Ep 276 – Not A Builder? Not A Problem. What Property Developers Actually Do

Introduction

Hilary: Hello and welcome to the Property Mastermind Podcast, episode 276. Not a builder? Not a problem. Today we’re going to unpack what property developers actually do. Bob, can you believe episode 276? After episode five I didn’t know we’d do episode six, and now look at us.

Bob: I did about the first eight as a guest. The guest that never left. It’s a lot easier when you get two people talking than one.

Hilary: And you know a lot more about property development than me, so it’s great for me to ask the questions I think you, listening, would ask. I always want to give the listener great takeaways. What’s your tip for the day?

Bob: A little fishing tip, but I think it’s got a bigger meaning. Small baits catch small fish and big fish. Big baits only catch big fish. An old fisherman told me that. I want everyone to think about it.

Builders and developers: two different roles

Hilary: Today we’re talking about not a builder, not a problem. There’s a lot of confusion around what builders do and what developers do, and they’re two very different roles. That’s the reason we have so many builders in our mentoring program. There are crossovers, and whatever you do now, there will be skills you take forward into property development from your current industry or business.

Bob: For sure. All those skills you picked up, communication and a whole heap of others, are relevant.

Hilary: If you had to describe a developer’s job in one sentence, what would it be?

Bob: One who coordinates a number of people to create a beautiful project.

A week in the life: duplex under construction

Hilary: Perfect. So let’s talk about a normal week on one of our projects. I’ll go with a duplex, because it’s pretty common at the minute. You’ve got the site already and construction’s underway. What are you actually going to do with your time?

Bob: If construction’s underway, that’s pretty good. You’d be dealing with the builder at this point. Not the tradies, just the builder, which is one of the things I love about property development. You deal with one person. If it’s not too far away I’ll go to site one day this week, catch up with the builder, have a look at what’s going on, take photos and videos, see how the program’s going, whether they’re on time or behind, any little issues, any variations. If we’re paying the builder monthly and he’s put in a claim, I might organise the quantity surveyor to go to site, check that he’s done the work, and get the money into the builder’s bank. Towards the end of the project I’d be talking to marketers, because I want to get the marketing going. It’s not the busiest time of a developer’s life. Just prior to construction and just after construction are the two busiest times.

Hilary: When you go to that site visit, how long will you spend there?

Bob: Not that long. Forty minutes. I’ll walk on site, the builder knows I’m coming so it’s prearranged. If you need a vest, boots or a hard hat, make sure you’ve got them with you. I’ll catch up with the builder, say g’day to anybody on site, and if it’s a bigger job it might be in the site office, otherwise out in the open.

What developers don’t do

Hilary: What is it that developers don’t do that people think they do?

Bob: A lot of people think developers are builders. I’ve read articles in the newspaper where journalists are jumping between builder and developer and don’t understand the difference. Builders can be developers, but most developers aren’t builders.

Hilary: Why does it not matter if you don’t have a background in construction, building or project management?

Bob: What we do is coordinate people. You engage an architect or a building designer to design the duplex or the townhouses. You don’t need an architectural degree. You need to understand and be able to brief an architect on what you want, but you’re not an architect, nor are you a builder, nor do you need to be. We engage a builder the same as we engage anyone else: architects, engineers, financiers. They’re all important parts of our team. We choose the right builder and engage them, and that’s it.

What you can leave to the builder

Hilary: What does a developer need to understand about construction, and what can they leave to the builder?

Bob: You don’t have to know the real nitty-gritty of construction. If you’re interested, you could do one of those owner-builder courses, which will give you some basic knowledge. But we’ve got so many examples in our mentoring program of people who have never set foot on a building site, and some of them aren’t even handy people. On the weekend they don’t pick up a hammer or a shovel, and that’s okay, because you don’t need to. I used to joke that in 40 years as a developer I’ve never picked up a hammer, a shovel, a spade or a trowel on a building site, and that’s true. I’m pretty handy, but you don’t have to be.

Hilary: I was thinking of Jenny and Richie. Their first project was nine apartments, a joint venture with another mentoring student. At the end Jenny laughed and said, here we are, we’ve done nine apartments and made a bucket load of money, and I can’t even swing a hammer. I wouldn’t know which end of a nail to hit.

Bob: You don’t have to know that side of it.

Hilary: We’ve visited sites where they’ve just about finished, and you think, wow, we’ve been such a big part of it, and you’re not spending any time there. During construction, how many hours a week for the developer?

Bob: Probably an hour to an hour and a half a week on average. The odd conversation with the builder and the on-site meeting. It’s one of the less busy times. The only quieter time is when your development application is in council. It’s not a busy time, but it’s an exciting time.

Can not being a builder be an advantage?

Hilary: I was going to ask whether not being a builder can be an advantage, and I’m going to answer it myself. I think it is, because so many builders want to not be builders anymore. It’s hard work, especially building for one-on-one clients who are going to move in. They find it too hard, but they’re caught. It’s almost like golden handcuffs. They make quite good money, but they really want to develop, because they know they can make the money as the developer without working so hard, running teams, getting quotes and all the paperwork. And they feel they’ll let their employees down. You might relate that to your job. You’ve got a great job, it pays well, but it takes all of your time. You want to do development and you keep saying, I’ll just wait until. And you end up on the treadmill, running and running, because the money’s so good.

Bob: And you still make more money as a developer than the builder does, by a fair margin. We have a lot of builders come to our program. Some want to keep building for a while and be a builder and a developer, and that’s okay. But a lot of them just want to get out of it, or at least get off the tools. I don’t blame them.

Hilary: Maybe you’ve got a job that’s holding you there. Don’t let something hold you there, because you stay in that mediocre, I’m settling for something I don’t want. You only get one shot. You’ve just got to do what you want to do.

How much work at the start?

Hilary: Let’s go back to the beginning. How much work is involved for the developer at the start?

Bob: At the start there are decisions to make. Look at your finances and what you can afford to do, and if it’s not enough, start thinking about investors. Look at where you want to do it and what you want to do. A small subdivision? Houses on the lots you create? A duplex? A small townhouse development? Don’t do too big a project for your first one, even if you’re cashed up. What do I want to develop, where, and can I afford it. Those are decisions you make pretty quickly at the beginning. Then it’s getting yourself structured properly for when you find a deal, and getting out there looking for sites and building relationships with agents.

Hilary: I’m talking about the time commitment.

Bob: The first thing you’ve got to do is find a site, and that varies. We’ve seen people join our program and find a site in four days, but that’s rare. It depends on your time. Maybe you’ve only got the weekends, and that’s okay. Maybe you consider a buyer’s agent to do the legwork for you, so you’re not really spending the time.

Hilary: If you’ve got a buyer’s agent, how many hours a week would that take?

Bob: Probably two, three or four. You still have to check their numbers, and do the due diligence. I did log a few projects in the past. Some weeks you do nothing. When it’s in council there’s nothing much to do. When the development permit is almost out, you can start to kick-start the next stage. But there are weeks when you do nothing and weeks when you’re busy. Over the whole length of a project, averaged out, it was about four or five hours a week. Some weeks you’re doing nothing, some weeks ten hours.

Hilary: Would you say ten hours would be the maximum?

Bob: Probably. Those two busy parts are just before you start to build, when you’re finalising approvals and organising finance, and just after you finish building. You’re wearing three or four hats and it’s a busy little time.

Hilary: When you say busy, you’re saying ten hours a week. Think of how many hours a week I dedicate to Toastmasters, or you to the gym, fishing and golf. We fit that in. That’s life. Do we spend ten hours a week watching television? Probably. I’m thinking of Henry, a mentoring student from Sydney. He had a senior management role in a big telco and held that down full time while developing three projects.

Bob: He’s a good time manager, and they were staggered. One was in another state.

Hilary: So time really isn’t a huge commitment. Roughly five hours a week, maybe ten at the start.

How much learning before you start?

Hilary: How much time should somebody spend learning before they start looking for a site? I’ve never asked this on a podcast and you didn’t know it was coming.

Bob: Learning the basics isn’t going to take lots of time. If somebody’s doing an online, video-based course, they’ve got to watch the videos and check out the documents, but it’s not a big thing. When you start, you don’t have to know everything. You don’t need to know the construction side yet because you haven’t even got a site. You can learn ahead of where you are. You can go to university and do a three-year degree in property development, but you don’t need that to be a developer. If you want to work for a big development company you probably need the degree, but learning the ropes of property development is not an intense experience where you lock yourself away for months. Our course is video-based, and that’s the theory. You’ve got to put the theory into practice.

Hilary: We often tell people, watch the first third of the course and get started, because that’s what you need to know now. I was going to bring up the young man who came to the workshop with his dad. He’d just finished a degree in property development at university. I’d love to get him on the podcast and hear what he thought the difference was between three days in a room doing only property development and finishing his degree.

Bob: He was a lovely young fella and he’ll do well. I think he’s looking at getting a job in a development company, and most of the big development companies expect a relevant degree. That’s fine if that’s what you’re going to do. But you don’t need it to get out and do property development.

Joint ventures and finding investors

Bob: Another side to property development, and many people do joint ventures, us included, is bringing people in. Reaching out to people to see if they’re keen to invest in a project, sourcing investors, talking to friends and family. That can take a little bit of time.

Hilary: I think the biggest problem for new developers there is they’re just too scared to say, I’ve got a great opportunity, would you like to join me? Most of the time they’re too chicken to ask. We spoke with a new mentoring student today and he had a list of five or six people he thought would be great joint venture partners, with the reason he thought each would be interested. I was like, whoa, you’re going places, young man. He’s given it deep thought, he’s organised, and he’s meeting them for coffee. He’s not afraid to ask.

Bob: The investor set-up, having those conversations, can take a bit of time. If you’re thinking about property development and you don’t have all of the equity required, it’s important to have those conversations as early as possible. You don’t want to end up with a deal, not quite enough money, and no one to jump in with you. That happened to me a few times when I was starting out. I realised I had to talk to more people earlier, so when I found a project I had people already. And remember, it’s an opportunity for people. You’re not asking for a favour.

Hilary: When it sells, or you’ve got that finished product, people are so proud of it. The video of the North Harbour project we’re just finishing came back today. I sent the man back to redo it, because the first one wasn’t good enough and I want the investors to have something they can showcase. They were a big part of it, they made that commitment, and they’re going to get a great return.

The end of construction and marketing

Hilary: Toward the end you’re talking about marketing, and coming to the end of construction.

Bob: At the end of construction you’re tying off with the builder, getting the place inspected, getting any last-minute things fixed, cracked tiles or whatever. Then you’re talking to your marketing people. As soon as the builder is out, clean it, stage it, get it on the market, and talk to the agent about the marketing program. Finance-wise, the build is done, there’s not a lot more to pay for, your loan is pretty well fully drawn, and it’s down to getting the titles, getting the sales and getting them settled. Fun times.

Rapid fire: developer or hand it off?

Hilary: You’ve mentioned a few of the key players. There are things the developer does and things you hand off. I’ve got a list. Rapid fire: does the developer do it, or hand it off? Choosing the site.

Bob: Developer.

Hilary: Pouring the slab.

Bob: Definitely hand it off. The builder does that.

Hilary: Deciding what you’ll pay for the land.

Bob: Developer.

Hilary: Drawing the plans.

Bob: Hand it off.

Hilary: Running the feasibility.

Bob: Definitely the developer. That’s probably the biggest one. Get help finding out what things cost, but take responsibility for doing the numbers.

Hilary: Lodging the DA.

Bob: Someone else.

Hilary: Picking the builder.

Bob: Definitely the developer.

Hilary: Saying no to the deal.

Bob: Developer.

Hilary: Setting the sale price.

Bob: The developer, in consultation with the marketing person or team. It’s one of those coordinated things, but the developer ultimately calls it. They always have the final decision on everything, but it needs to be based on some science.

Students from every background

Hilary: We’ve had students from all over the place who aren’t builders doing projects. You went from a broken leg on the couch for a year, and before that you had a bread run, a milk run, three little cash businesses, then real estate, then development. None of that was anything to do with property development. Aaron on our team started off in health science, then mining, then property in different ways, including in the States. We all ended up in property. I ended up there in my early to mid 20s, dabbling on the side.

Hilary: Look at the people in our program. Ollie was a chef in Sydney who made a goal to be a property developer, contacted us and transitioned. I spoke with him recently and he said he can’t thank us enough. It changed his life.

Bob: Good chefs like Ollie work bad hours. Late nights in restaurants, staff issues. He loved it, though, and he said it gave him discipline for being a developer. He carried a lot of skills out of that. But the life he’s got now, surfing most mornings with a few projects on the go, is a different life, and he loves it. That was Ollie’s episode, 260. Gary, episode 173, went from rugby league player, a pharmacist by education, to a very good restaurant for quite a few years, and then became a developer.

Hilary: Then we’ve got Liam from the army, and Mark, who was in marketing for a big drinks company. So many others. What I’m trying to point out is there’s no correlation with your background. Surgeons, truck drivers, you name it. If it’s something you want to do, you can do it, and you don’t need to be a builder. If you want to get started while you’re doing something else, you’ll start out at about ten hours a week and it’ll drop down to four or five.

Bob: That’s what I love about it. Everyone else is doing the work and you’re coordinating them. That’s the big difference. Even a reno is more intense, because you get so involved.

Never set foot on a site? Do this

Hilary: If somebody’s never stepped foot on a building site, but they love property and want to be a developer, what would you tell them to do this week?

Bob: Just drive around your area and have a look at what’s going up. You’ll see sites, fences, concrete slabs getting poured, carpenters putting frames up, roofers putting roofs on. Think: you can be the developer that did that, but you won’t have to pour the slab or put up the frame. How would that feel? Or drive past something recently finished, like that lovely duplex we walked past this morning, and think, that could be your project. How proud would you be? Sure, you make really good money out of it, but there’s the feeling of accomplishment, that you can do something like that and make that sort of money without putting in the hours. If that appeals to you, you need to do something about it.

Hilary: Start showing yourself what’s possible. If you don’t, someone else will. If not you, then who?

Free masterclass on 21 November

Hilary: If you’re interested in learning more about property development, we have our free masterclass on Saturday the 21st of November, Sydney time. There’s a link below to register. Bob takes you right through the whole development process. It’s definitely worth feeding that interest, brushing up, or filling a few gaps on what you already know. Anything else, Bob?

Bob: I think you’ve said it all.

Hilary: That’s it for us this week. We’ll catch you again next week. Bye for now.