What Is Property Development Process
Real Estate Development Process
Property Development Process are a series of steps that property developers taken in order to find, stack and execute a property development project. An effective Property development process would include detailed steps that take you from the very first task of finding a development sites, conduction due diligence and financial feasibility on the project, and all the way to completing your property development project.
Let’s look at the complete property development process and all the steps that should be part of a property development course for beginners. Let me show you the complete property development process, that I teach in detail in my property development course I have packaged into a process driven Property Development System.
Conventional Property Development Process Vs "Process-Driven" Property Development System
Conventional property development process dictates that there are only 5 stages in property development process. However, from my own experience I have found that a complete property development process has lot more steps that are required to be completed in order to deliver a profitable property development project on time and under budget. A developer must have a clear understanding of all the steps involved in the property development process. There are over 10 phases in a "process-driven" Property Development System.
5 Stages Of Conventional Property Development Process:
Stage 1 – Vision
Stage 2 – Concept
Stage 3 – Consultants
Stage 4 – Construction
Stage 5 – Completion
The above are the 5 stages of property development process, as taught by most property gurus. I know this because that's what I was taught as well. However, when I actually got into doing property development, I figured that there are so many different moving parts between these 5 stages of property development.
"Considering only these 5 stages will be like talking about WHAT TO DO, rather than HOW TO DO property development".
Let me explain in the Property Development Process video below:
Property Development Process: Vision
You have a vision, you develop a concept of what you’re going to develop in your development, you hire the right property development team, you get the right property professionals, you get the right reports and then you contract out the construction to a builder to construct the development for you. Once your development project is complete you either sell the ones that you’ve developed or you hold them for long-term investment.
That’s all fine but for someone new getting into property development and thinking that it’s as easy as this, 1, 2, 3, 4, 5, I think that would be unfair to the beginners entering the property development industry. However, if you can see the complete picture before you actually get in the project or get into property development it would be a lot better. All I’m trying to do in the video above is to show you that complete property development process looks like in its entirety.
I have put together many courses in property development in various bite sizes, which I collectively call my Property Development System. I have developed these property development courses, over the last few years of doing developments, reading books, going to seminars and of course documenting each & every step over the course of all my property development projects that I’ve done personally with my own money.
I can easily pinpoint exactly how the property development vision becomes a reality, what are the steps involved and what are the things that you have to do, or the due diligence checklist that you have to go through in order to be able to develop that vision in the first place, so that it can be conceptualised and all the consultants can come in and start shaping your vision.
The Complete Property Development Process
Here is the complete property development process that I know and teach in detail in course. The image below shows a break down of conventional process into further details stages or phases of property development. Without these extra stages your property development process is incomplete.
Property Development Mindset
The One Thing You Need Before Understanding Property Development Process
Before I actually get into where do you begin and due diligence and feasibility, which is part of vision and concept. I’ve actually broken it down into further steps that you can take as you go along. I think the most important thing for any property developer is to be able to main the right mindset and if you haven’t got the right mindset, you’ll quit half way through and you end up wasting your money, wasting your time and I don’t want you to do that. You must have the right mindset to be able to go through The Complete Property Development Process. The reason I say complete is because, if you skip the property development phases or stages, you will get caught out.
Winners Vs Losers
There’re people who are winners and there’re people who are losers, but there are also people who haven’t actually learned how to win yet. You can’t categorise them into winners and losers, as black and white. There’re people who have that greatness within themselves and all they need is the right system, all they need is the right education, all they need is somebody holding their hand and telling them what needs to be done and they’ll go out and do it. You’ve got to make sure that you identify yourself with what kind of person you are. If you are that person who wants to learn and get ahead, then your must invest your time in learning property development the right way.
There is a saying,
Circumstances don’t make a man, they only reveal him to himself.
Certainty and Uncertainty in Property Development
This quote is appropriate for property development, because once you get into a development project, that project will reveal you to yourself. There are so many decisions that you’ll have to make. There could be times where you won’t be 100% clear as to what’s going to happen or what’s not going to happen. What I mean here is compared to a 9 to 5 job, where you go to a job from 9 to 5 and no matter what you do there, you know that, you will get the same pay cheque in your bank account next month. There’s a degree of certainty.
In property development, there’s a fair bit of uncertainty. I actually embrace it because that keeps me on my toes and keeps me sharp and keeps me from slacking off. A lot of people don’t like that.
If you are one of those people who craves certainty, so you know what’s going to happen next month, then property development is not going to be a good fit for you. In fact, any kind of business will not be suitable for you, because at the end of the day, property development is a business.
However, if you can embrace a bit of uncertainty, you can pull your socks up and say, "I’m going to do this no matter what happens" - then you can do extremely well in property development. If you are willing to spend the extra time required so that you get educated property development, get a really good understanding of property development, then there is nothing that will stop you from becoming a property developer.
It’s up to you but make your mind and ask yourself how do you see yourself. If you don’t have the confidence in your knowledge about property development, then you’re going to struggle in this industry, because there’s a lot of things that you have to assume and allow for before you actually get into a property project. When you’re in a job, yes there is a lot of uncertainty that you deal with. However, that uncertainty or the consequences for that uncertainty are actually borne by the company and not by you. In other words, if things go wrong, they don’t hit your back pocket they actually hit the back pocket of the company you work for.
If you’re that kind of person who doesn’t like to take that responsibility or do that, I would not worry about watching the rest of the videos in this article. You will need to find something that suits your personality. On the other hand, if you are willing to take action, if you are the kind of person who can take on challenges, if you’re the kind of person who can troubleshoot, if you’re the kind of person who is resourceful, I would say property development can be the most lucrative field for you as compared to any other field. Make sure you’ve got that right mindset.
Finding Your First Development Project
There are a few things that come before having a vision for your site. And that is actually finding the right site for your first development project. What is more important is to be able to get an understanding of the complete property development process.
Listening For Property Market Signals
Understanding of property market signals that give you the pulse of the market is very important. There are a lot of things that you can do when you hear these signals in the media, and this is what will seperate you from other property developers. Because understanding these signals about the property cycle helps you make better decisions when selecting your first site for your first development.
For you to be able to get to your vision and concept stage, you got to do full scale due diligence on a property. Which is basically determining highest based possible use, which is your vision. What it does is it gives you the ability to determine how many townhouses that you can put on a block of land or how many apartments you can put on a block of land and so on.
Site Selection / Analysis
How do you actually select the site? This stage, deals with understanding town planning zonings and overlays. The next step is collect data and analyse all this data about your site so that you can make an informed decision.
Spatial Analysis is basically you looking at your suburb from a birds eye view and understanding how it sits with respect to all the other properties that surround it.
In my property development course, I teach you how to plot all your sales data on maps so you can see what they look like and also determine the end value of your townhouses, apartments or units that you are going to develop. It’s very similar to what the property or real estate valuers do. I follow the same system, I get all relevant sales data and I plot it all there and I look for evidence that helps me support my decision of whether I’ll be able to sell my townhouses for say, 600K once they are complete.
My decision is based on actual facts, things like finding evidence that tells me yes, because 2 blocks from my target site, there were townhouses which were 3 bedroom, 2 bathroom that sold for 600K. That’s only about 700 meters from my development site. Then I figure out, whether or not this is achievable. Exercises like these, help me solidifying my assumptions and having a visual view of what it looks like, gives a totally different perspective.
When you’re a developer you don’t go out and keep doing a full scale financial feasibility on every residential property development project that comes on your table. It’s counter productive. You want to have mechanisms in place where you can quickly conduct a 2 minute feasibility on a project to be able to determine whether or not it is worth your while to proceed from this point on. Things like reading architectural drawings. I got this module in the course because when I started, I couldn’t read the drawings and I had to look at them and scratch my head?
Over a period of time, you get an understanding of the different architectural symbols that are used on drawings.
My 26 Question Due Diligence Checklist Revealed
Due Diligence Checklist And Risk Management.
This is all part of due diligence which unless you go through al the previous steps about actually finding the site for your development project & due diligence you won’t be able to develop your vision and concept, because these 2 Stages will actually answer all your questions so you can develop the vision and concept for your development.
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Smart Feasibility Calculations
Financial feasibility is the corner stone of property development. very important. Before a project starts, I do 2 sorts of financial feasibilities. I’ve designed a Smart Feasibility Calculator I use 90% of the time to vet a project in under two minutes. And I have an advanced Property Development Feasibility Study - Software, I use to do a full-scale feasibility on a project. The Smart Feasibility Calculator gives me an overview of the property development profit with 80% accuracy - giving me enough information to make an informed decision. Vetting a project quickly to determine the property development profit quickly, is an important step towards completing the VISION STAGE of property development process.
Watch the 2nd video explaining the property development process
The next stage in the conventional property development process is consultants i.e. your property development team or property professionals who help you with all sorts of building and construction permits, reports and drawings. But hang on, there's a lot of stuff involved with understanding finance and being able to purchase development site.
So, let me explain you a few things before you even get to the consultants. You've got to first be able to sort your finances. As part of sorting out your finances, it is important that you do a financial feasibility analysis. Conducting a feasibility will help you answer two crucial questions:
- How much money can you borrow? and
- How much do you need to do your first development? aka Developer's Equity Contributions.
If you've done your feasibility right, you should know exactly how much money will you need to chip in from your own pocket, to complete your first property development project.
Development finance also works in different stages. There are different kinds of loans, and there are so many lenders in the market. So it is imperative that you have a good understanding of what are these lenders looking for? The kind of loan that you can get and the serviceability requirements.
how to finance your property development project?
Development Finance: Stage 1
Land Finance to settle on the block of land or development site that you wish to develop. This usually occurs, either after you have signed a contract of sale or have already purchased or settled on the land. Now is the time, that you engage your property development team to being the planning process.
Development Finance: Stage 2
Construction loan is usually a commercial loan & is not dependent up on your serviceability alone.
Development Finance: Stage 3
Finalise stage of development finance is, the post completion finance required after the construction is complete. Post completion, you can refinance and hold a couple of apartments or a townhouse that you've just developed and acquired at cost. Maybe you've sold four of them and you've held two, and all that has to be refinanced back into a retail loan.
This understanding is required prior to getting into your development project. So that know what's going to happen when you reach the construction stage and what's going to happen when you reach completion, specially, if you're planning to hold the development that you're developing.
When it comes to valuations, you also need to understand why getting a favourable valuation is important? The different types of valuations, how to get a favourable valuation, understanding the various valuation methods and what does the valuer look for? You can also get desktop valuations from various free and paid sources.
With Site Acquisitions, comes a requirement to understand the best structures that you need for your development. Get the right advice from your accountant before you make a decision on the type of structure you will use for the development, often referred to as the development entity. Make sure that you get a good understanding of what's involved based on your long term plan after the development is complete. If you don't know what your long term plan is after the development is complete, you might end up with a structure that will not help you to save tax or help you with asset protection. I would suggest that you go and talk to your accountant and make sure that you've got asset protection built into it and you have an appropriate structure that can help you minimise tax legally.
Negotiate for Advantage
Negotiations are a very big part when you're purchasing the site. It could be negotiating the price, it could be negotiating the terms, it could be negotiating the time that you require for settlement which is basically part of the terms and special terms and conditions that become part of your contract of sale. So you have to prepare for these negotiations. You've got to develop your responses to all different scenarios. You must understand how to negotiate in a hot market as well as how to negotiate in a down market.
As part of my property development course, you also get my Negotiate for Advantage course in property negotiations.
Property Development Team
Consultants - which is stage 3, as per the conventional property development process, get activated now, after you have secured the development land or site that you are going to develop. You need to leverage off your property development team to obtain permits & all sorts of approvals from government bodies, councils and or industry watch dogs. Construction is a complicated industry with lots of rules, regulations and compliance. Leveraging off of specialised consultants is the only way you will be able to complete your development.
Design and Product Fit
These days, almost all living / working spaces get designed keeping in mind the environmental sustainability cost effective design. Your property development team will be able to guide you through this process. There are certain minimum standards that must achieved for by your development team in order to comply with various regulations.
Before we proceed, here is the 3rd Video that continues to explain the complete Property Development Process
Marketing And Sales
Marketing is very important specially post GFC, the rules of property development have changed. These days lenders and banks want to transfer all the risk to the borrower and or make sure that their worst case scenario is never a loss situation. To achieve this, lenders will often force pre sales upfront. Marketing can commence after you've got your planning permit or development approval. It has to kick in early, because banks will not fund the construction loan, unless a certain percentage of their debt is covered by pre-sales i.e. actual signed contracts.
You don't have to be construction contractor or a builder to be property developer. All you need to have a thorough understanding of the types of contracts, how to select different contractors, the tender process, what should be included & or excluded from the building contract, your obligations before construction commencement, during construction and post construction.
Things You Need To Do During Construction?
You need to understand, how to file progress claims, deal with retention clauses, builders and defects liability period, insurances required by you etc. There are so many different things involved here because when the construction kicks in and there are progress claims, you will need to deal with a Quantity Surveyor appointed by your lender.
The other thing that's very important while the construction is still going and it's not complete yet is to be able to get your title ready in time because ideally, you want your titles to be ready. Say for example you are building nine apartments and your construction is expected to complete in three months time. You've got to get in touch with your land surveyor or certifier or an authority that is in-charge of issuing titles on new developments. You will need to have this processes initiated in time so that as soon as your development is complete, your titles for the newly developed units are ready to allow your pre sales to settle ASAP.
You need to stay on top of this process, mainly because at the end of construction, you've drawn down 100% of your construction loan, which in our example of 9 apartments, is a big amount and your daily interest can range from $400 to $600, to $1,000 a day, depending upon the size of your development. So you need to make sure that your pre-sales can settle as early as possible to minimise interest costs and pay down the debt.
Property Development System
This is where the conventional property development process ends. However, I found that for property investors, there are some extra steps that are required. From my own experience, I have found that these in between steps are not just important, they are CRUCIAL to get an understanding of the property development process.
Here's the final video explaining the extra phases in Property Development Process over and above the conventional development process.
What's Your Property Investment Strategy?
Before You Can Think About Your Property Investment Strategy, Let Me Explain My Thumb Rules For Property Investment:
- Never buy an investment property at retail price. If you are a developer, you have the skills and knowledge required to get your investment properties at cost i.e. not paying for someone else profit margin.
- For me to hold a property or a townhouse or an apartment after I've developed it, it must be either neutral or positive. I don't believe in carrying on unnecessary debt, specially for investment stock. Your investment property should not cost you anything out of your pocket to hold it.
As a property developer you can roll your profit as equity, hold it, get the property refinance, or get a line of credit on it, and so on. So that you can use equity again for another project and then you can come back and repeat the process all over again. So, this is what strategy is and this is what I cover in my course in the Property Development System.
Three reasons you need a Project Report for your Development
- It serves as a checklist for me to make sure that I have a business case for my property development project. While putting it together as a business case, I am forced to back all my assumptions with facts and figures.
- The report tells me lender that I am thorough with my research and business case, giving them the confidence that I know and understand the complete property development process.
- It helps to attract property investors who are looking to invest in property development projects.
This is all part of doing no money down deals or creative deal making. In my No-Money Down property development course, I explain how I started as a property developer doing no money down deals. In fact, the five deals that I've done in the past, I've only had one project where I actually put my own money, and all the projects were in some way, shape or form we no money down deals for me.
In my No Money Down Property Development Course, I talk about how you can acquire the skills, resources and the education so that you become that go-to person with whom everybody wants to make a deal with. Everybody wants them to work on the project because they know that they have the skills and the ability to deliver the development project. There are no clever strategies because all the different kinds of strategies that used to work in the past don't anymore.
All strategies that I teach about doing no money down deals is about you becoming that person and having that knowledge and access to the resources and the skills and the tools so that your investors know what you're talking about and they want your to develop with them or for them.