In this article, we detail our property development investment model in detail. This allows you to make an informed decision when deciding if a property development investment is the best vehicle to generate wealth for you.
We identify promising suburbs by examining their recent performance and looking for indicators of future price growth such as population increases, infrastructure upgrades, new employment hubs, and additional amenities. From this, we create a shortlist of suburbs that are suitable for property development.
When we locate a land lot of suitable size in a shortlisted suburb, we research the sales history of nearby properties to provide a pricing baseline. We then create a preliminary plan to determine how we can develop the land and how many new properties we can build. By combining this preliminary plan with the pricing data, we can generate a feasibility report. The feasibility report considers the projected revenue from selling the completed properties and compares it to the expected expenses required to complete the project.
The findings of the feasibility report determine if we proceed with a particular property development investment or not.
Once we decide to proceed with a Development, we seek out an architect and town planner to assist with the creation of a design for the Development. The key factor that influences our selection of an architect and town planner is their experience working with properties in the area.
We collaborate to produce a layout and design for the properties that will generate the highest sale price. We also preemptively check with the town planner that our proposed plans meet the requirements of the relevant Council to prevent later delays.
When the decision is made to proceed with a Development, the property is purchased by a Special Purpose Vehicle company and a deposit is paid. To cover the remaining cost of the land so that we can successfully settle, we raise external capital. This is the stage of the property development investment process when we begin contacting investors.
Now that we have a satisfactory plan we must obtain permits to begin construction. Australian planning schemes regulate the use and development of land by requiring permits before certain types of development can start. If the Development involves land subdivision, this is where the subdivision is approved.
We meet with the nominated town planner for the Development to determine if the proposed plan meets Council requirements and what information will need to be submitted.
We can then submit the application. Each council has their own requirements, which is why we consult with the town planner, but it typically involves a site plan, elevation drawings, a written report, costing estimates, and a current Certificate of Title.
Part of the application process is Advertising. Any plan to develop land must be advertised in the area, so that any locals who may be affected by the development are aware of the development and have an opportunity to voice their concerns. If any appropriate complaints are raised, the building plan may be rejected until those objections are addressed. The period of advertising varies per state but is usually around two weeks.
When our permit is approved, we need to obtain building approval. Building approvals have different names in each state and territory, but the concept is the same. All residential building work involving a new home or a renovation to a new home needs a building approval. A building approval must be obtained before any building work can start.
Getting building approval requires us to show the council how the properties will be built, the technical details of construction including all materials, and what Building Code of Australia (BCA) requirements will be met.
Once our Development has been approved by council, we need to find a builder. We approach a minimum of five builders and obtain quotes from them to build the development. Based on the quotes we receive back from the builders, we select one based on the price, quality, timeframe, and builder’s credentials.
Off the Plan Sales
The success of the Development is dependent on our ability to sell the properties that are developed. As such, all of our sales are handled in-house. At this early stage, we generally sell to investors using an off the plan approach.
Once a builder has been selected we obtain a construction loan from a lender to pay for the construction process. The interest on a loan is cheaper than the returns we offer to investors. So by obtaining a construction loan we can keep costs down, increasing profit, thus allowing us to offer greater returns for a smaller number of investors.
Depending on the size of the Development, the construction process takes approximately 9-12 months and involves several stages. This is normally the longest stage of the property development investment process.
The first stage is to prepare the site. This involves the disconnection of services, demolition of any existing dwellings, and some preliminary plumbing. If the Development involves subdivision, each new lot needs to be prepared with electrical, water, gas, and waste infrastructure. This typically involves connecting to the preexisting infrastructure and establishing a body corporate to manage the shared utilities.
Next is construction of the properties themselves. This involves the creation of a concrete slab as a foundation, followed by the erection of the framing and roof trusses. The next step is to build up the exterior or facade of the properties. Electrical wiring, plumbing, and other piping is built into the walls before insulation is installed and the interiors are constructed. Flooring is installed, as is the tiling in wet areas. Exterior doors, garage doors, and windows are fitted, making it possible for the building to be ‘locked up’ for the first time. Finally, tapware, baths, sinks, mirrors, and vanity items are installed.
Before handover occurs we inspect the properties with the building manager and identify any issues which need to be fixed. Once those issues are fixed, the keys are handed over to us.
We try to sell all of the properties within a development off the plan. However, in the event that we cannot sell all properties off the plan we have a process for selling established properties. We may also arrange for on-site inspections/tours of the properties.
Once construction is complete we obtain occupancy certificates so the building/s can be legally occupied. We lodge the required documents to the relevant State governing body for title registration.
Once we receive the Titles back we officially settle the property and present the purchasers with their Titles and keys to their new property.
All of the income from selling the developed properties is deposited into our solicitor’s Trust account. The monies in the solicitor’s Trust account are then distributed to the Unit Holders in accordance with the Trust Deed. This is the final step of the property development investment process, bringing the project to a close.