When this one finally gets off the ground it will be a great project, but there have been a few roadbumps along the way.  There are five of us backing this development.  It is in Footscray Melbourne which is regularly featured in property hotspots. 

Profit Margin on this for me should be in the 25% but there is a fair amount of risk.  The good news is that the DA approval has been achieved, so in theory, even if we bailed now the value of the project is still more than current outlay.  The builders are all lined up, so now we are waiting on, guess what, yes the banks….

Meanwhile, a short video below, that runs through some of the choices around the site choice and why Footscray is well regarded as a future hotspot.

Property development is tricky at the moment as the banks clamped down significantly, and many developers also had to deleverage to continue with their plans.

The house was planning in Tasmania, is in a development which has the last remaining land within a valley on never to be built out sea views.  I have bought the land as a way to reduce stamp duty, but in hindsight would have been better off waiting as any savings on this front are likely to be offset by the delay in building.  The overall cost of the land and build is in the $285k with retails price in the $330k to $350k mark

As it stands, the development was a joint venture and one of the developers pulled out when the s.. hit the fan leaving the project somewhat high and dry.  A new joint venture partner has been secured and we are now waiting on the bank’s approval to conitnue and get the show on the road!!

I also found out that the developer somehow used my land that was secured by a binding contract as security for the bank, so there is a risk that in fact I am somehow tied up in the overall development success and that despite the land having been paid for outright, it could be taken by the bank in the event of the collapse of the developer. Yikes!!  Lucky the developer is a good guy, but I should have made sure that the land title was in my hands.  Will let you know what the legal situation is on this so you can avoid a similar situation.

On the plus side the land values have held well; let’s just hope the hassle in the deal is worth all the delays!  Will keep you updated  with news

Property development is really a project management role where the aim is to find and manage a deal that adds value to an existing base in order to extract profit.

The word profit here is critical and your thinking needs to be much more business orientated as you are effectively coming up with a business case; it needs to be compelling as you are going to needing to convince multiple parties of the merits of your particular project.

Does this sound like a lot of work? Well yes it is a different ballpark to simply buying and holding property, so why do people do it?  Effectively you are moving further up the value food chain and therefore in a good project can expect to realise significant profits. This, however, does not come without risks…

In summary, let us outline the ads and ads of starting in property development as opposed to simply property investing.

Advantages

• Potential to make significant profits in shorter time-frames
• Will get you very connected in property industry

Disadvantages

• Can be time intensive
• Requires a specific skill set
• Typically increased risk profile
• Has a sketchy reputation due dodgy dealers

Property Development Market Update

I recently spoke with the CEO of the Property Developer that I am in Joint Venture with.  I enjoy speaking with him as it gives me a real insight into the property market from an insider who is on the ground rather than relying on media which is feast of opinions.

Here are some takeways from my conversation:

1) Lending remains very tight.  Banks are playing hardball on any finance deals, residential or commercial.  Deals are taking much longer than previously and the amount of documentation is extensive.  Message here is make sure you are watertight on your application!!

2) Banks are typically using 10% less than market value for refinancing deals and valuations.  Again a note worth bearing in mind, especially if you are looking at an off the plan purchase or looking to refinance

In terms of the property development market, obviously this is making things very tricky as the property developers are getting squeezed at both ends.  Delays are bad news in property development due to the holding costs involved. so tread carefully if you are starting your own development or looking at an off the plan property.

Stayed tuned for more property development market updates!