BECOMING a property developer can be as simple as buying a block of land and slapping a house on it or buying an existing house, knocking it down and building a new one.
However, becoming a successful property developer is a different story. It requires time, research, patience, and a willingness to take calculated risks.
The president of the Urban Development Institute of Australia (SA), Peter Jackson, says there is no real definition for property developer, which ranges from people involved in sub-dividing land to those renovating for resale or knocking down and rebuilding.
“Essentially it’s somebody who is going to take a financial risk with respect to the purchase, construction, marketing and selling of real property. That ranges from an individual home right up to a major CBD building,” said Mr Jackson, who is also executive general manager at AVJennings.
He said being a property developer was not a recipe for quick, easy money.
“You won’t make a fortune in five minutes – it’s a risky business. Every time we do a project we learn something.”
Most developers start with residential property.
Doing your homework is vital, property experts say.
“It’s a bit like the share market – educate yourself, talk to people, and look at what other people have done,” Mr Jackson said.
There are a variety of courses available to help budding property developers. The UDIA runs intensive one-day seminars in conjunction with Lynch Meyer Commercial Lawyers. Its next course – a property development master class for serious developers – is being held on Friday.
A six-month part-time property investment course is also run by TAFE South Australia, and has been so successful that it is now licensed to other TAFEs and universities around Australia.
Course co-ordinator Peter Koulizos suggested two books, Australian Residential Property Development: A Step by Step Guide, and An Intelligent Guide to Australian Property Development, both by West Australian author Ron Forlee.
“Educate yourself – knowledge is power,” he said. “And don’t believe everything you read or everything you hear. Do your own research.”
Mr Koulizos said it was important to see what other property developers were doing, and what suburbs they were targeting.
“Tour a suburb you like. In property you don’t want to be a trend-setter,” he said.
“You need to build what sells. Be creative with your own home.
“If you make the wrong move you don’t go back to square one, you go to square minus-10.”
Where to develop
Rossdale Homes developments manager Denny Havriluk said research was again the key to success.
“Look for an area that is going through a growth phase, where the population is expanding and there is demand for rental homes,” he said.
“Consider the proximity to schools, shops and public transport as this will increase the home’s appeal.”
Mr Koulizos said would-be developers should get familiar with a particular council area and read the council’s development plan – or at least the part of the plan related to residential development.
“Every council is different. The key to all of this is the development plan. Every council has a development plan – the problem is some of them are 400-500 pages long.”
The chief executive of finance company Finance Mutual, Jason Di Iulio, said it was crucial to keep financiers involved in the development process at every stage.
“This strategy will enable the developer to understand their financier’s position, expectations and requirements at every turn,” he said.
“Funding failures is one of the most common forms of development failure in every size of development.”
Mr Jackson said new property developers should expect to have to put more of their own equity in a development to keep the banks happy.
“If you are borrowing money, the banks require you to have security. They look for experience and track record,” he said.
“If you are starting out, they will probably require a greater level of security, which means you have to put more of your own money into the development. Expect the banks to be a little more cautious in terms of what they will lend you.”
Mr Havriluk said it could take 12 to 15 months from the time you bought the land until the property started generating rental income.
“This includes a minimum of six months to subdivide the block and arrange appropriate titles, plus the time it takes to build the home,” he said.
“You need to ensure you can manage your cashflow and debt during this time until you start to receive rental income.”
Mr Koulizos said in property development “time is money”.
“The most common thing that sends a budding property developer broke is delays,” he said.
It’s important to speak with the local council before making a commitment to buy.
Ask if there are any zoning restrictions and make sure you can subdivide if required,” Mr Jackson said.
“You also need to consider potential pitfalls such as significant trees that may interfere with your building plans.”
The next step was to contact a surveyor, he said.
A surveyor will help you map out the block, including plans for subdivision.
“These plans are then submitted to the Development Assessment Commission, and once approved the Land Titles Office will issue the appropriate titles for the subdivided land.”
Mr Havriluk said investors should consider the type of title they wanted issued for their land.
“Torrens Title is a title in its own right and generally provides better returns,” he said.
“However, Community titles, which share some common property such as a driveway, garden area or mains water connections, are becoming more popular and can help you to keep your costs down.
“Once you’ve confirmed the land titles, you can start making plans to build.”
New versus old
Mr Havriluk said there were many advantages in building new homes rather than redeveloping an existing building.
“If you are buying undeveloped land, you only pay stamp duty on the land and not the cost of the building,” he said.
“This can result in significant savings when compared with the stamp duty on an established home.
“There are also tax advantages in addition to negative gearing, such as depreciation on the new home.
“New homes are also easier to rent. Tenants prefer to rent new homes as they generally have better floor plans and less maintenance issues.”