by Jason Ginns
The recent boom in property prices has resulted in many property investors making large profits out of their property investments. These profits have encouraged property investors to think about how they can further expand their property holdings and profits, and for a lot of investors their thoughts turn to property development.
Every property investor at some stage has thought about how much money they could make developing a property – “surely it can’t be that hard”. From my experience and observations over the last 25 years, it is actually extremely hard, with lots of hidden traps for the uneducated and unwary, but for those investors/developers who get it right, the rewards can be substantial.
Successful Property Development Requires A Team
Based on my experience and observations, a successful and profitable property development is dependent on having an experienced team of property professionals to help you in every step of the development, and being hands on and working with these professionals from start to finish.
Before you commit to a property purchase, or when you are starting to consider your options with an existing property, one of the first members of your team to consult with is a town planner and/or architect. They are crucial in determining what type of development can be undertaken on the property, what scale of development, and most importantly how to use the space and dwelling designs to maximise your property sales and profits.
You should also have on call one or more real estate agents – first, to give you the all-important leads into any suitable properties that may be available, but equally important is that they can provide guidance on what future sales prices could be achieved for your proposed development. They also need to be experienced in selling off-the-plan designs, as most likely your finance will be dependent on having a certain number of pre-sales before you can commence construction.
This leads into having a finance broker or banker experienced in construction finance, who can source the best loan structure for your development. It’s not always about the best interest rate when it comes to construction loans – equally as important are a number of other factors including pre-sale requirements, security and loan drawdown approvals.
The most obvious team member requirement is a builder, and unfortunately in recent times there have been challenges faced by all builders through a combination of supply issues and rising costs of materials and labour. As with interest rates above, it’s not always about the cheapest builder, and you need to take into account the quality of their building work, and their capabilities and capacities, as delays or a slow build time can cost you substantially if your completion date blows out by months (or in a worst case scenario the builder can’t complete the construction).
Your building certifier and your solicitor also play crucial roles as you get closer to the completion date of your development. It’s at this stage of your development that the level of your debt peaks, and every day that you can save in obtaining your consent approvals, and settling the sales of your development, can save you a substantial amount of interest.
The Importance Of Your Accountant
The other crucial component of your team is having a business and taxation advisor experienced in property development matters to help oversee the entire process. Their role starts with ensuring the property is purchased in an entity that minimises your tax position, but also provides asset protection in relation to your other assets and business activities.
We can also prepare financial forecasts and projections of the development, considering key issues including GST and income tax. We’ll also help you structure your GST registration correctly to assist cashflow, and then lodge the BAS in a timely manner through the construction phase to again assist cashflow. At the end of the development, our tax planning and strategic skills can then provide options to further minimise your tax positions.
Your Role In Property Development
The last and most important member of your team is you. It’s important that you play a hands-on role through the whole development, pulling all the team members together, being aware of the important roles that each team member plays, and making sure they are each on time and meet their commitments. Time is a crucial factor with any development, as time costs money, so being hands on helps the development run as efficiently and as quickly as possible.
Considering A Property Development?
If you’re considering a property development now or in the future, then we believe the knowledge and experience of our Business Advisory and Finance teams will help make your property development that much easier. We can also put you in contact with other property professionals where required to help round out your team, and who knows, maybe you’ll find that property development isn’t that hard after all.
Just get in touch with us below or call (02) 4969 6600 and let’s discuss your options.