If you’re just starting out, it’s crucial to rally the right people around you – lawyers, accountants, architects and town planners will all be important contacts to call on for professional advice and help. There are also a few property development basics you should consider if you’re to make effective, legal and profitable decisions throughout your project. Get these things right and you’ll likely want to do it all again! Have a read through our basic guide to property development below to give yourself the best chance of success.
Determine Your Property Development Project Feasibility
The first step in your property development venture is to conduct a comprehensive feasibility study to determine the viability of your project. This study should cover extensive market research (to establish the current and future value of the property/development), the forecasting of costs (and thus the potential profits), the timeline of the project, site surveys as well as consideration of any risks or barriers.
Undertaking the above will enable you to make a decision about whether the project is worth pursuing or not, as well as provide you with a well-structured plan of attack to kick-start the project on the right foot. Plans, however, don’t always go perfectly (2020 has taught us all about this!), so it’s important to come up with a contingency plan for any unexpected costs or hindrances as well.
Get Advice on Land Acquisition
If you don’t already own the property you’re thinking of developing, it’s essential to engage a lawyer to ensure you’re entering the project with confidence and with your eyes wide open.
At this stage, it’s advisable to seek advice with respect to negotiating and reviewing the contract of sale, undertaking due diligence, establishing accurate market values, obtaining suitable finance and appropriately affecting the transfer of land. If possible, the contract of sale should provide for conditional terms such as satisfactory council consent for the intended subdivisions and development.
Structure Your Property Development Ownership
How to structure the ownership of a property development can be a complex aspect of the project, and serious consequences can ensue if this is not correctly addressed from the get-go. The party relationships need to be mapped out and established properly.
To start with, you’ll need to determine whether you should undertake a joint venture or a partnership. It’s paramount that you adopt a structure that best suits the circumstances as well as the interests of each party, so make sure you understand the implications of these structures.
Finance Your Property Development Project
This is where your planning and feasibility work will really prove its worth, as the bank will attribute significant weight to the viability of your development and your strategic plan. How much you’ll be able to borrow will depend on the size of the development; however, typically you can borrow up to 80% for smaller projects and up to 70% for large-scale ventures. Developers must have a clear understanding of the terms of the loan agreement incidental to the mortgage and the impacts to the different stages of the development.
An alternative is to enter into a joint venture with an equity partner to fund the development. Typically the repayment is achieved by the return of the capital investment plus a share in the proceeds or product of the project.
Establish a Watertight Building Contract
The success of your development heavily hinges on acquiring expert and reputable builders. The contracts entered into with these parties are equally as important. The main concerns relate to plans and specifications, time for construction, extensions of time, liquidated damages, variations and accounting for unexpected events. We highly recommend that you engage a lawyer to review these contracts to save future headaches.
Explore the Subdivision Potential of Your Project
Subdividing land can be a complex process and various factors, such as state and local council policies, service of utilities and infrastructure, impacts of easements, stamp duty, and consent from the bank, need to be addressed. You’ll need to have a legal professional assist in the application of the subdivision proposal and to liaise with the relevant parties, consultants and authorities.
Protect Yourself Through the Sale and Settlement
Most developers sell their properties through ‘off the plan’ contracts. It’s necessary that completion dates, sunset dates and termination clauses are carefully drafted to preserve the protection of the developer, while also complying with consumer protection provisions and disclosure requirements.
Are You Ready to Get Started on Your Property Development?
Now that you’ve read our Basic Guide to Starting Out in Property Development, you should have a good idea of where to focus your efforts. You’ll likely need some professional support, however, and our multidisciplinary approach at BlueRock gives you access to expert legal, accounting and financial professionals who are all experienced in the property industry and can guide you through the multiple layers of a property development project.
If you’d like to talk through your property development ideas and needs, please get in touch with our BlueRock property team.