Property development can be an extremely lucrative form of property investment, allowing you to create massive chunks of capital gain in relatively short periods of time.
Property Development includes activities like complete renovations, improvements or extensions of existing buildings along with the purchase of undeveloped land with the intention to build or subdivide.
Unlike the regular passive set and forget approach to investment, property development involves a lot of planning and work as well and capital investment upfront.
Developments can take anywhere from several months to several years, during which time your property is unlikely to be generating and income.
So, although it is a very profitable thing to do, it’s not for everyone. But if you are interested in sinking your teeth into this kind of project, here is some of what you can expect.
The Property Development Lifecycle
1. Pre-acquisition: Site acquisition and analysis
If you are determined to find a development project, then you need to spend time doing the research and groundwork to find the ideal property to match your desire budget and desired returns.
Not every property makes a great development prospect. For example, some councils have very strict rules around subdivisions, extensions, granny flats, etc.
Before you dive in and purchase a property with development in mind, you really need to make sure there will be no obstacles to carrying out your project vision.
Research the local councils planning codes and speak with the local town planning representative to get a gauge of your project’s likelihood or success and approval timelines before you apply to purchase.
You should also have an idea of what the estimated engineering, architecture and construction costs of the project will be. For example, if you are planning to build a double-story duplex, then what is the estimated cost for this including all site preparation works?
Lastly, think about what your end sale price will be. Be sure to run this past your accountant to see if there are ways you could optimize your tax efficiency and whether the final amount to hit your pocket will make the effort worthwhile.
If everything checks out, then great news, it’s time to proceed with purchase and dive-in to this new project.
2. Design and Planning
Now that you have purchased your property it’s time to contact your civil engineer and architect to help you plan the site works and design.
Make sure both of them understand your goals and budget and work within this scope.
If they understand that the property is intended as a rental, rather than a personal home they will adjust their approach to suit.
When planning a design, it’s important to take into account things such as maximization of aspect, light, and minimization of cost per square metre.
Your architect and civil engineer should be familiar with the local council’s planning codes to make sure the design is compliant, in order to avoid wasting time with planning approval revisions.
3. Development and Building Approval
Submitting development approvals can be an arduous task, especially if your land has special overlays that require additional planning and reporting work.
Depending on your development plan, you may need to call in the expertise of a Town Planner, Hydraulic Engineer, Traffic Engineer, Civil Engineer, Acoustics Engineer, Mechanical Engineer, Architect, Builder, Quantity Surveyor, Surveyor, and Landscape Designer to help you complete to the planning application and approval process.
It is your job as a developer to coordinate every effort from the above professionals and feed the Town planner who will apply for/ against some Council Zoning Bye-Laws.
Once you have fulfilled all the requirements, your approval may come in as little as 2 – 3 weeks or as long as 12 – 18 months. Each council area generally has its own standard timelines and will be able to provide you with expectations.
Many people choose to partner with a builder right from the beginning, in which case your chosen builder will have been helping you co-ordinate steps 2 and 3. If not, then now is the time to decide on your builder.
When comparing builders, be aware that you will not always be comparing apples with apples.
Builders have different ways of presenting quotes and different inclusions – this makes it very difficult to cross-compare. As the saying goes, “the devil is hidden in the detail”.
Watch out for things like quality of finishing’s, fixtures and fittings. Does the builders’ quote include things like footpaths, driveways, fences, landscaping, foundations, carpets, flooring, tiling and appliances?
5. Finance and Progress Payments
Once you have chosen your builder and have a project valuation estimate you can go and apply for finance.
Development finance works differently to regular finance. With building development, you will need to pay the first installment to begin the work.
Afterward, your lender will progressively release your loan in stages, according to the stage of completion of the house.
Before the bank will release any funds for the next stage, the will conduct a building inspection on the work done up to that point. If satisfied they will proceed to release the next installment.
It’s also important to note that if any stage of your building process goes over budget, you will likely need to foot the bill. That’s why it pays to include a contingency buffer in your project to make sure you can cover the cost of unexpected delays.
Before you can settle on your property, the inspector needs to make a final inspection and certify that the building is fit for occupancy.
Once this has been done then you will be able to receive your final loan installment and settle on your property.
7. Sales or Rental
Now that you have full ownership of the property and a certificate of occupancy you can either list the property for sale or rent it out.
A good real estate agent will be able to help you with both and style the property.
Keep in mind you may need to do some extra work outside of the property to make finish it for occupancy. For example, landscaping and laying turf is often not included in the building scope.