We have seen so many beginning property developers go badly wrong at the very first step.
Before scouring the real estate listings to find large blocks of land for sale, there is a crucial first step. If you jump into buying a site without taking this crucial first step, you are taking a huge risk.
You see, there is no way that you can be an expert in every part of your city or state. Yet, to be truly successful as a real estate developer, you must become an expert in the area in which you develop.
Each local council is different. Each area has different public transport provision, traffic bottlenecks, noise pollution issues, local resident action groups, and any one of a dozen other differences – and all these differences are vital factors in your development site viability calculation.
We advise that you don’t begin by searching for sites – but rather begin by selecting one or two area’s in which you will specialize.
When we’re looking for an area, we’re after “a desirable location with consistently good growth”. In other words, we’re after an area that historically has had a minimum annual average growth of at least 10%.
The growth of an area is normally associated with supply and demand more commonly known as the “scarcity” factor. But that’s by no means the end of the story. We have identified over 30 ‘Factors That Can Influence Real Estate Capital Growth’ – here are just some that we consider:
– consistent median house price increases
– positive population growth
– high socio-economic suburbs
– high percentage of homeowners
– low unemployment
– good transport links
Once we’ve identified an area we undertake a detailed market analysis of the neighbourhood using our ‘RED Local Market Feasibility Checklist’. Here are just some of the things we assess:
– demographics: Who is our market and what do they want?
– facilities: Are there schools, transport, shopping centres, hospitals, etc?
– gentrification: Is the suburb in transition, are people moving into the area, are people renovating, is there a café society, is it a beach suburb etc?
– infrastructure: Are there plans for new infrastructure like bypasses, new roads, new bridges, shopping centers or is council undertaking beautification?
Finally, we identify what the town planning regulations allow. Possibly even speaking to the local council planners directly – in our experience most council staff are very willing to help.
Never overlook the importance of proper research because it helps you to determine what type of dwelling is in high demand in a particular area, for example if you should be concentrating on townhouses or boutique apartment developments.
Once you have selected two or three locations which look good on paper, get familiar with the areas by driving around the suburbs, checking out what other developers are building, and then talking to a few Real Estate Agents and Property Managers. If possible, you should also attend property auctions. You want to get a feeling for what’s possible, and the demand in the area.
Only when you are completely satisfied that an area stacks up, in the statistics, the ease of doing business, and in the general atmosphere, should you start the process of looking at individual development sites to purchase.
Don’t get distracted by the “Bright Shiny Object” – the apparently brilliant bargain buy in an area you haven’t researched. You have no idea what problems you may be buying into! Stick with the area you know, and know well, and you will have a lower-risk real estate development experience.