What Newcomers Can Learn from the Industry Veterans
Property development has an extensive background to it. To be successful there needs to be an understanding of the basics. By definition, property development is a business setup revolving around activities that range from the redesign to the re-lease of existing buildings. Harnick Kang shares the basics of property development.
Harnick stated that there is a lot more done off-site than people know or understand. Before the construction process, the underwritten is the foundation of a successful property development project. The development process consists of: brainstorming the idea, testing the idea out for feasibility measures, negotiating the contracts, committing to a final agreement, construction phase, completion, and finally managing the project.
- Reason for Property Development
Understanding why this site needs to be revamped is important. Knowing the why of the plan can help facilitate the brainstorming process. Will there be a sale after the project is completed? Will the property be for capital growth and pursuing rental income?
Once you have found a site that you feel has potential, Harnick Kang states that there are things you need to check off first prior to the actual acquisition.
1. What will be the entity of the property?
2. Who will sign their name on the property?
3. Do you have an accountant readily available?
4. Has the pre-finance stage been completed?
5. Do you have a team of consultants for advisory purposes?
Now is time for brainstorming the concept of the project. What will be placed on the property? Rental? If so, how many units and how big will it be? What are the restrictions that you want for this property? This is when the local council’s policy will need to come in to play because you must understand and follow what can be built on this property. Each council is different based on the location of the property.
When brainstorming, Harnick says that realizing the potential of the property beforehand – how well will it sell, or will it lease well? Is the property marketable? – will guide you in envisioning what to bring to the table as far as the concept design goes. Consult your team for extra visual concepts. Be mindful of the fact that you can’t build just any lodging on the property. The council provides strict guidelines that must be adhered to.
Once the vision has been developed, start designing. You can use pencil and paper, or a 3D design software made for Mac or PC. Include great detail and do not be afraid to design more than one concept at first.
It is unlikely that anyone will begin a property development project and not crunch numbers and then crunch them again. There should be a report for estimated time spent, cost of materials, consultants, construction, and a report for the profit margin. Harnick suggests that a small financial cushion is added to the total for any unexpected costs. There is a feasibility software that all property development managers use for entering the data. This software calculates the residual land value – the top off of affordability for the land for it to be deemed a viable project. If the property is determined to be viable – worth the purchase – then an offer of purchase is made.
This is self-explanatory. After the numbers have been calculated and the property is feasible then the land is purchased with the clients in mind for them to turn a profit.
After the blueprints have reached their final stage and been drawn up, they are compared to the local council’s guidelines. This stage will involve a surveyor and a local planner because of the comparison complexity that takes place during this stage.
- Drawing and Documentation
Once the development approval has been accomplished, a building permit needs to be obtained before construction can begin. Expect at least two to three months for this step to be completed.
- Preparation for Construction
After the construction quotes have been entered and agreed upon, now is time to organizing the funds accordingly. This will be based on the builder’s set price that was written in the contract.
Finally, the property can start its construction phase This phase usually takes about 7 to 12 months. This can be higher or lower depending on the size of the property. This phase is referenced as property development because the property is in its development stage.
This stage is for the selling or leasing of the property. Clients should think backward in terms of the new property. This means that the client should consider what they want from the property first. This will help when it comes to strategizing the plans for the property.
Conclusion
Property development is quite a lucrative venture. Be careful of mistakes in the beginning stages. Do the research before committing to avoid destruction or ruin before the property has hit the concept stage.
