Starting out as a developer? Bob Andersen, creator of Renovating For Profit’s online course, Small Developments For Profit, says it is often best to start small. Here’s his lowdown on what it’s really like, taking on such a project.
Small developments can be anything from a splitter block or duplex to a townhouse development, or even a boutique apartment block. And while renovators get their confidence from reality TV and DIY YouTube videos, would-be developers often don’t take the leap of faith simply because they don’t have the relevant information to begin the project. They’re afraid they’ll bite off more than they can chew and wonder if they need years of experience in construction to get started. The answer is a definitive no.
Will I have to give up my day job?
Developers don’t need to know everything about construction, design and the council approval process – they just need to know how to hire and manage a team with the know-how they lack. Although being a developer does require you to be ‘all in’, this doesn’t have to be at the expense of anything else. Delegating duties is important, so that you can take on the role of overall project manager. Of course, this doesn’t mean
you shouldn’t get your hands dirty. By all means, get stuck in. Just know when to step back and let the professionals to their job. Having said this, every development is different and if you feel that committing yourself full time is financially expedient, then do so – you’re the boss after all.
How will I know when the property market is right?
Trying to find the perfect time in the market is not where your focus should be. The big bucks in property development are made by buying a property at raw cost and developing it into multiple dwellings before selling those dwellings at ‘retail price’. So rather than rely on the market to deliver a profit, developers manufacture their profit no matter what the market is doing. The three pillars of success that apply in any market for a small development are:
• Run through conservative and thorough financial feasibilities and make sure you perform some ‘what if’ calculations.
• Develop a final product that is in demand with a point of difference to the competition.
• Ensure you have financial contingencies in place.
I want to do it, but is the risk as a developer too high?
As with any venture you embark upon where a lot of money is at stake, a detailed plan with diligent steps is necessary to success. Residential property development provides several entry-level opportunities that don’t exist with commercial, industrial or retail developments. Entry-level options include:
• Splitting a piece of land in two.
• Building a duplex.
• Building two townhouses behind a house.
These options are a fantastic stepping stone to larger developments and require less financial development, minimising risk.
I’m worried I don’t have enough money but don’t want this to hold me back. What should I do?
Once you find a development site and have done all of the feasibilities to make sure the project stacks up financially, you can investigate options such as joint ventures or property development finance. I myself have pulled off major projects with zero finance by utilising a debt partnership, sometimes turning a profit of as much as $375,000.
I’m new to this. What skills do I need?
While this isn’t something that needs a certificate or qualifications, there’s lots to learn and you do need to be able to manage people and processes. Surround yourself with the right team of people who share your vision and with whom you feel comfortable delegating managerial responsibilities. It also helps to be mentored by a developer who has real industry experience.