There are a few key elements to becoming successful residential property developers. It’s like a jigsaw puzzle, once you figure out the pieces.
You need to know what is coming up, how it fits in with the task before it and how all the pieces work together to make a whole.
And like any jigsaw puzzle if you miss or place a piece wrong the whole picture won’t be complete.
An essential piece of the puzzle in property development is finding a highly profitable residential development site.
In this helpful article we’re going to explore what to look for, what to avoid, and how to identify that perfect piece of the puzzle.
Some of these will have the dimensions outline and will be advertised to buy land with plans and permits.
You want to look for the most profitable lower risk site possible. So now let’s look at ten tips to finding highly profitable residential development sites.
Before we get too far ahead after you get through this article make sure you watch my video how to find dual occupancy sites in Melbourne.
And if you’re not sure which Melbourne suburbs you should be developing in then go here.
1. A Word About Risk
The goal in this game is to seek the most highly profitable sites, with loads of potential. But you want to match this with a low risk. Highly profitable and high risk is not smart. The stakes are too high in multi-unit property development.
Low risk, high reward is what we’re after here.
Lower risk sites tend to be smaller sites suited for duplex builds. This means you get a project complete faster so you will see your profit sooner.
Learn more about risk management in property development here.
Certain types of developments are supported in certain residential zones, and the converse is true too. There’s no point acquiring a commercially zoned property for a residential townhouse development project.
Each local government is going to have a separate way of controlling these zones. And they will also have different methods of controlling zoning and interpreting planning documents.
Know your area, understand what sort of projects are getting built, and what aren’t. This way you can pitch your project perfectly to the area. Look for residential development sites in the right zones.
Side note; learn how property developers in Melbournes South East make money here.
3. Look out for Encumbrances
Easements, trees, tree limbs and power poles are all examples of encumbrances. These can have an adverse effect on your project plans, and in some cases can even result in halting construction.
If you don’t spot it first up, you will pay for it later. Sometimes to the tune of tens of thousands of dollars.
Do your research and learn all about the different encumbrances common to your planned area.
4. Site Orientation
Your sites orientation (the direction the block faces) will have a huge part to play in your residential development site.
Often developers don’t consider this enough and it comes back to bite them in the you know what. Buyers are becoming more versed in picking houses with great orientation.
An example is south-facing homes with open plan areas. They’re shrouded in darkness most of the time. Suitable for vampires, but home buyers want sunshine and light in their life.
Here we mean frontage and depth (length by width). These are going to have a direct impact on what sort of residential property development you can do on your site. It could even mean the difference between a profit and loss.
6. Next Level Patience and Discipline
To be able to secure legitimately profitable residential development sites you will need out of this world patience. And discipline too.
You’ll need to run your figures as precisely as you can.
You’ll be reverse engineering every cost to know how much you can afford. You’ve got to spend money to make money after all.
This way you know how much a site is worth to you. Then it doesn’t matter what the competition is doing or what the market suggests a site is worth.
Because you know what the site is worth to you according to your calculations.
This means you may be able to overbid or overpay for a site (according to the real estate agent, the vendor and the competition) but you know the truth.
You know its true value.
On the other side of this coin, the numbers will tell you when to fold and walk away from a purchase. Under no circumstances should you deviate from the plan or the numbers.
Be disciplined. Last-minute rejigging of your figures is the fastest way to securing a site that will make you a loss.
Get your numbers precise and correct and treat them like the Bible – sacrosanct.
7. More About Numbers
When researching residential development sites you want a scientific process towards your numbers. Deep thinking, evidence, testing, reason.
This isn’t a dart board where you hope to score a bullseye. Guesswork is not acceptable.
Reverse engineer go backwards and forwards over the numbers until you’re solid and certain.
Here at Little Fish we’ve spent several years developing and refining our own custom feasibility application dubbed “The Cruncher”.
The Cruncher takes all emotion out of our feasibility studies, leaving only two variables.
The build price which we use our own IP for and the sale prices where we leverage local comparable sales data.
The Cruncher has been a pivotal tool that has helped us identify highly profitable residential development sites since we started our business.
These are the levels you need to go too if you’re serious about profiting from residential development projects.
8. Network, Network and Network
As the old adage goes, if you’re not networking, you’re not working. If your plan is to become a boutique townhouse developer in Melbourne it’s your job to build relationships.
Get to know the real estate players in the areas you’re looking to develop.
Great relationships are a two-way street. Over time it’s your job to strengthen these professional relationships.
An example – here at Little Fish we have our own little unwritten rule.
Say a sales agent helps us to secure a site without competition, such as an off-market sale. We then give the properties back to the agent for off the plan sales.
On the converse of this, if we have to purchase under competition, then the agent needs to try and list them under competition.
This way your players know how you operate.
These relationships will hopefully be long lasting and lucrative once you build up some momentum.
9. Trust No One
Now while we mention relationships, this tip is worth sharing too. We don’t mean be suspicious. We just mean that you can’t assume information you get from agents, townhouse builders and planners will be airtight.
The stakes are too high.
You need to put time and effort into learning all that you can. Gather your data, from external and internal sources. But ultimately you need your own knowledge.
And you need to do your own fact-checking.
If things go belly-up, the only person you want to be able to blame is you. If you do everything you can and learn what you need to but still mess up that’s OK.
As long as you learn from it. But if you mess up because you acted on bad advice, that’s a tough lesson to learn.
Over time you’ll develop a wealth of knowledge and you can tap into it. It will make you a highly efficient (and profitable) residential development site finding machine.
10. Never Assume
The final tip is to never assume anything. Assumptions are the mother of all stuff ups. Assumptions will cost you serious money.
Figure out everything correctly.
It’s easy to assume when the clock is ticking and you have agents hassling you. They’ll say they’re about to sell to the competition to get a sale across the line.
Their job is to create the sense of urgency. Stay cool (remember the discipline), stay calm, focused and don’t assume.
Never assume anything. Ever.
Honourable mention – if you are considering purchasing a site with existing plans and permits check this out first. There are inherent risks that you need to be aware of.
You also need to consider your essential services, like sewage, water, power etc. Gradient matters too, as in the slope of the site.
Keep these in mind when seeking residential development sites.
If you want to know more about how to find a profitable site, or you’re interested in engaging us as your trusted development project manager don’t hesitate to reach out. We’re always happy to have a chat.
Call 1300 799 277 to find out how you can create your own wealth.
And lastly, if you want to know how much money you need to do a development then check out this video where I break it right down.