How to become a property developer?
A Property Developer is essentially an entrepreneur and has to wear many hats. Property developers come from varied backgrounds in terms of education and industry. There have been property developers with no education at all who have done well. And there have been property developers with all the relevant degrees who have failed. What separates the failed property developers from the successful ones are certain qualities.
How to become a successful property developer?
In order to become a successful property developer you must have the following:
- Property Developer’s mindset. You must be hungry, in terms of your desire to achieve your goals.
- Irrespective of your educational qualification, you must be willing to learn everything about property development.
- You must have a Good Property Development Team
A Property Developer needs to understand all facets of the property development process. From conducting property development feasibility, determining the highest best possible use of the site to identify profitable opportunities. Understand the property market cycles, conduct market research & due diligence, to engaging the property development team and orchestrating & facilitating the entire development process from inception to delivery.
Before you enter into the realm of property development, I strongly recommend that you assemble a team of property experts and knowledgeable consultants. Now, you may wonder why you need a team? The simple answer is that property development is complicated and covers multiple disciplines. You can’t possibly have all the knowledge yourself. Even after you have become an experienced property developer, you will still rely on the skills and knowledge of qualified and experienced property development consultants. I only work with property development consultants that I trust & they are part of my success in property development. In this article, I extensively discuss the property development team you need in order to become a property developer.
Property Development Team
Whenever I consider a project, I assemble a team of consultants who help me establish the viability of my project and the initial project costs. If I commit to the project and proceed further, I bring on other experts as well. There are things like cost estimates, project yield, legal matters and all manner of side processes that are involved.
However, who you hire will depend on the project itself. A rule of thumb that I follow is that the smaller your project is, the lesser number of property development consultants you will require. For example, if we were to do a subdivision, our property development team should consist of a town planner, civil contractor along with a surveyor. On the other hand, a unit or townhouse development project would require a town planner with an architect.
Below, I explain in more detail who you will need to be on your Property Development Team and why you need them.
In my opinion, the first person that you should look for is a mentor from whom you can leverage experience. Your property development mentor will have a broad spectrum of knowledge on what steps you must take for your project. I remember how my mentor transformed the way I took decisions initially. In fact, your property development mentor will change the way you look at sites.
Over the years, I have learned to look at a project, not in terms of whether or not I have the money but in terms of what is possible for this project. Apart from asking myself, do I have the money to do this project? I ask myself questions like,
- Can I put this development project together?
- Can I get favorable settlement terms?
- What is it that I can offer to the vendor to swing them my way?
- What is the maximum price I should be paying for land?
These are the questions that I asked myself whenever I am looking at a project for development. It’s sad, but most property development courses or investment courses do not and will not teach you how to think like a property developer.
The town planner will ensure that the project is in accordance with your local authority’s residential codes and regulations. They will create a town planning report to support your application for approval to carry out the project.
The way I select the right people on my property development team is to understand the past projects they’ve been successfully involved in. I then narrow down the list to a team of experts who will suit my specific type of project.
What I’ve learned through experience is that property development is about managing both property development processes, and people. Their invaluable input is essential for successfully completing your property development project.
I have found that a good accountant is essential to ensure that I stay on top of the financial aspects of the project including record keeping and cash flow analysis. A good accountant with experience in property development is paramount to get the right advice on how to financially structure your deals.
A land surveyor is responsible for the preliminary assessment of land and reporting the necessary geographic information as well as to finalize the actual build on the plan of subdivision. Initially, the surveyor will prepare an identification survey as known in Queensland and also known as re-establishment survey in Victoria. They will also prepare a feature survey identifying significant trees, buildings as well as a contour (levels) survey. This allows the architect to commence working on the layout plan.
I always have a suitably experienced architect on hand as the building design is critical in helping you lay down the architectural plans. Your architect should ensure that the plans are in accordance with the building authority’s regulations. Believe it or not, an architect can also help you manage the construction contract as well as monitor ongoing construction in order to ensure that it follows the approved plans.
Like the architect you use for your building design, a landscape architect will be another one of the professionals required in property development. They will be responsible for designing the outdoor areas & landscape of your project.
If your project is larger than 4-6 units, your lender will mandate a quantity surveyor to audit your construction cost estimates. The QS will also manage & report on costs to complete. In addition to that, a QS will also validate all progress claims, prepare a bill of quantities, and a depreciation schedule.
Builder / Construction Contractor
One of the most important professionals required in property development is the building contractor. Personally, I take extreme care in selecting the right contractor to make sure construction goes according to the contract and approved plans. The last thing you want during your project is for your builder to go bust. Although because your bank is involved, there is some assurance that it will step in and help you appoint the second one. Nonetheless, this is a long, arduous and costly process to go through.
Also called certifiers in different states, are primarily responsible for approving and certifying building plans. They also ensure that the building is built according to the maintained regulations and building codes. I pick my building surveyors based on the type of building I intend to construct as their experience may vary.
A lot of developers use buyers’ agents to help them source development sites so they can concentrate on running my projects. Some of the best buyers’ agents also have the basic property development knowledge and can be very helpful in locating potential sites for your project. However, I find using buyer’s agents the laziest approach in the book. I have personally never used one and will never use one in the future. Only because, I feel that I can find, negotiate and structure a better deal without having an agent in the middle, irrespective of whether they represent me or the vendor.
Development Finance Broker
Without money, projects simply don’t happen. This is why I make finding a good finance broker one of the most important members of my property development team. Your normal home loan broker and a development finance broker will possess very different skill sets. Usually, they tend to specialize in either or type of finance. A development finance broker will not only know the top banks but also the 2nd tier and private lenders who can fund either the full development or parts of it.
An acoustic engineer is required to test and make sure that the new development does not produce excessive noise. They are there to ensure that noise levels are kept within an acceptable range.
My property development team would almost always include a civil engineer who will be responsible for the design of drainage, sewer system, earthwork, roadwork and water reticulation. These designs must accompany a planning application. They need to make sure that the design is in accordance with the building permit.
I use electrical engineers to design the electrical and telecommunication plans of the building. However, for smaller projects, architects or the building designer can also help with the electrical plans for the building.
When I want to build on a site, I want to make sure that I can safely put the buildings there. I engage a geotechnical engineer to report on the soil composition and anything which may be an issue for construction.
I engage a hydraulic engineer where I need advice & design for roof water drainage, sewer & water reticulation relating to the building. Their drawings are usually accompanied with engineers drawings at the building permit or building approval stage, but can also be required to support a planning application.
One of the key professionals required in property development is a mechanical engineer. I work closely with them in considering air conditioning systems, ventilation, elevators, and other aspects of the project that involve mechanical devices.
A structural engineer is required to design foundations and framework of the building. It is your job to make sure that there is communication between your structural engineer and architect. The structural engineer will supply design and sizing details such as tie downs, bracing and steel or timber sizes that must be incorporated in working (detailed) drawings. The structural engineer will periodically supervise the construction & ensure conformity to engineering requirements in the design.
A traffic engineer is responsible for assessing the impact of future traffic flows and make sure that appropriate design measures are built in to deal with traffic flows. When undertaking a project where potential traffic issues exist a traffic report will be a mandatory requirement of the development permit application. Traffic issues can arise from your development being on a busy road or where the number of vehicles entering or exiting from a site has significantly increased.
As developers, our approach should be to reduce risk at every opportunity. Good lawyers help us do so through good advice and preparing documents that protect our position when there is a lot a stake. I would like to CAUTION novice property developers and investors to be careful of using templates obtained from property seminars and other courses. I know this because when I started off in this industry, I was lured by property seminars who promised to give their past agreements and contracts so we didn’t need to spend money on them. Please DO NOT USE someone else’s agreements and contracts, because they are not worth the paper they are written on. The main reason being the fact that every project is different, every deal is different, the terms and conditions of each project are different and so are the stipulations pertaining to that specific development. DO NOT BE PENNY WISE AND POUND FOOLISH.
I always do whatever I can to maintain a good working relationship with an experienced lender or the funder of the project. They help provide the necessary funding for the project. Without their input, my project would otherwise remain an idea.
An appraiser aka a commercial valuer is responsible for calculating the Project Related Site Value & the residual value of land for the development site and the completed project for development finance purposes. Unfortunately, your choice, in this case, is limited to the commercial values available on your lender’s preferred panel. A project related site value is particularly important in Australia as it removes any GST implications from costs and GRV’s i.e. the gross realization value of your project.
In my recent 12 townhouse development, I, in fact, challenged one of the valuation firms on their commercial valuation and got them to revise their number. This is something that is seldom taught in property boot camps and or property seminars. However, if you wish to become a good property developer, you must understand or at least have your own property development feasibility study that accounts for this. Both my property development feasibility add-ons, Validation Feasibility as well as the Advance Property Development Feasibility include calculations for the residual value of land as well as the Project Related Site Value.
Real Estate Agent / Project Marketer
In my experience, a good real estate agent that helps you in selling your development quickly can save you a lot of anxiety and money. What you should be looking for in your real estate agent or project marketer is whether or not they are pro-active. Anyone can throw a line out and wait for the fish to bite. However, a good agent will have an extensive network as well as would know the market like the back of his/her hand.