21 Tips on How to Become a Property Developer and Grow Your Wealth
Are you wondering how to become a property developer?
In these modern times, more and more Australians are looking to generate wealth. And why not?
There’s nothing wrong with wanting to be able to live comfortably or to leave something behind for your kids.
While people used to look to investing in existing property for wealth generation, more people are investigating developing real estate instead.
First things first and there is no getting around this, if you want to learn how to become a property developer, then you need to have a pretty severe appetite for learning.
Knowledge is power, and it is also money.
There are a lot of moving parts in this game, and you need to wrap your head around all of them and have a good understanding of every one of them.
High Stakes but High Rewards
Property development is a high stakes game with some serious rewards, but the risks are significant too.
If you are serious about becoming a property developer, then you need to put the time and effort into learning as much as you can.
It’s not the kind of thing you want to be learning on the job because you can lose serious money, as quickly as you can make it.
Do Your Own Research
You can’t afford to take third parties’ information as fact; you need to find credible resources and do your own research, there is no shortcut.
If you want a more relaxed, softer way, you might want to investigate other investment opportunities. But remember that there’s no such thing as an investment without risk.
It’s Worth It
The good news is, if you are going to go down a rabbit hole, I can tell you from experience that residential property development, such as side by side dual occupancy and townhouse projects, is a great rabbit hole to go down.
The rewards can be seriously fruitful. We’re talking about beautiful big stacks of profit.
What Do Successful Property Developers Have in Common?
Common attributes of successful developers are patience and discipline.
You need the patience to take the time to do the relevant research required for each moving part, and control to make decisions based on nothing other than facts – no emotion.
Making decisions based on your feelings in this game is a surefire way to crash and burn.
There is no hurry. If you hurry and stumble, you’ll mess it up (potentially forever), and the opportunity to become a property developer will pass you by.
There are always going to be more sites and opportunities, so don’t pull the trigger until you are confident you have the knowledge and understanding of the development process.
Your figures need to be rock solid too. You can’t afford to second-guess and guesstimate numbers here. Know your budgets and your bottom lines and stick to them.
In this article, we’ll outline the 20 key tips to learn how to become a property developer.
1. How to Do a Feasibility
A feasibility is when you crunch the numbers on your proposed project. Just because a site can be developed it doesn’t mean that it should.
Every single development cost needs to be considered for your feasibility to hold and value.
There should only be two variables in your feasibility, your build price and your sales price. The rest you need to have a very tight handle on.
2. How to Run Due Diligence
You need to learn if a site has prime potential. Remember, take emotion out of the equation.
We’ve seen people get attached to particular sites or dwellings and let their feelings take over. It can end in disaster.
At the end of the day if a site doesn’t tick every box then move on and find one that does. Doing detailed due diligence should tell you clearly what your move should be.
3. Know the Real Estate Market
You need to get an idea of the market in your chosen area. Know what’s selling and what’s not.
This way, you begin to figure out what buyers want and what they don’t.
4. Know the Market Cycles
Property is like any market – it is prone to fluctuation. You need to have a firm understanding of these variations in the market and what it means for a project.
We like to say that a good property developer can make money in any market.
It’s not about waiting for the right time; it’s about working with what you have.
5. Learn the Development Process
You need to know this entire process inside and out. If you don’t have the time or desire, consider employing a professional project manager.
Remember, there are no shortcuts here.
6. Your Design
You’ll need to engage a professional to design your dual occupancy dwellings.
A good architect or draftsman doesn’t come cheap either, so you need to have budgeted for this.
7. Have Some Working Capital
It’s worth remembering that banks won’t finance design costs or any other planning costs, only land purchases and construction costs.
8. Development Finance and Funding Strategies
Still keen on learning how to become a property developer? Money matters in this game, you need to be able to borrow funds for your development.
Getting development finance is a bit different from getting a home loan or an investment loan.
You’re usually looking at a higher interest rate, and there are a few other things to consider too.
9. Site Orientation
Know about site orientation. Nobody wants to live in darkness all the time or in a cold house. North or north-east facing sites are prime because of this.
Typically, we avoid south or south-west facing sites, not to say we wouldn’t ever consider one every site and every project is different.
10. Site Dimensions
This is super important because it will inform how many properties (and subdivisions) you can achieve on a block.
Over time you’ll see dimensions and automatically know what can be achieved on a lot.
11. Town Planning Process
The town planning process is how you get your planning permit to do the project.
It isn’t uncommon for beginner developers to not understand the difference between a planning permit and a building permit, so I penned an article to clear that confusion up here.
Each local government (council) is going to have its overarching rules and regulations with regards to its planning scheme. You need someone to navigate this for you.
Council will always hit you up for a request for further information as well, so you need to able to respond accordingly and timely.
Each area will have its own processing times as well, so know that you’ll always have a wait.
12. Plan of Subdivision
Your land surveyor will give you a big list of tasks, with a bunch of paperwork for you to complete for your subdivision to be approved. This usually occurs as your build begins.
Managing this plan is vital. You cannot sell separate titled lots without this.
Once construction is underway, one of the most important things you need to manage is your plan of subdivision application.
In Victoria, there is an online portal called the Surveying and Planning through Electronic Applications and Referral known as SPEAR for short.
It essentially makes lodging and processing your subdivision planning permit faster and easier for you as the applicant.
It also makes it easier for the council and referral authorities.
Soon after the build starts, you’ll receive a comprehensive list of tasks from your land surveyor, along with relevant documentation that’s required for your subdivision to be approved.
All these tasks need to be completed. Long story short, without this, you won’t see money for your properties because you won’t be able to settle your sales.
If you aren’t sure if you can subdivide your own property, find out here.
Buildability means figuring out a cost-effective build for your dwellings.
This is all about saving money on your build, but also getting bang for buck.
Take, for example, your foundations. A concrete slab might seem simple, but there are heaps of options, and one size doesn’t fit all.
It will depend on your site, and your engineer needs to keep this in mind. They might just want to bang it out and get on with their day, but there are massive variables here.
14. Construction Documentation – And Tendering
You’ll need a comprehensive list of construction documentation for a builder to begin works. Below is a useful list of some of the documentation that will make up your builders tender package.
- Civil plans set
- Landscaping plan set
- Energy report
- Engineering plan set
- A proposed plan of subdivision
- Energy plan set
- Working plan set
- Fixtures fittings and finishes specifications
- Soil test
Once you have your thick stack of paperwork, it’s time to find a suitable builder and tender out your build.
15. The Building Process
You need to have a basic understanding of how townhomes are built in this game.
You don’t need to be an expert by any means, but you need to know the fundamentals. From foundations to finishes and everything in between.
16. Essential Services and Street-side Connections
As mentioned above in your feasibility, your dwellings will need connections for gas, water, power and the internet.
Without a street-side connection point you are looking at a costly installation so have all this figured out ahead of time.
17. Project Management
A residential property development project is just that – a project. And it’s a damn intricate one if you’ll pardon the language.
There are so many variables, hidden parts and moving aspects that you need to be a solid project consultant to oversee it all.
If you don’t have development management experience and aren’t willing to learn, then you should reconsider if this is the right investment for you.
Or, engage a company like Little Fish to do the heavy lifting for you.
18. Negotiation Skills
Throughout a project, you’ll have many negotiations – with your designer, with your surveyor, with your builder, your sales agent and your conveyancer.
You want to get excellent value services while making a profit.
Never accept a first offer or bid. Always go back to the negotiating table. Be willing to walk away if you don’t get what you need to make your project viable for you.
Remember, it’s all about the bottom line here. But don’t burn bridges either.
19. Understand Build Contracts
You need to have a good understanding of build contracts. And you need to get your chosen builder to commit to delivering a project on time and to budget.
Watch out for variations. These are changes to the project as it’s underway.
Builders love them because they can bill for them. A builder will always try it on for size, so have everything in writing and signed.
Also, make sure to have a liquidated damages clause in your contract. This means if the project runs overtime, the builder needs to reimburse you for your losses due to this.
At Little Fish, we won’t enter a contract without a liquidated damages clause. We suggest you do the same.
20. How to Manage Development Risks
Remember, as we said above, this is a high-risk, high-reward game. You need to be able to manage and mitigate risks before and as they arise.
There are financial risks like interest rate rises, risks with the build like delays (hence the liquidated damages clause) and market fluctuations.
A good property developer knows how to deal with development risks and still turn a profit, so you need to know this too if you’re still keen on learning how to become a property developer.
21. How to Build Relationships – Your Networks are Vital
You need a network in this game. You need to know designers, architects, builders, sales agents, lawyers and then some.
This is part of the position description. Make your networks work for you. If you’re not willing to invest in these relationships, you may want to look elsewhere for generating wealth.
So, the above twenty-one tips should have you well on your way with learning how to become a property developer.
If you are seriously time poor and can’t dedicate the time and effort required to learning all of this, you’re not plum out of luck.
There’s a second option. You can partner with a property development company like Little Fish, who mitigate all the risk and do all the heavy lifting on your behalf.
In fact, in most if not all cases, even if you could do it yourself partnering with someone like us, you will get your project completed and faster than if you do it yourself.
This happens by tapping into our efficiencies and networks. With someone like Little Fish, you pay wholesale instead of retail for all the above-listed providers and suppliers.
We know how much things cost and how long they take.
With our custom project portal, you can follow along as much or as little as you like.
We are transparent all the way through and hold nothing back, so you can check in on the portal and learn on the job.
Part of what we do is educate too, so don’t hold back asking.
Give us a call on 1300 799 277 for a free consultation.