Author: Georgia

The risk and return paradigm is well understood by many investors – if you want a higher level of return you need to accept a higher level of risk, and vice versa.

So with the high potential returns on offer from property development, it should come as no surprise the risks can also be significant. However, unlike certain other investment strategies, there are several steps that can (and should) be taken to mitigate risks in property development.

In this article, we will discuss just one of those steps – insurance.

Insurance requirements will vary depending on the type of project, the scale of the project, and the extent to which the developer is involved in construction, but for the sake of the exercise let’s assume a developer is performing a small residential project where a builder is engaged on contract to construct the project.

In this situation, a developer will typically acquire a site with an existing dwelling on it that may be tenanted whilst the development permit and building permits are secured. During this phase of the project a comprehensive landlord insurance policy will generally be sufficient, assuming it incorporates public liability insurance which most do.

Once the tenant vacates, the landlord insurance policy will typically be canceled, at which point it’s generally advisable to establish a public liability policy. Whilst the builder will generally hold their own public liability policy, holding a separate policy will provide coverage for periods where the builder’s policy doesn’t apply (e.g. pre-construction and post-construction).

Assuming the developer engages a builder on contract, the builder will be required to hold their own insurances which typically include contract works insurance, home warranty insurance, public liability insurance (as discussed), product liability insurance, and workers compensation insurance.

Once construction is completed, and handover has been achieved, it’s critical the developer insures the works from the date of handover as the builder’s insurances will typically be canceled at that point.

Where projects with community title schemes are concerned, the body corporate or owner’s corporation manager should assist in arranging the insurances from handover. Finally, an area of insurance that isn’t often discussed amidst the property development insurance conversation is the area of personal insurance. The management and financing of a property development project is often predicated on the continued good health and income-earning capacity of the developer.

But what if the developer suffers an illness or injury mid-project that leaves them unable to earn an income or manage the project? What implications would that have for the project, the developer, and the developer’s family?

A strong case can be made for anybody with financial commitments to hold personal insurance, and that’s particularly the case for property developers. The key personal insurances to consider include income protection insurance (ideally agreed value with a short waiting period and long benefit period), life insurance, total & permanent disablement insurance, and trauma insurance.

Holding adequate insurance can go a long way to de-risking a property development project, and when combined with a number of other risk mitigation strategies the risk/reward paradigm can begin leaning ever so slightly in the developer’s favor.

To chat further with us about Property Development and the courses we offer, click here: https://www.propertymastermind.com.au/schedule-an-appointment/

I’m often asked the question, particularly by non-property people, how profitable is property development.

When it comes to making money from property, one strategy stands head and shoulders above all others – property development. That said, there are risks and those need to be understood and mitigated as well as possible.

I don’t consider renovating as property development. For me, it starts with a two-lot subdivision. The reason is we aren’t just adding value we are creating more ie. One lot becomes two lots.

So how much could you potentially make from a one into two lot subdivision? The big variation is location which has a large effect on pricing. A two-lot subdivision at Potts Point would be worth more than a two-lot subdivision in Birdsville.

Also, the industry-standard profit margin for small projects is lower than for larger projects. This margin is calculated as the profit as a percentage of the total costs. The margin on a four-townhouse project might become acceptable from 18% – 20% upwards but on a two-lot subdivision, it might become acceptable from 12% – 14% upwards.

The reason is that the smaller project is quicker to develop with less financial risk. On the small project, it might be considerably faster to get a development approval and the only construction could be as little as connecting new services. Also, borrowings are less in dollar terms, and cheaper finance is available.

With the larger project, the development approval typically takes longer, the construction takes longer, the financial risk is higher, and finance is more expensive.

Here is a quick thumb rule for calculating the projected profit on a project showing a 20% margin on cost. If you know what the product (lot, townhouse, or apartment) would sell for multiply that selling price by 16.67%. For example, a townhouse that would sell for $800,000 should show a development profit of $133,000.

When you consider that you can gear the borrowings 4 times (25% equity, 75% debt), that gives you an 80% return on funds invested. It’s not hard to see why property development reigns supreme in the wealth-creation property world.

To chat further with us about Property Development, click here: https://www.propertymastermind.com.au/schedule-an-appointment/

In my last article, I discussed useful tools for property development that require payment. In this article, I will touch on useful tools that cost nothing. 

Council Websites:

As I work closely with students in my property development mentoring program it never ceases to amaze me the variation around the country regarding the amount of information on council websites. A good website would have the following features. 

• A copy of the planning scheme Applications. 
• View past development applications and track current applications.
• Property Details. View zoning, lot size, lot and registered plan number.
• Mapping including zoning, contours and overlays such as flood, overland flow, environmental, heritage, road hierarchy etc.

Google Maps:

I’m sure everyone has used Google Maps. For property developers it is useful for viewing streets, local schools, transport, parks, creeks, measuring distances, locating buildings. 

Google Earth:

Real satellite 3D imagery.

Google Street View:

Views properties from street level. Can view type and scale of structure, slope, impacting features such as trees, power poles, manholes, bus stops etc.

Before You Dig Australia: 

Is a free national referral service designed to assist in preventing damage to various infrastructure networks such as power, sewerage, storm water reticulation, gas, telecommunications. It will tell you the position of services but not the depth. When combined with contour information, the point of discharge for sewer and storm water can be ascertained. 

Market Research:

An essential ingredient of successful property development is too have up to date knowledge of the market you intend to develop in. Below are some websites that can be useful.

Property Search:

The old standards of www.realestate.com and www.domain.com.au are still the standard for searching what is for sale at what price. Open for inspection for townhouses or apartment are a must to see what other property developers are producing and to meet marketing agents. Domain’s suburb profile tool www.domain.com.au/suburb-profile is great for demographics as is their historical sales data site www.domain.com.au/property-profile 

Rental Growth / Yield:

If you are intending to develop stock for the investment market has access to data that calculates annual growth, rental yields and demand. 

Statistics / Demographics:

The Australian Bureau of Statistics offers a number of free packages for statistics, community profiles and demographics.

I have always been interested in the forecasts of BIS Shrapnel. While their detailed reports come at a cost, they release free reports often with a three-year window on the capital cities.

To chat with us further about property development and to learn how we could help you, click here. 

When it comes to useful research tools for property development we’re really spoiled for choice. And I should know. I started out in an era a decade before the internet and I can remember spending most of the day in the city running from one government department to another gathering searches on a property.

I have highlighted below some useful tools that are available. These tools have a subscription fee for more detailed information but often have a free component that can be useful.

Some states like Victoria have strict privacy laws so the level of data can be less than in more liberal states.

RP Data:

RP Data (or Core Logic) has many packages and bundles.

RP Data Professional is a common tool used by agents and developers. It supplies data on specific properties such as owner’s name, address, sales history of owners and purchase prices, zoning, size, tenants and contact details, sales history, agent’s details etc.

Market Trends gives you insights into a property market’s performance down to a suburb level, broken down by houses and units. You can build a picture of market performance by monitoring a suburb and seeing how its data changes over time. 

Blockbrief is a database of development sites and zoning data that alerts you to zoning changes and provides you with in-depth detail at a council or property level to give you first-mover advantage.

PriceFinder:

Pricefinder collects property data from multiple sources including; property ownership, phone numbers, property zoning, title information, over 30 years of sales history and real-time auction results. It is similar to RP Data.

Investar:

Investar gathers properties from all sales portals into a single repository where you can use key words to find properties to suit your exact requirements. It also supplies suburb research data, suburb performance reports, monthly market reports, calculators, checklists, property analyser tool and two value estimation reports per month powered by Pricefinder. 

Citec Confirm:

Citec Confirm offers a variety of land and property information products for all Australian states and territories, including:

• National land titles and a range of related information such as plans, dealings and instruments.
• Property certificates from local and state government authorities and utility providers in Queensland and Victoria.
• Land tax certificates from Queensland and New South Wales offices of state revenue (OSR).
• Contaminated land searches.
• Valuation and sales information.
• National telco cable searches

Stay tuned for more tips on research tools!

In the meantime, check out our podcast. We release educational episodes each week.

Click here to listen.

Property development is a business, and in order to make sure that the business is worth pursuing or not, you need to determine its feasibility. Before you roll out any property development project, you need to conduct a comprehensive feasibility study to analyse if the project is financially and technically feasible and doable within your working capital.

There are different forms and methods in conducting a feasibility study, but in property development you need to perform the three important steps below:

1.  Market research

It is crucial to ensure that the type of project you want to develop will really address tenant or buyer demand in your chosen area. Will the property appeal to your target market and buy within your price range? You must be familiar with the profile of the neighbourhood, and what type of individuals are more likely to move there. Also find out the amenities or services that entice buyers to the area.

One good way to do a market research is to approach local real estate agents and find out the type of properties that are best-selling in the area. Take note that your market research is an important part of your feasibility study if you are seeking funding for the project.

2.  Consult your property development team

Remember, property development is not a one-person show. You need to find experts and specialists to be part of your team and help you to ensure that the project will be feasible. As early as conducting your due diligence, you should start consulting your team, which must be basically composed of the following:

Property accountant – consult on the best structure to buy a property and ask about the tax implications of developing a property.

Architect or builder – will help you identify the specifics of the property that you can actually build on site.

Bank representative – will help you work on your budget and find the recommended loan structure for your project.

Solicitor – will help you check for easements or restrictive covenants that may affect the property. They will also help you in drafting the property deal for you.

Real estate agent – will help you determine the value of the project as well as the rental returns when completed.

Surveyor – will prepare the subdivision plan and possible costs such as service connection and sewer extension.

The professionals mentioned above have their specific fees when you engage their services. You should take note of these fees and include them in working on the next step.

3. Crunch the numbers

Running the numbers to determine the profitability of the project is the core of your feasibility study. You need to find out the following costs:

• Purchase price of the property (plus legals, stamp duty etc)(
• Build cost (builders quote, demolition etc)
• Professional fees (architect, town planner etc)
• Council fees
• Finance costs (interest, valuation etc)
• Marketing costs (agents commission, advertising etc)
• Holding costs, taxes (rates, GST etc)

Because this is a crucial step, you need to make sure that the results of your calculation are accurate. That is why at Property Mastermind, we have developed a Financial Feasibility Template that will help you figure out whether a project can provide you the expected returns. This easy-to-use template will show you whether there’s enough profit in the deal or whether you should move on and look at something else.

Comprehensive Financial Feasibility Program from Property Mastermind

Conducting a feasibility study for your project can be a real challenge if you are a beginner in this field. With a sizeable investment at stake, you can’t afford to make any mistake. If you want to be more confident in property development, you can learn from Property Mastermind’s training videos coupled with our very own financial feasibility program.

Remember, a property development feasibility is only valuable if you have done it right. With the guidance from Property Mastermind, you will start your career in property development like a pro!

For inquiries, call Property Mastermind on 1300 729 550 or send email to admin@propertymastermind.com.au.

Are you on the fence about property development? 

Wondering if this is the career path for you? 

Or maybe you have some extra cash laying around that you know could be better used?

Below is 5 reasons we think you should get into property development:

1. Financial Returns: Property development presents an avenue for generating significant profits. When executed wisely, successful projects can yield substantial returns. As property values increase over time, developers can enjoy capital appreciation and lucrative resale opportunities. Additionally, rental income from developed properties can provide a steady cash flow, creating a reliable source of passive income.

2. Creative Expression and Vision: If you possess a flair for design and have a knack for envisioning the potential of spaces, property development allows you to bring your creative ideas to life. You have the opportunity to shape neighbourhoods, revitalise communities, and contribute to the built environment. Whether it’s constructing stunning residential properties, vibrant commercial spaces, or innovative mixed-use developments, property development offers a canvas for artistic expression. 

3. Flexibility and Variety: Property development is a versatile field that offers a wide range of projects to suit different preferences and goals. Whether you prefer working on residential properties, commercial buildings, industrial spaces, or even large-scale developments, there is something for everyone.

This flexibility allows you to explore various niches within the industry and adapt to market trends, ensuring you remain agile and in tune with evolving demands.

4. Opportunity for Personal and Professional Growth: Embarking on a career in property development offers a continuous learning experience. As you navigate through the intricacies of the industry, you’ll develop a diverse skill set encompassing finance, project management, negotiation, market analysis, and more.

Each project presents new challenges and opportunities for growth, expanding your expertise and enhancing your professional profile. Moreover, the entrepreneurial nature of property development fosters personal development, cultivating traits such as resilience, problem-solving, and adaptability.

5. Contributing to Community Development: Property development has a profound impact on the communities in which it takes place. By creating well-designed, sustainable, and functional spaces, developers contribute to the overall improvement of neighbourhoods. Revitalising run-down areas, enhancing infrastructure, and providing affordable housing options are just a few ways property development can positively transform communities. Playing a role in shaping the built environment allows you to leave a lasting legacy that benefits both current and future generations.

Entering the world of property development can be a fulfilling and rewarding journey. Beyond financial gains, it offers opportunities for creativity, personal growth, and community development. 

However, it’s crucial to approach property development with careful planning, research, and a comprehensive understanding of the market.

With the right combination of vision, determination, and strategic decision-making, you can unlock the doors to a prosperous and fulfilling career in this dynamic industry. 

So, why not take the leap into property development and embark on an exciting adventure that blends business acumen with the art of creating remarkable spaces?

If you want to get into property development for only $1 click here to learn more about our membership program. 

Have a great weekend and talk soon,

Bob & Hilary