Becoming a property developer, even dabbling in the idea of development as an adjunct to a more passive property investment career, is not as simple as it seems. New builds require extensive legwork and preparation, and that’s before the first clump of soil is even turned on site. Less than 50% of a project’s duration is the visible construction period on site. The majority of time is spent in planning, approvals, documentation and financing.
As a hands-on developer, or even as an armchair developer who employs project managers and an extensive consult team, you must embrace various roles and responsibilities in order to get the job done and get it done right.
Understanding these roles begins with understanding every stage that’s involved in the development process itself, from conception to completion. In this second part of our series on what it takes to become a successful property developer, I will explain the sequence of steps you need to follow when tackling a development project and, critical to any development’s survival, how to obtain that all important funding.
The stages of property development
Although there are a distinct set of complementary steps that every property developer must follow in order to achieve the best possible outcome, the process is rarely completely linear. It is important for the developer to remain flexible and have the capacity to problem solve and think on their feet at all times, as at any point plans can go awry.
While the process may vary slightly from project to project, in essence all property developments must go through the following stages;
- Concept stage
- Town planning
- Working drawing and documentation
- Completion and Post Construction
The nature and magnitude of a property development often compels the constant repositioning of one or more aspects of the concept in a developer’s mind and/or renegotiation between the developer and other participants in the process.
With large sums of money at stake and extensive timeframes over which a development evolves, all aspects need to be managed carefully as the cost of making a mistake can be extraordinarily high.
It is therefore important to recognise that a successful developer must be able to handle and thrive under intense pressure and uncertainty. With this disclaimer in mind, let’s take a closer look at these eight important stages of a property development project.
Pre-purchase is a fairly obvious first step in the development process. As the name suggests, it involves seeking out a block of land or established house site that has sufficient potential to either refurbish the existing property, or obtain development approval to construct multiple dwellings.
At this stage it is important to already have your finance in place or at least have an understanding of your borrowing capacity so that you know your limits and what you should be looking out for. After all, there’s no point deciding to demolish an old house and knock up five townhouses in its wake if you could not possibly obtain the necessary funding to do so.
You may also consider enlisting experts’ help to ensure the project’s viability. They can either be a development manager who can coordinate the entire process and team of industry professionals or individually; a solicitor, architect, surveyor, town planner and estate agent to give their honest assessment of end values and marketability of the completed product.
- Concept stage
Once you’ve found a potential site, the next step is to come up with a concept. What can you put on the site? How many units? How big? What restrictions are there?
To ascertain what can be constructed on your chosen allotment, you must first assess the local council's development and planning policies. Often these documents are freely accessible by logging onto the local council's web site, or alternatively you can visit their offices and ask to see a hard copy at reception.
At this time you should carefully gauge the market demand in your chosen area; in other words, what type of dwelling would sell or lease well because, let’s face it, you want to design and build a project that has optimal marketability.
You must also undertake a detailed analysis of the neighbourhood character, as maintaining the traditional nature of an area is an important consideration for local council and their town planning requirements and regulations. It’s also a good idea to consider any neighbours to your site and potential objections they might have to the project.
Taking all these factors on board and attempting to address them before you get too far down the development process can save valuable time, frustration and money down the track.
Finally, you need to put pen to paper and do some sketches of your proposed development allowing for setbacks, driveways, private open space (as required by council), garages and parking spaces and room for turning circles so that residents can drive out in a forward motion. By undertaking this exercise you will be able to determine how many units and of what size can fit on the remaining land.
Ultimately the final decision to buy or not to buy your proposed site will come down to the number crunching of a pre-purchase feasibility assessment. I will discuss the pre-purchase feasibility in further detail in Part 3 of this series, but as a general rule this critical assessment should include time lines, all costs including consultants and construction as well as likely end sale values and the profit margin you desire. This will enable you to work out what the land is worth to you.
Of course if the development is financially viable, it is then time to consider putting an offer in and going for it.
Obviously, this stage involves buying the land at a price that will allow you to make the necessary commercial profit that deems the project viable. Again, I will take you through this phase in greater depth in Part 3 of this series and explain how to negotiate the best possible deal.
- Town planning or Development Approval Stage
Your architect will be required to draw up plans that fit in with the relevant state planning codes as well as the local council’s development guidelines.
These days, as a result of the increasing complexity of the development process and associated rules and regulations, a town planner is often involved at this stage. And a land surveyor is required to plot out the site dimensions, levels and important features (service pits, position of adjacent dwellings, etc). Then be prepared for a wait, as it may take up to 12 months before you actually get your hands on that all important development approval permit – during which time you may have to negotiate changes with the council or with objectors. Flexibility, and a clear understanding of your end goals are important in this.
- Working drawing and documentation
Once you have finally received the permit for your development to proceed, you have received only your local authority’s approval. It’s now time for your architect and engineer to document the working drawings. These will serve two main purposes. They will be part of a) the instructions to your builder on what to build, and b) the documentation submitted for a building permit or Construction Certificate. While the architect and engineers are completing their work, you can advance things by finalising the selection of fixtures and fittings, and working with the consultants to complete the specifications.
During the pre-construction stage you will be busy acquiring quotes from prospective builders and of course bank approval for the development loan. You will have to discuss with your broker or financier their documentation and process requirements – and co-ordinate your timing to meet them so when you are finalising the building contract you have the confidence that finance will be available
Finally you get on site to build your project, paying the builder progressively at the completion of each stage using draw downs from your bank loan. Although this stage can last anywhere between six and twelve months, depending on the size of the project, it’s the most exciting aspect of the development as you see all of your hard work coming to fruition. During construction you should be obtaining subdivision approval from the local council. You would have checked at the Concept Stage that this was permissible in terms of council policies.
Upon completion your project is either leased or sold. This is usually when finalise the plan of subdivision and separate titles for each unit. While many developers on sell their project, I believe that retaining your development as an addition to your high growth portfolio and borrowing against its end value to progress to bigger and better investments and/or development projects is undeniably the best way to grow your portfolio and wealth over the long term.
This article was published: 20/10/2011
Gavin Taylor is a director of Metropole Projects (www.metropole.com.au)
Do you have more than $200k in your super fund? You could use your super to buy property - Find out how