The Ugly Truth – 3 Tragic Mistakes First Time Property Developers Frequently Make [And how to avoid them]

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First time Property Developer?

Be careful as these relatively innocuous mistakes may seem simple enough, they can lead to tragic financial circumstances for the unwary

As you might imagine here at SCM Projects we speak with a lot of people who have aspirations to make money from property development. Many of them are first timers who for one reason or another think that property development is an easy and fast path to riches. Once upon of time there may have been some truth in that but these days there are a lot more hoops to jump through, “T’s” to cross & I’s to dot than there once was. In short there are many traps for new players. Following are the top 3 mistakes we come across from people planning to subdivide or build for the first time

1.Property size:

I’d be a wealthy man if I had ten dollars for every time we were approached by someone who assumed that just because a property was large or on a corner or had a big yard it could be subdivided or enable a 2nd house or worse, a block of apartments to be built on it. Yes, everyone wants a property that has that elusive ‘potential’ that real estate agents often advertise however it’s rarely ever black and white when it comes to working out a property’s potential. Ascertaining its true zoning is a good place to start. There may be other constraints such as what’s known as an “overlay” or “DCP” (Demolition Control Precincts). Many older character areas can be subject to this. The site’s dimensions are also paramount as most councils have minimum frontages, land size and boundary clearances etc. Location is very important as we all know but so are these other things if you’re planning to develop the property or paying for the potential to do so.

2.Infrastructure & Essential Services:

This relates to the location of essential services such as sewer, stormwater, power etc.  and how these or the lack of them may impact on the viability of any future development potential. Provision of the required services can be an expensive process, the costs of which actually start with the need to have approved designs for these services before the works can be undertaken. This frequently runs into thousands of dollars and just as frequently is not allowed for in first time property developers budgetsproperty development mistakes

3. Properties with a DA:

So often we are approached by ‘would be’ first time property developers who have purchased a property with a DA and in speaking with them at times one could be forgiven for mistaking them as having just discovered gold. Frequently, but not always, these DA’s are not worth having. The reasons for this are varied but include such things as the REAL cost to produce the approved project when added to the cost of acquisition, holding and sale leave little if any profit. Very often the seller of that DA approved property has already established that fact, hence the decision to sell. The main offenders in this category when it comes to subdivisions relate to the costs associated with the provision of essential services to each lot created as noted in 2 above. When it comes to DA’s to build units and townhouses, another common misconception is that many first time property developers assume that they can achieve an accurate build price using just the DA plans. Sometimes they think that is all they need to start building and are often staggered at the costs associated with getting a full BA [building approval]

4.Lack of ‘Due Diligence’ – This is how to avoid these mistakes

There’s a well-worn phrase “knowledge is power” and it applies to property development as well as many other things in life. Of course knowledge without action is useless, so be sure to gain the knowledge needed first, then be sure to use it. We have probably all seen examples of “paralysis through analysis” but there’s no substitute for doing some market research and “site specific research” of your own. Failing that be sure to get advice from a reliable and competent property development industry professional. Advice gained from the selling real estate agent should not be considered as reliable when it comes to assessing the development potential of a property. He’s there to do a job for the vendor i.e. sell the property and his dissertations that it’s a ‘great investment’ or that it has ‘development potential’ are subjective at best and not independent and should be backed up by further research.

Some specialised knowledge is best sourced from professionals who are experienced in their respective fields. This will of course cost more to obtain. Don’t be afraid to pay that price though as it will likely save you far, far more in the long run.  In short, if you are buying a property for its development potential make sure that you firm the potential up before you firm up the contract.

SCM Projects Property Advice

Why are these mistakes so tragic?

Because they are so easily avoided and can lead potentially to a substantial loss of both money and opportunity not to mention time which in some cases can last years and, given the current economic situation with Covid 19 – why take that risk?

For a small investment of just $550 in an SCM ASSURE report you can gain peace of mind and avoid potential financial calamity.

 

Don’t be afraid to give us a call here at SCM for a chat about your pending project on (07) 33697779

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