4 Actions to Get Through in Property/Real Estate Development as a Beginner
Real estate development involves a wide range of activities and processes, from the purchase of land to the construction and development of structures. A definition of real estate development is “the continuous reconfiguration of the built environment to meet the needs of society.” While this can be anything from highways to high-rise office buildings, this article will look at a specific segment: the “average” investor working on small-to mid-sized residential development projects.
1. Understanding the development process
One of the first steps in the process is selecting a location for your development, which will largely be determined by your budget. You may already have the property you wish to develop, whether as an investment, an inheritance or even as a family home. Targeting growth areas will generally result in better performance, as property values and rents rise as areas become more desirable, increasing profits.
“Your available funds naturally limit you,” said Mr. Bainey. “If you’re just starting out, don’t expect to build a 12-story condo.”
The nature of your development will be dictated by development restrictions and guidelines in your chosen area, which are determined by the local council. Before purchasing, familiarize yourself with the municipality’s development control plan and discuss your ideas with the municipality’s activity planner. “Explain your vision to the board of what your project is,” said Mr. Bainey. It is important to be honest when it comes to advice. Development and planning affect the whole community.
2. What kinds of developments are best for first-timer
The biggest obstacle to becoming a property developer is the huge amount of capital required to get started, which means that it is desirable to keep costs low for beginners. Andrew Crossley, founder of the Australian Property Advisory Group and author of Property Investing Made Simple, believes that building a grandparent’s apartment can be a good way to start developing a property with minimal expense.
“If someone wants to improve their cash flow and capital growth, building an apartment for their grandmother is a great strategy,” he said. Crossley said a key benefit was the relatively low cost of building an apartment for the grandmother, typically $ 100,000 to $ 130,000, compared to the expected rental yield, which is often equal to a similar-sized house.
Grandma’s apartments can be ideal for investors who already own a single-family home, as they can be built without demolishing the existing home, transforming a single-income property into a dual-income property with a significantly higher rental yield. In NSW, planning changes in recent years mean the approval process can only take two weeks, leading to a boom in grandparent apartment construction. But in other states, grandmother housing legislation is not as favorable to investors. In Victoria, grandma’s apartments can only be used by dependents, such as teenagers or elderly parents, and must be removed if they are no longer used by that person, although these rules may change.
South Australia has similar restrictions. In Queensland, legislation varies for each area of the local government, while in South Australia, Western Australia, the Northern Territory, and the ACT, residents of grandma’s apartments do not necessarily have to be related to the occupants of the main house.
Crossley said grandma’s apartments can generally improve a property’s value. “A potential investor would definitely like to have two entrances.”
But she warned investors to avoid building grandparent apartments if they are restricted by local regulation. “If you can’t rent it, you have to understand why you’re doing it.”
3. Building on vacant land
Real estate investor and Binvested founder Nathan Birch discourages his clients from paying too much for blocks just because they have the potential to add an apartment next door, as they could risk overcapitalizing if the rental yield is lower than expected.
“I hate Grandma’s apartments,” he said. “Who wants to live in the house with someone who lives in the garden?”
Building a duplex can create two revenue streams on one block. Building a duplex can create two revenue streams on one block. photo: supplied
He believes that building a house or duplex on affordable land in a suburban area of a capital city is one of the best real estate development strategies for beginners, as it turns the land into an income-generating asset. He said he tries to find new land release properties that are significantly below market value, noting that having more properties on a block can lead to higher rental yields.
Birch said that by taking a “buy, build, sell” approach, investors can earn hundreds of thousands of dollars, quickly building wealth with a small amount of debt. Is real estate development worth it?
Property Planning Australia CEO David Johnston said budding developers should consider whether there are less risky ways to create wealth. “In my experience, small developers don’t really add value in general,” he said.
“When someone goes through the development experience, he wants to feel like he has been successful, so he often attributes the results to the work he has done, while the return is often attributed to the growth of capital from the land.” Often, if they had kept the original long-term asset, they would have created more wealth.
According to Mr. Johnston, buying and maintaining quality real estate in a good area that has the potential to be broken down later might be a better strategy than assuming the risks and expenses associated with the construction.
4. How to become a property developer
It looks for suburbs with good growth potential thanks to the improvement of infrastructure, public transport, schools and services. Familiarize yourself with the municipality’s development control plan to determine what developments are possible.
Identify undervalued properties that have the potential to be subdivided or have additional homes built on the block. Discuss your plans with the board to determine if your project is eligible before bidding on the property.
Collaborate with an architect, surveyor, and town planner to complete the development application and submit it to the council. Approval can take several months, so keep this in your timeline.
Once your application is approved, hire a reputable builder to complete the project, or alternatively, a real estate agent to help you sell the approved project at a profit. If you are not selling the entire development, keep the property and use the equity and proceeds to finance your next development.