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What’s involved in property development?

Basic tips and tricks to help you get started…

Property development isn’t for the faint hearted and while it can be very rewarding financially it can also carry a huge amount of risk.  If you’ve decided to take the leap into the world of property development – here is what you need to know to get started:

Education: Educate yourself on all things property. There are many articles, books and journals dedicated to property development, so read and research as much as you can, and make sure you understand property jargon. Talk with successful property developers and learn what has and hasn’t worked for them. Join online property and networking chat forums, and consider contacting industry bodies for a list of their networking events. The Australian Property Council and the Urban Development Institute of Australia are two well-respected industry bodies that also have local state chapters. Property development courses can also be useful, but ensure you are choosing reputable courses and organisations. Beware of property spruikers who are looking to sign you up to something – if the deal looks too good to be true, it usually is.

Location location location: Do your research on the location. Look at the past sales history of the area; educate yourself on zoning or future zoning opportunities (proposed urban growth areas); and planned or pending infrastructure such as developments, public transportation upgrades, and retail or recreational facilities. This can add or detract value from the property in the future. Have a good handle on supply and demand ratios, and property market cycles over time. This can be a reasonable indicator of the development site or suburb’s future potential.

Council is king: Before you commit to buying a development site, it is paramount that you understand the principles of town planning and have a good handle on the planning rules and regulations governing your particular development site. Generally the local council is the consent authority who will grant or refuse your Development Application. In some circumstances certain types of development are deemed to have State significance due to the size, economic value or potential impacts the development may have. If this is the case, The Minister for Planning is the consent authority for State Significant Development (SSD). Regardless of who the consent authority might be, it is important you consider zoning regulations, determine the best and highest use of the land, understand what is permitted and what is prohibited on the development site, what restrictions exist or are there any overlays or easements restricting its development potential. Conducting due-diligence via a comprehensive planning and feasibility analysis is crucial to the success of the development.

Assemble a great team: Property development is about surrounding yourself with the A-team. Arm yourself with a great property conveyancing lawyer, town planner, surveyor, architect, engineer and other reputable development consultants. If you need assistance acquiring a development site engage the services of a property strategist or buyers agent. When it comes time to build you’ll require civil engineers, building contractors, development and project managers and project marketing specialists. Alternatively, engaging a full-service property firm, like Urban Greenfield, who can assist you with all aspects of the ‘development life cycle’ may be the smartest way to go, especially if you are time-poor, or it’s your first time developing. We can assist you with feasibility, pre-planning, site acquisition, concept design, development applications, council negotiations, project and development management, coordination and handling of development consultants and contractors, right through to marketing and final sales.

Be financially savvy: Perhaps the most important consideration before diving head first into property development is to be cognisant of your financial position from the outset by putting in place pre-approved development finance and/or a development loan. This way you’ll know how much you can borrow, and how you might allocate capital to cover all costs associated with the development. Borrowing money to fund a development is very different to borrowing money to buy an investment property or even your own home. Generally, the interest rate is higher, usually 1-2% higher than a typical home loan. In addition, the loan to value ratio (LVR) is significantly less than it would be for a buy and hold investment property, with banks typically lending developers 60% – 70% for the value of the land and 60% – 70% of the value of construction costs. This means you’ll need a lot more of your own cash or equity to get started. This is where money partners or venture capital may be another strategy you can use to pursue your property development aspirations.

There is no doubt that property development can be financially rewarding but it requires ambition, patience and a firm commitment to structured processes. If you would like assistance with getting your property development dream started, contact the expert team at Urban Greenfield today.

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