Insights for Property Developers
These insights are targeted towards the landed property developers, so single, duplex, quadruple units etc.
Choose an area.
How do you choose an area? Research is the only way. What kind of research do I need to know? Here are 3 sectors to get you started thinking right:
Demographics – Has the population shrunk or grown in the last 5 to 10 years? If it’s shrunk find out why, if its unemployment increase, then walk away, after doing a quick check to see if there is any major infrastructure by the government planned for the area. If it’s grown, what age group has it grown by? What race are they? Why is this important? If the area is predominantly full of Japanese residence, this effects design. Japanese people predominantly buy contemporary minimalistic homes. So this information tells you who your buyer is.
General Economics – What is the unemployment rate of the area? What is the average income of the residence living in that area? What kind of cars do the people drive in that area? This tells you how much money they have to spend.
Crime – What is the crime rate of the area? What kind of crime is committed in the area? Every area has gangs or street kids hanging around, where are they? They are generally near the shops etc. This tells you where the hot spots are in the area and to stay completely away from them.
So you’ve found an area that ticks the boxes with at least 2 or 3 suburbs that’s looking good. What next?
Sales & rental prices – Get to know the capital appreciation over the last 5 years of all the sales and rentals of those suburbs. Go out and look with your own eyes at every home that has been sold in the last year. Find out the buy and sell price? Has it been renovated? What is the location like? Is it on a T-junction or corner? Near the shops or schools? This creates a financial and buyer profile picture.
Infrastructure & New Developments – Find out if there’s any new infrastructure projects on the cards within the next 5 to 10 years. Contact the planning department to find out of any new major commercial developments to be built in the area.
On the ground – Go to the local shops or park in the suburb and ask the locals why they live in this suburb? You want to hear it from the horse’s mouth. Why is this so important? You don't truly know about a suburb until you live there, never assume anything. Also, ask them about any negatives? And never forget the golden rule about advice or an opinion. Make sure it’s backed-up with at least 2 other people, before you can accept it as an accurate honest assessment.
Know the best and worse streets – this is absolutely critical, everything in life has an entry and top level, suburbs are no different. People aspire to live in a better suburb and they usually come in at the entry level and work their way to the top. You can develop for all streets in that suburb, but you first need to know the entry and top prices of each street.
Find the worst houses in each street – Never buy the most expensive or best house in the street, your job is to find the worst houses in each street and target them. This is your stock pile, your database of product you’re going to buy at some stage.
Who’s your competition? – What are other developers developing in your suburb? What type of product are they producing? You must differentiate yourself from your competition, carve out your own niche, product, standard, quality or you will fail to add value to your brand. Trust me the locals in the suburb will very quickly get to know who you are and if you’re any good. They will either be your greatest asset or worst enemy as they will spread the word around to potential buyers.
The next 2 insights are really big subjects, there’s a lot more to them, but this will lay a good foundation to get you started in the right direction.
Buying the right property – By now you should have a clear picture of what the right guide prices are for every worst house in the streets of your chosen suburbs. Next, every home is for a female, females are always the buyers, even if there’s no female involved in the purchased, males buy their homes for females. The No.1 buying motivation in a home is always the kitchen it must be fully equipped and beautiful, preferably open planned into the dining / lounge. Ensuites and bathrooms are next and so on... Also, dark homes struggle to sell.
Buying at the right price – There’s no emotion in the purchase, it’s all business. Do your feasibility study and financials, are you renovating the property or knocking it down and rebuilding a new one? What’s the total cost for the development? What am I going to sell the end product for? This is worked out by the average sale price over the last 6 months of properties sold in that street, not another street, but that street. Once you’ve established your purchase price, stick to it, and if the vendor is dreaming, walk away.
Design – As of all the research you’ve previously done, you should know exactly the buyer profile and what they’re seeking in design scheme, configuration, features and functionality of the new or renovated property. There should be no guessing. Remember also, human beings like to eat Western, Chinese, Indian, Thai, Japanese food and so on… Same in property, everything doesn’t need to be contemporary or modern.
Time – Time is your No.1 enemy in every development. The clock is ticking from the moment you settle on the property. Hence why you should always seek a delayed settlement, until you’re ready to start construction. That means planning is approved, building regulations (license) is issued, ready to start construction before you settle on the property.
Product – Never cut corners, it almost takes the same amount of effort to create a product of a high standard of finish as it does an average one. Also, never forget the small stuff, it’s the small intimate details that differentiates you from the crowd. Remember, the product you create is generally where your next buyer comes from. I cannot stress to you enough the importance of producing a product that is second to none in quality, detail and standard of finish.
Funding – Never use your own money for any part of a development, always OPM. Always continually maximize first tier lending amounts. So when in negotiating your mezzanine, equity or investors, never agree to early pay-out penalties. Also, never allow your 2nd and 3rd lenders to have interest and equity. Either agree to a fixed interest amount or a fixed equity percentage of profits.
Presentation – Unfurnished homes take longer to sell and sell for less, so don’t ever try to sell an unfurnished home. Use undersized furniture if you have a small room, so a double bed versus a queen size bed. Also, make sure you utilize strategically placed tasteful mirrors to enhance the size of any rooms. Always use natural inoffensive colours. Let the theme flow throughout the home.
Tax – You must pay Caesar what Caesar is due. However, why must you live in a country that is insanely overtaxed? Whoever tells you to be proud of paying more taxes as you’re earning more money, is insane or is a politician! Why not establish your development company in a country that you would like to live in that has a low tax rate? Who says you have to live in the same country where you develop? If you’re quest is freedom, then free yourself from everything.