chosen area that what they are doing is viable, profitable or successful for you. After all the measure of viable, profitable or successful is subjective.

What may be a pointless development to one party may be an outstanding development / investment for another.

Philip
 
Mix n Match

For your situation, here's an idea...

Buy a place you actually live in (PPOR) which has development potential.

Get planning approval for a development (the cheap part of the process).

Sell your house with plans and permits... hopefully make profit sans capital gains tax, then buy another PPOR.

The downside risk of losing everything is much lower this way.
 
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