It is no secret that property can be a proven method of creating and accumulating wealth over time. You may already own your own home, or a portfolio of investment properties, so how is it possible to make that transition from property investor to property developer and create additional value throughout the process?
The first step to development is understanding the core principal that the value lies in the land. Value can be created when a land’s use is enhanced. There are a few ways this can occur but usually entails building additional dwellings on the block or subdividing to create additional lots. A great amount of money can also be made when land is rezoned for a higher use, but buying land on this basis is pure speculation and hence loaded with risk.
Typically, local council regulations and zoning dictates what can and can’t be done with a piece of land within a particular jurisdiction. For example, you might be looking at a cracker of a block that has just come up for sale; it’s large, flat and in reasonable proximity to amenity, however, it may NOT be zoned for development. There are a variety of reasons for this ranging from incompatible zoning (e.g. low density, heritage or ecological significance) to adverse environmental overlays such as flooding or bushfire threats.
A great way to see if a piece of land has potential for development is to simply look at what is nearby. If there are apartments, townhouses or blocks being subdivided into small lots, then this is an early indicator of development potential. The next step is to check the zoning classifications on council websites and to be really sure, consult a town planner. Land dictates the final scale and style of potential development, so it is crucially important to nail the land acquisition step in order to get the greatest payoff at the end of any project.
A good place to start:
One of the simplest ways to start in development is by preparing a property for sale with DA. There are a few benefits to this strategy:
Decreased Risk: Development can be a risky game owing to all the elements required to bring a project together from planning, construction, finance and selling the final product. Hence, one way to dramatically reduce development risk when starting out, is to only take your projects through to the DA stage and then on sell them to either a builder or more experienced developer. A tidy profit can still be made however, which compensates for your time and the risk in getting the future project and plans approved by council.
Decreased funds: It is one thing to have the capital to buy the land, but you must also have surplus cash available to execute a development project, particularly when building dwellings. The benefit of taking your first project only to DA stage, is it dramatically reduces the capital you will need to execute a project as you won’t be paying construction costs. This leads onto the third benefit.
Time: Taking a development project to DA stage and then on selling dramatically reduces your investment timeline. If you were to run a complete project, you would have to first get the DA approved, then build the project, seal titles and then ideally sell all the developed stock before releasing your equity and taking any profits. This can take years. Selling property with a DA means you can have a quick turnaround and focus your attention on more deals and build wealth from a smaller base.
The process of development can be daunting, stressful and high risk and often not as glamorous as the numerous spruiky property TV shows depict these days. For your first few projects it would be highly recommended to engage the services of an experienced development manager to guide you through the development process from site acquisition right through to sales and marketing. Having a good support team early on in your development career can prevent you from making the costly mistakes that we see all too often. If you would like to speak to an experienced and genuine development management team, get in contact with Charles Duetz, for an obligation free chat today on 0417 515 821.