The first step in a successful property development project is choosing a profitable site. Put simply, it all comes down to the numbers.
If the numbers add up, you can make a lot of money.
If the numbers don’t add up, you can find yourself in more than a little bit of trouble.
So, let’s break down how you can find a great development site for your next project.
Understanding the Essentials of a Profitable Development
The first thing you must understand when looking for a site is what makes a development site profitable. Without this understanding it’s all but impossible to land a great deal.
Here are five factors that determine the potential profitability of a site:
- Market demand – Is the location in demand? Are properties selling quickly and for good prices? Is the area experiencing growth?
- Value creation – Can you create value through subdivision, construction, or redevelopment?
- Favourable zoning and planning – Does the local council favour property developments? Are there opportunities in current council plans? Or is it a troublesome council?
- Amenities and infrastructure – Does the location have access to main roads, schools, shopping centres, and other desirable features?
- Potential return – Can you generate a return of about 20%?
When assessing the viability of a potential site, you must perform your due diligence. First assess the basics, if they check out then move on to a detailed financial feasibility.
These activities will save you from pursuing a deal that just won’t work.
Conducting Market Research to Find High-Growth Locations
We advise all of our students to become a local expert in any area that they are considering for development projects. You really want to know everything about your “patch”. That way you will be able to spot good deals and walk away from bad deals.
Here are some things to think about as you determine where you might find your next deal:
- Identify locations showing growth
- Is the population increasing?
- Are there jobs in the area? Are job numbers increasing?
- Is there investment in local infrastructure?
- Are businesses moving into the area?
- Does the local council’s plan indicate future investment and positive growth?
- Evaluate market demand and trends
- Is there an increase in rental demand?
- What are the rental vacancy rates?
- What are the demographics of the area? How have the changed over time?
- Are properties in demand?
- How long do properties stay on the market?
- How does property value compare to other profitable locations?
- Infrastructure and development pipelines
- What kind of infrastructure projects are planned for the location?
- What are the timeframes of any projects?
- Is there support for growth at multiple levels of government?
- Is there any private sector investment?
- Are there adjoining developments in nearby areas?
- Avoid oversaturated markets
- Beware of areas with an oversupply of developments or declining demand.
- Look for red flags such as long days on market and price reductions on new properties.
- Pay close attention to the attitude of council and the local community.
Evaluating Site Feasibility and Development Potential
After you have identified your “patch” and found potential sites that pass your initial assessment, you must dig deeper to determine if they deal adds up.
To be clear, this is a complex task and should not be taken lightly. We provide a feasibility calculator to our students to make sure that they perform the calculations correctly.
The financial feasibility assesses all financial aspects of the deal, including:
- Property purchase price
- Construction costs
- Permits
- Finance costs
- Interest
- Holding costs
- Marketing costs
- Estimated sale price
- Rental income
This is not an extensive list and serves only to give you an idea of the numerous inputs required to make an accurate assessment.
Other factors to consider include construction delays, professional reports, accounting and legal fees, and many more.
Tools and Resources for Identifying Profitable Opportunities
There are many tools – both free and paid – that you can use to aid in your search for a viable development site.
- Property Research Platforms
- Government Reports
- Australian Bureau of Statistics
- Council websites
- Networking
- Connect with real estate agents, town planners, and developers to uncover off-market opportunities.
Key Takeaways for Identifying Profitable Deals
Finding a profitable property development site requires a strategic and data-driven approach. You cannot rely on your gut. This is a logical process that requires market research, feasibility studies, and financial modelling to assess the potential of a site before committing.
To succeed:
- Become an expert in your “patch”
- Use logic not emotions to make decisions
- Dig deep to assess the financial reality of the deal
- Seriously consider working with an expert who has done it before
Next steps...
If you want to learn more about finding a great development site, here are three podcast episodes worth listening to:
