Ep 273 – Are You the Weak Link in Your Property Development?

Introduction

Hilary: Hello and welcome to the Property Mastermind Podcast, episode 273. Today we’re talking about how to make decisions, take the hits and become a successful property developer. This one has a lot to do with mindset, but these are the skills you need alongside the feasibility and due diligence, as a follow-on from last week’s episode. Bob, we recorded back to back, so you must have a tip ready by now.

Bob: I do. I’d had quite a spell out of the gym, went back in full of bravado and went a bit too hard on the old shoulder. The rotator cuff, the bursitis and the tendonitis all flared up seriously. So the tip is, if you’ve been out of action for a while and you go back to the gym, go very light. Even though I said I would, I couldn’t help myself. It’s recovered pretty well, with ice and anti-inflammatories and a bit of work on it. Don’t get too carried away after a break.

Hilary: Getting carried away could flow into this podcast as well. We’re talking about making decisions and taking the hits, because things are going to pop up. Property development is a process, but woven inside that process are the soft skills, the people skills, the decision-making skills, the confidence skills that make the process happen. You can’t do one without the other. As with last week, think about which of these you need to work on, and acknowledge which ones you’re great at, because when you tell your brain you’re good at things, the more you believe it and the better you get.

Decision-making under uncertainty

Hilary: Every decision in property development comes with a level of uncertainty. How do you make the call without freezing?

Bob: You don’t want too much uncertainty. If you’re new to development and don’t have a lot of experience, that creates uncertainty. You’re second-guessing whether your numbers are right. So you need somebody to look over your shoulder, somebody to check in with. Then there’s uncertainty in the market. Are we going to get more interest rate rises? By the time this goes out we’ll probably know. There’s always a level of uncertainty about the market, but nothing is ever 100 percent. Life’s not 100 percent. Anything could happen on the way home, or at the gym.

Bob: You’ve got to understand things like the market and where it’s going, knowing you’ll never be 100 percent. The new builder, you’ve done all your due diligence and everything looks good. Are you 100 percent sure? You think so, and time will tell. The pendulum can go either way. But you’re working with what you’ve got now.

Hilary: We went for a walk last night and talked about exactly that. People work on the numbers they have now, and then things change, like interest rates, and that impacts sale prices.

Bob: Things go up and things can come down a bit too. Property prices ultimately always go up, but you might be in between. You might make more profit than you thought, or a bit less, because of those variables. That’s just the way it is. You base it on what you know, what you’ve learned, what you’ve seen, what you’ve been told by the right sources. And you get there.

The calls that proved right

Hilary: When was a time you made a call on partial information and it was right? And a time you didn’t go with it, and that was right?

Bob: Two answers straight away. I was building a number of apartment blocks in the mid-2010s, and I looked at the market ahead and made a decision to pull out of those. Others didn’t. I was forecasting supply, and I could see it coming in the areas where I was developing. So I decided that project would be my last one, and I got out just before it changed.

Bob: The second was an industrial land subdivision. We were going to buy a block in there and do industrial units. It became clear early that the developers of the subdivision were very inexperienced and cutting corners. Instead of a property lawyer they were using a conveyancer who wasn’t up to it. Things they were supposed to have done, like registering an easement, hadn’t been done. Every time we looked at something, it was wrong. We’d spent about $8,000 at that point on a survey and a soil test, getting a head start before settlement. But it was clear these problems weren’t going away and would make things more difficult as we went. So we made the call to withdraw.

Hilary: I remember you saying, right, I think we just pull out of this one, and Aaron and I looking at each other. But you were right. These guys were cowboys and it was going to be a disaster. And it’s still on the market, which in a warm South East Queensland industrial market means it probably had a few more problems. That wasn’t gut instinct. That was experience. It looked like a decent chunk of money if everything went right, but you knew it wasn’t going to be a tidy road.

A good small call

Hilary: A smaller one that might feel more relevant: deciding to put the lifts in the duplex up the road a couple of years ago.

Bob: About $120,000 for two lifts. And deciding to go to three-metre ceilings downstairs instead of the standard 2.7. We made those calls because the location was a bit special, and we wanted a point of difference from the opposition, who would put in no lift or just a provision for one. We went all the way, and it looked fantastic. They turned out to be good calls.

Hilary: Say $60,000 for a lift in one of the duplexes, plus the ceilings, and then to have one sell on day one, when you look at holding costs, that showed it was a very good decision. There’s no actual 100 percent. It’s learning to make those decisions.

The deal Bob wishes he hadn’t done

Hilary: Have you ever made a bad decision in property development? Should have bought, walked away, shouldn’t have bought?

Bob: Plenty of things I should have bought and didn’t. On the other side, I did buy one once that I knew was going to be tight. It had a development approval, a five-townhouse project. Not the design I would have used: three three-storey two-bedroom townhouses at the front, and two two-storey three-bedders behind. I wouldn’t normally do two-bedroom townhouses or three-level ones. I was in the mood to buy another project. It got so tight I had to do some special work with the builder to get it over the line. The bedrooms were a bit small. We made money, less than we thought, it took longer to sell, everything about it was hard. In retrospect I shouldn’t have done it.

Hilary: What pushed you?

Bob: We had a program of doing a certain number of projects and we were scratching around trying to find one. A friend who was a property manager had an old house on there as a rental, and the owner had got a DA, found out he couldn’t afford to do it, and decided to sell. It was an off-market deal. I got the price down a bit, but I had to, to even make it look like it might scrape over the line.

Resilience: taking the hits

Hilary: How do you take the hits without turning every setback into a catastrophe? Deals fall over, councils say no, finance changes, builders disappear, variations come in.

Bob: Don’t have a catastrophe. The most catastrophic things that have happened to me were a couple of occasions where builders went bankrupt on the way through. That created dramas both times. On one we broke even, no profit, because we had to get a new builder at a higher price. But that’s not catastrophic.

Hilary: I think this one’s massive on mindset. You go to the process, but how do you keep your mind from going, oh my God, this is turning into an absolute nightmare?

Bob: When you hit problems, find experts on those problems. It could be design, finance, any number of things. Seek the right advice from the very best people. Then set a plan and stick to it. It might be tough, it might be difficult conversations, but you knuckle down and get through it, and the sun keeps rising every morning. And I’m not just talking about property development. That’s anything in life.

Hilary: Think about the outcome rather than the plan you’d originally made, and let go of the disappointment early. I spoke to a mentoring student this morning who’d had some serious life stuff happen, and there was a real silver lining in it. Be aware of where your thoughts are and what’s impacting them. Pull them back when they wander off down should-have, this-always-happens-to-me. No pity parties. Get rid of the itty bitty committee and decide to see things differently. Draw a line in the sand.

Hilary: And when that happens, you have to put the good stuff in. Go to the beach with your coffee in the morning, whatever makes you smile. Put enough of that in to counteract what’s taking you somewhere unhappy. We so easily get caught in a routine. If a negative cloud starts in your life, the economy, kids annoying you, whatever, and too many of them happen, you start seeing the cloud. So find ways to see the sunrise. Our heads are our responsibility.

Leadership and managing expectations

Hilary: Even a one-person developer leads a team of experts. What does leading well look like?

Bob: Being really well organised. Having a plan, communicating well, everyone understanding their role and the expectations.

Hilary: I agree with being organised. Not letting things fall behind, even your filing system on your laptop. The trap is saying, I’m not going to do that until that’s all set up. Spend ten minutes a day tidying up bits and pieces. Ten minutes on your files, ten on the photos on your phone, ten on a cupboard. Tidy up the systems to give yourself clarity to move forward.

Bob: Understanding the systems and procedures is being proactive, not reactive. Looking ahead, seeing what’s coming. Something that caught me once: I got a valuation, which was fine, but getting the finance dragged on, and we set a settlement date. One day off settling, the financier said, your valuation’s out of date. It’s more than three months old, and a valuation only lasts three months. I hadn’t thought, is it still current? It held me up two weeks, getting the valuer to update it and get it back to the financier. Because I hadn’t looked ahead and thought, what do we need to make this happen on Friday? That was twenty years ago and it’s never happened since. That’s why understanding the process is so important.

Hilary: And leading a team without being the expert in the room. Not micromanaging.

Bob: Micromanaging is never a good thing. I think we do that pretty well, you, me and Aaron.

Hilary: I’m the least micromanager. If I could outsource breathing, I would. My expectation is that if somebody has a job, they know how to do it. I shouldn’t have to oversee it. You do yours, I’m doing mine.

Bob: As a developer, we’re never the expert on any one thing. We don’t know anywhere near as much about design as an architect, but we know we need one, and we know what we want designed because we’ve gone into the market. If it’s a duplex, we know how big they are in this area, what features are standard. We give the architect a brief and we track it. We didn’t go to uni for five years like the architect did, but that’s irrelevant. Structural engineering, I wouldn’t know where to start. It doesn’t matter. It’s about understanding when to use and choose the right ones, and keeping them to timeframes. We coordinate people, and we choose the right people to coordinate. That’s good leadership.

Self-awareness

Hilary: Self-awareness is one of my favourite things. My own podcast, Bounce Back Better, is largely about it, because when you know you, you know what makes you go faster and slower. Our own triggers show up in our projects. We need to be honest about our blind spots. Whether you’re impatient, conflict-avoidant, too optimistic, too controlling, these things impact the communication and the whole feeling of the development.

Bob: They do. It’s about balance. Don’t micromanage, but don’t under-manage. And remember we’re hiring other people, and we don’t know what they’re like. We did a project recently with somebody who probably wasn’t quite competent enough for the job, and we had to be a bit more aware of what was going on, because it was too late, we were already underway. Realise your self-awareness, and then understand other people. Really take notice.

Hilary: Can you think of a time a blind spot got someone in trouble?

Bob: I remember someone who chose an architect and a town planner independently, not realising they had a bad history with each other. You need a good relationship between an architect and a town planner, there’s a lot of communication. It reflected in the time things took. It just wasn’t a good thing.

Hilary: What about somebody overly optimistic, which would be me, versus somebody too pessimistic? One moves too fast, the other doesn’t move at all. For me, somebody who walks into a room with negative energy, I don’t want to be around that. But the danger with over-optimism is you think the best thing’s always going to happen and everyone’s great.

Bob: No one likes to think of themselves as pessimistic, but if you’re honest, you know. If you’re a pessimist you’re probably not going to get into property development, and you probably shouldn’t. They choke when it’s time to do something. They find a hundred reasons not to. They listen to the people who’ve been saying for thirty years that the market’s going to drop 30 percent overnight, and it scares the ill-informed. But over-optimism isn’t good either. Stick with the facts. Stick with reality. The good thing about property development is it’s about numbers. It’s not the stock market. There’s so much you can predict and control, and it often relates to the numbers.

Hilary: That’s all right for you to say, because you’ve had so much experience. Somebody starting new, they are optimistic or pessimistic, impatient, conflict-avoidant. It’s different for them because it’s not the everyday thing they understand.

Confidence

Hilary: Which leads to the last one: confidence. Everything we’ve talked about comes into the confidence to do property development. How many times have I said property development is a confidence game? Knowing who you are, managing people, resilience, making decisions under uncertainty, it all comes into confidence. That’s the reason we did these two podcasts: a conversation yesterday with someone who said, I listen to the podcast and get fired up, and then I don’t do anything. Stop it. Harness the energy and do something. For me, it’s one step every day, and not the easiest one. Confidence is built. You have to build it.

Hilary: The workshop is either the day before or the day of when this comes out, so you’re probably too late for that. But we’ve got our free masterclass coming up in November, a Saturday, three and a half hours to take you through the process. I remember the first time I stood on stage to speak, my knees were shaking and I felt physically sick. That’s fully gone, because I built my confidence in that area. The same goes for property development. If it was easy, everyone would be doing it. I say that to our mentoring students: this isn’t always going to be easy, but we’re here to support you.

Bob: It’s awesome, us standing in front of two sites last week with our hands on our hips going, wow, we made these. But there are always speed bumps, in any worthwhile endeavour, any business. You work your way around them.

Hilary: And you deal with them by building competence. Competence means you understand what’s ahead, and once you have that understanding your confidence grows, because you can talk about it and work toward it. You can’t move toward something when you don’t know what it is you need to know.

Bob: And we build a team. Property development is a team effort. We’re the captain, and there’s a lot of support in the team.

Hilary: But you have to lead them, and you have to know what you’re doing. There’s not much point putting the captain of the hockey team in as captain of the rugby league team. They’ve got the skills and the leadership, but if you don’t know the game you’re playing, it’s not going to work. Whether you’re lacking hard skills or soft skills, both are required, and you can build them. When I met you ten years ago I’d done renovations, but nothing like this. It’s a whole different ball game.

Wrap up

Hilary: So today: make decisions. You’re going to have a few hits, but when you understand the process and have the confidence to work through things, property development is for you if it’s what you want. Two things. If you want to chat to the team, there’s always a link below to book a call. And the free masterclass is coming up in November, a Saturday morning, 9am Sydney time to about 12.30. You’ll need to register, there’s a link below. We hope you’re feeling a little more inspired, and realise that property development is a game everybody can play, but you’ll need a few skills, and we’ve covered many of them in this episode. Catch you next week.