Any new venture presents the possibility of mistakes. It’s part of the process. If you’re new to property development, your lack of knowledge and experience can lead to costly mistakes unless you learn the foundations and how to apply that knowledge.
This article presents five common mistakes that new property developers make, and explains how to avoid them.
Mistake #1: Failing to Conduct a Proper Feasibility Study
All property development projects start with finding a viable site, performing initial due diligence, and then a detailed financial feasibility. New developers can often get themselves into trouble by failing to account for the numerous costs, and also potential areas of income. Without accurate numbers you cannot possibly know if a deal adds up.
To avoid this problem follow a proven system that accounts for all financial aspects of a project. It will be greatly helpful to use a feasibility calculator – like ours – to help you make accurate calculations and never miss important financial ins and outs. Working with an experienced developer, or mentor, or an accountant with property development experience is the best way to make sure you don’t make mistakes.
Mistake #2: Choosing the Wrong Development Site
Without a viable development site you cannot hope to create a profitable result. There are many factors that decide if a site will be profitable. New developers sometimes choose poor sites due to misunderstanding the drivers of potentially high returns. The truth is that you can never be 100% certain of the outcome, but you can set yourself up for success by understanding what makes for a good site.
To avoid choosing the wrong site you must understand the local area, zoning, demographics, trends, market demand, infrastructure plans, competition, and planning restrictions. Finding a local area expert like a town planner or real estate agent can be extremely helpful.
Mistake #3: Underestimating Project Timelines and Delays
We teach our students that property development is about managing two things: the people and the process. The process is all about making sure that the people execute on time and on budget. In the real world, things rarely go according to plan so understanding the potential issues ahead of time is essential.
To avoid problems with timelines and delays never expect that everything will run to your schedule. Expect issues and create contingencies. Factor in time for council approvals, financing, and construction (including a buffer for delays). Be clear in your communications with your team and get ahead of issues before they become a problem.
Mistake #4: Poor Financial Planning and Cash Flow Management
Managing the financial aspects of your project is a large chunk of the work that a property developer does. There are numerous financial activities, and all are important. Without a clear plan and adequate understanding the new developer can underestimate the true cost of financing a project, and even run out of funds mid-project due to unexpected costs.
To avoid problems with cash flow start with a conservative financial plan for your project including a contingency buffer. Ensuring that you have adequate access to financing before you begin will save you a lot of stress. Working with a finance broker, and experienced developer, or a mentor can help prevent big mistakes.
Mistake #5: Trying to Do Everything Alone
Property development is a team sport. The quality of your team is a strong predictor of your eventual success. The new developer can get into trouble thinking that it’s possible to do everything solo. However, many of the activities require experts that have direct property development experience.
You can avoid a lot of trouble by building a strong team with expertise in areas like property law, construction, planning, and finance. You’ll need to engage town planners, surveyors, engineers, accountants, solicitors, builders, and more. Once you have built your team, your job is to manage the project not to do the work yourself.
Want to learn more?
Arming yourself with the right knowledge to avoid these mistakes will save you a whole lot of time, money, and mental anguish. There are plenty of property development tools that can help you make better decisions. There are also books, courses, mentoring programs, communities, and other avenues for your learning.
If you want to learn more about how to avoid mistakes and make money in property development, the below are worth a click:
