Information supplied by Malyshka
By Grant Muddle, Managing Director of Malyshka Pty ltd.
So what kind of money do you want out of your real estate development project? What are your expectations and how do you know what you are going to get? First of all understand what you personally are comfortable with. Then as you are selecting projects, you can ask educated questions about what your expectations are. To start, answer these questions for yourself:
How much do you have to invest?
What return do you need on that investment?
What is your time frame for that return?
Do you need monthly, annual income or a lump sum as if for a one time sale?
Once you have answered these questions, you can look for projects that fit your criteria. Many projects require upfront costs with one to two years holding time before you will see any return at all, sometimes it’s longer. Make sure that whatever the project, it fits with the outline you have made for yourself and it meets your specific needs.
Once you have narrowed down your development options, it’s time for some project-specific questions regarding investment. Ask for a copy of the projected budget including all upfront and ongoing costs. Then, take a look at the projections for return. Does it look reasonable or too good to be true? Take some time and really analyze what is being promised. If you have selected your team well, you should know if they have done their homework as far as market demand and a projected time for sell out or lease up. Here are some key questions you should be asking your team and yourself:
What is the initial investment?
What is the ongoing investment?
What is the anticipated rate of return and when?
What are the numbers of similar projects and how did they do?
What is the contingency budget and is it enough? You don’t want to have to “feed” the project for longer than anticipated. Make sure there is enough in the budget to cover unexpected shortcomings.
What kind of financial institutions are you working with and with what instruments?
What is your defined role as to the legal documents? Make sure that you understand the liability of all parties and how you are written into the deal. Are you an owner? Partner? Investor? What is your liability?
Finally, what is the exit strategy? How does it all end or are you stuck in this project until the last unit is sold? Make sure that it’s clear.
Development is a really interesting and exciting endeavor. Typically you should do much better with a successful development than you would in nearly any other investment sector. Once you have a clear course outlined and understood, enjoy the process!
Grant Muddle is Managing Director of Malyshka Pty ltd, a property development specialist with a strong focus on the booming area of South East Queensland. You can reach Grant directly at 0419 846 799, or by going to www.malyshka.com.au.
Disclaimer: while due care is taken, the viewpoints expressed by sponsors do not necessarily reflect the opinions of Your Investment Property.
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