We’ve prepared this list of questions to ask a property developer as a useful resource for our readers.
If you’re sitting on a suitable piece of land and thinking about engaging a property developer to help you achieve a tidy profit, you need to be prepared.
This is a high stakes game. You can make some serious cash.
But you can also lose money as quickly as you make it. That’s if you make poor decisions and work from a place of ignorance.
Why Ask Questions?
There’s no such thing as a stupid question here. The only foolish move is not asking the right questions.
You must enlist the best help the whole way through your project. This starts with the property developer you choose to partner with.
This is always a high stake, high risk and high reward game though.
The trick is to learn, adapt and grow along the way to reduce that risk as much as you can.
Why Partner with a Property Developer?
This is a great question. We’ve seen first-time developers try it themselves and fail spectacularly. A failure in this game can result in you losing serious money or even bankruptcy.
The reason you should partner and think of questions to ask a property developer is they are experienced and understand the property development lifecycle better than anyone.
They do this for a living. A seasoned developer will have the knowledge and learnings from multiple developments under their belt.
They’ll also be able to leverage their existing networks. You’ll want to tap into this to save money, especially on your build.
If you get this partnership right, all things being equal, the developer will get your project done faster and cheaper than if you go it alone. You’ll benefit from their efficiencies and professional relationships.
For example, they’ll be able to lock in wholesale rates on all your supplies and providers.
They can get the best price on all the moving parts, from the design to town planning and the build. And the build is a significant expense.
The List of Questions to Ask a Property Developer
We’ve compiled this useful list of questions to ask a property developer.
These are must-asks if you’ve considering partnering with a company like Little Fish. We expect you to ask us all of these if you approach us.
1. Do you develop in my area?
There’s no point approaching a developer who doesn’t operate in your area.
Ask this straight up before you waste any more time.
2. How much does it cost?
How much does the finance cost, not how much money does it cost to do a property development.
This is one of the most critical questions. It’s worth reading this useful article on property development finance to get an idea of why.
A bank or other lender will need you to have some capital upfront, or you’ll need to be able to leverage some equity in your properties. This means you have some costs upfront.
A good developer will be able to give you a solid idea of the total cost of a project. This way, you can crunch your numbers and know what you can afford to do.
For example, after having this question answered, you might realise you can only build a duplex when you initially were aiming for three dwellings on your lot.
3. How long does the process take?
You need to have an idea of the length of the entire development process, not just the build.
Every day has a dollar value attached, so it’s essential to be aware of the timeframes in this game.
Property development takes time, but if a project blows out, you’re looking at a severe cost attached.
4. Have you done any developments in my area?
If they have, check them out. Do a drive-by and look at images online. Does their work match your dreams?
5. Do you have past work you can show me?
Can they demonstrate their chops? A good developer should be able to show you work online or take you to a completed site.
If they stall or divert the question here look elsewhere fast.
A gallery of featured (see below), active or previous projects, relative to the type of project you are looking to undertake should suffice.
6. Do you have testimonials or real client reviews I can check out?
If they’ve got a robust Google or Facebook review section, they’ll be quick to answer this question and show it off.
Be very wary of a developer who has no online review presence – this is a major red flag.
7. What happens if the builder goes under mid-project?
This can happen more than you realise. You want a developer that has a solid network of reliable, sustainable builders.
They need a contingency plan if the townhouse builder goes bust.
8. What happens if the market goes south?
You’re looking for confidence in your developer. A solid one knows that money can be made in any market.
But you also want to know that the developer you choose has a solid understanding of market fluctuations and has factored this into their business model.
9. Why should I use a project/development manager?
This is more a question to ask yourself.
Remember that a development project has a lot of moving parts, and they all require constant attention.
Going at this without prior knowledge or experience is a significant risk and can result in a nightmare rather than a dream come true.
10. How do you justify the value in your fee?
No one works for free, after all. Property developers need to make money, like everyone else. But they need to be able to explain, transparently, why they charge what they do.
Remember, you’re paying for expertise, knowledge, experience and networks here.
11. How long have you been developing for?
This is important. With time and experience comes learning and honing the process. A newer developer may make rookie mistakes that cost you lots.
12. Have you had any developments not make it to completion, and if so why?
You’re looking for honesty here. Sometimes things go wrong.
If they can answer this but explain why and how they overcame if they might still be worth going with, not everything that goes wrong is the developers’ fault.
For example, sometimes the client runs out of capital, resulting in a failed project.
Unless the developer is doing a project for themselves, this isn’t their fault.
13. What relationship do you have with builders, trades and consultants engaged to complete the project?
We mentioned networks above. You want to ensure they have the relationships required to get a build across the line.
14. What is your fee structure?
Again, you’re looking for transparency here.
15. What happens if my circumstances change mid-project and I need to either put the project on hold or even sell the project with plans and permits?
This can and does happen. You’re looking for evidence of contingencies here.
16. Do you charge a margin on top of all suppliers and providers?
Some do (we don’t), to reimburse their time and effort. Again, transparency is the key here.
17. What does your internal company structure look like?
You want evidence of a well-oiled machine here. Avoid those who give loose or vague descriptions of this.
18. How many active projects do you currently have?
You want evidence they can spin all the plates at once. But also, you want to ensure they can deliver what they commit to with your project without getting sidelined by their others.
19. How many employees do you have?
Some developers are one or two-man operations, with lots of subcontracting going on. You want to know they can do the work you are paying them for.
20. What kind of risks are involved with my project?
An honest answer will be lots but listen to how they plan to mitigate them. Remember this is a high-risk, high-reward game.
The trick is in how the risk is managed.
21. Questions are just a step in the process
OK, so this isn’t a question, but it is important. Remember that property development is a long, multi-faceted project.
Asking these questions is vital so you can critically evaluate and fact-check their answers.
The more information you gather, the more confidence you can have in your decisions. Remember, knowledge is power, but it’s also money in this game.
Don’t Focus on the Fee
A pro tip is not to focus on how much a developer charges. Everyone needs to eat.
As the old saying goes, ‘you can never pay too much for good help’. And the other old saying goes ‘you get what you pay for’.
Focus on the facts instead. Put your time and effort into research. You’ll only get one crack at a project. The stakes are simply far too high to take shortcuts and work on assumptions.
Remember to research work history, testimonials, reviews and completed projects of your shortlist.
There’s no such thing as too much research here. Remember, you get what you pay for, check out this dual occupancy case study where the fee was covered several times over in the building contract alone.
And finally, it will be worth asking about the project development agreement and what they might look like.
Hopefully, our list of questions to ask a property developer will get you heading in the right direction.
We’d love to throw our hat in the ring for your project if you’re considering partnering with a developer.
Give us a call on 1300 799 277 for a confidential chat.