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 Australian 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.
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.''
The steps 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.
1. Pre Purchase
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.
2. Concept stage
Upon finding a potential site, the next logical 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.
3. Purchase
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.
4. Town planning
Your architect will be required to draw up plans that fit in with the relevant
state planning codes according to your area 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 surveyor and town planner are
involved at this stage too. Be prepared for a wait, as it may take up to 12
months before you actually get your hands on that all important permit.
5. Working Drawing and documentation
Once you have finally received the permit for your
development to proceed, it’s time for your architect and engineer to document
the working drawings to allow you to then obtain a building permit or
Construction Certificate. Be prepared for more waiting as this stage takes
about three to four months.
6. Pre Construction
During the pre-construction stage you will be busy acquiring quotes from
prospective builders and of course bank approval for the development loan.
7. Construction
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.
8. Completion
Upon completion your project is either leased or sold. As mentioned in part
one, 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.
As a Small Business Advisor I recommend that
if you are a contractor and you do not pay other contractors, then you do not
need to do anything. From 1 July 2012, Australian Small businesses that are primarily in the building and construction
industry that pay you for building and construction services will be required
to report these payments to us each year. The information reported will be used
for data matching to detect those contractors who may not have included all
their income or lodged tax returns.
