How Residential Property Development Generates More Wealth Than Investing in The Rental Market
Generating wealth is the great Australian dream. We’re all trying to get ahead – through work, side hustles and other various ways of making money.
The goal of self-funded retirement is attractive, after all. Who wouldn’t want to travel the country or the world once they’ve finished their career?
Over the last few decades, investing in rental properties has been the way that many people have generated wealth. But times are changing. There’s another way to create more profit than rental yields provide, and that’s as a property developer through residential property development.
Let’s look at this in some more detail.
The Risks of Investing in Rental Properties
Any investment carries risk, and rental properties carry several. To begin with, you can’t guarantee that you’re going to have tenants in your properties all the time. People move – across states and overseas.
Tenants may only be in your property until they have a deposit saved up to purchase their own home. Or tragic life events occur leaving them unable to pay the rent. Whatever happens, to leave you without paying tenants, that’s months of rental income you’re not receiving until you find new tenants. And if you’re picky about who rents from you you may face a long wait.
Also, although landlord insurance exists, what if your tenants are dodgy and cause damage? This can happen in many ways – from kids to pets, to the wilful destruction of property. These aren’t just horror stories that happen on A Current Affair, property damage can and does occur.
In some cases, you need to evict the tenants, then repair the damage, all the while your property is sitting vacant not earning you a rental yield.
Don’t Wait for Growth – Create it
When people invest in property they usually hope that their rental returns cover their holding costs or generate enough income to cope with shortfalls. They also bank on the hope that their properties will accumulate value – which is what we call capital growth.
Yet as we know there has been minimal capital growth on average, across Australia. The market has actually cooled so some people are seeing negative capital growth.
Residential property development aims to generate wealth faster by creating it through maximising land values through subdividing property.
Residential Property Development Generates More Wealth
There are several ways you can make great profits through residential property development. If you currently own land that is large enough to subdivide and undertake a dual occupancy subdivision, you can develop two or more dwellings on your land and sell both off the plan at market value. Dual occupancy projects in Melbourne are popping up left and right for a reason.
Off the plan sales mean your buyers settle within 14 days of project completion, so you’ll see more money sooner than if the properties were put on the market after completion. If you don’t own a lot that’s suitable, you can purchase one and undertake development on it and make a profit above the initial purchase price.
While there are costs involved in any development project the aim of the game is to come out ahead.
To learn more about the costs that are involved and the timing check out this development case study.
Why Stop at One Project?
Once you’ve got a feel for the process, or you’ve engaged a professional property development project manager to look after your development, you don’t have to call it a day after one successful development. You can keep it rolling and purchase your next lot that is ripe for development.
You could even undertake multiple developments at once if you’ve got the time and energy.
There’s a reason people develop property for a living, it can be lucrative and is a full-time job at the end of the day.
Curious About How to Begin?
If you have the appetite to go it alone, that’s awesome and you’re in the right place to learn the ins and outs of the game.
We’ve even curated a list of who we think are Melbournes best dual occupancy builders, you can check the list out here.
But if you are time poor and understand the value of residential property development you can become an “armchair” developer by leveraging our expert team of dual occ advisors.
That’s where Little Fish comes in – to do all the heavy lifting for you, including finding you a perfect site to develop if you don’t already own land. It’s our bread and butter, we do it day in and day out for people just like you.
You can even follow each step of the development process via our online project portal, as much or as little as you’d like.
Got questions? Give us a call on 1300 799 277 we can provide a free no-obligation initial conversation to discuss how we can help you. We’d love to hear from you!