Since my last post
, I have been busy working on an 8 unit subdivision/development project that has been in the pipeline for some time now. Whilst my property investment strategy
is definitely ‘Buy and Hold’ I am now building the confidence and knowledge to be able to develop and add value to some of the land I purchased several years ago with the intention of still continuing to hold the completed and improved dwellings but being able to maximise my profit and return from each investment.
Construction on this project commenced in January and it has been very exciting watching the progress. As this is the largest project I have managed, I have learned so much over the past few months about subdividing and developing. The most important lesson I have learned is that it is essential as a property developer to surround yourself with the right team of experts.
If you want to successfully undertake a subdivision or development then this is the team of experts you will need in your corner:
- Mortgage Broker – Finance is essential for you to be able to undertake any property project and without it the project will not be possible. As a mortgage broker myself, I understand the importance of having the right finance structure and the right finance products and lender to support your goals. Every lender has different policies and products and the right mortgage broker will be able to show you:
- how to minimise interest expense (Eg. Perhaps getting residential interest rates for a project that many lenders would consider commercial in nature);
- how to minimise fees (if undertaking a development and you plan to sell at the end you need to consider upfront and discharge fees. Lenders also try and charge consent and production fees at subdivision stage but the right mortgage broker may be able to assist you in reducing these fees) and
- how to establish the right finance structure, which will be tax effective and maximise your flexibility and control.
- Accountant – As you are generally adding considerable value when developing and subdividing you need to think carefully about your ownership structures before buying the site you want to develop. The ownership structure will ultimately impact on your income tax and your land tax and choosing the wrong structure can be a very expensive mistake to make. If you already own the site you wish to develop, an accountant may be able to give you suggestions as to when and how to change the ownership structure to ensure that you can establish the most tax effective structure to support your goal.
- Architect – You may choose an independent architect or the builder you chose may have an in-house architect. Ultimately you are looking for someone who understands how to push the boundaries to get the maximum number of dwellings on the land and making sure it is an effective use of the space. Your architect should have a good relationship with the council you are working with so that they know upfront what will and won’t be allowed and so they can work with council to get a timely approval.
- Surveyor – Your surveyor will assist with understanding the accurate size and dimensions of the land and gaining council approval for subdivision. If undertaking a large scale development you can get full subdivision approval for the entire site or you can also request approval for a staged subdivision. A staged subdivision may reduce the risk and reduce the impact on your cashflow and is worth considering. Your surveyor will be able to give you advice as to the best approach for your particular site.
- Conveyancer – Your conveyancer will assist with the legal aspects relating to the subdivision of the land and ultimately assist with the transfer of each property to its pre-determined legal holding entity.
- Builder – When developing, time is money. As a result, I suggest you ask for a fixed price, fixed term building contract so you can accurately budget your construction costs. To ensure that the project is completed on time you may request and include a penalty clause in the building contract for any delays caused by the builder. You also want to ensure that your builder is experienced and undertaking projects like the one you are undertaking.
- Property Manager / Real Estate Agent – If you are planning to keep the properties and rent them out, make sure you engage the advice of your property manager early on in the design process so that you know what tenants in that area will be looking for and how you can maximise your rental return. On the other hand, if you are looking to sell on completion, engage the expertise of a great real estate agent at the design stage to ensure you maximise the end market value of the homes you are building and understand what the realistic selling price will be so that you can use these figures in your feasibility assessment.
- Project Manager – If you are new to the subdivision/development game, I highly recommend you seek help and hand-holding from a project manager who knows what they are doing. Going in blind can result in cost and/or time blow-outs.
Overall, when deciding on experts to join your property team, make sure that they are investors/developers themselves. You should only take advice from people that have successfully achieved what you are trying to achieve because the value add advice they will be able to provide from having been through the experience themselves is priceless.
The message that I want to leave you with is…
Surround yourself with the right team!!
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At the tender age of 18, Marissa Schulze already possessed a financial understanding well beyond her years. She saved up her first deposit while still living at home with her parents and bought her first property. Now, 11 years later, her portfolio of 16 properties brings her $3,710 in rent each week; has amassed equity of more than $1.5m. She now runs her own mortgage broker firm in Adelaide, along with her husband and, still at just 30 years of age, she is only getting started.
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