7 Common Mistakes Of First Time Property Developers
Being a first time developer doesn’t mean you have to make the ‘usual’ mistakes.
As a specialist multi-unit property development building team in Melbourne, our clients have our expertise to guide them every step of the way. We can take care of everything from design to construction.
We offer this complete ‘turn-key’ service as many of the first time developers who we would meet with and who had purchased a block of land, finalized a design and thought they were ‘ready to build’ – we’re actually under prepared or misinformed.
The biggest and most common mistakes we’ve found new property developers make are:
- Not conducting enough research / due diligence
- Under-estimating costs and over-estimating profits
- Failing to maximise the lands pontential
- Over capitalizing on design
- Not understanding the impact of time
- Not engaging development professionals early on in the process
- Engaging professionals based on price
1 – Not conducting enough research / due diligence
General research and specific site / location due diligence is a non-negotiable. You have to do it well or your project cannot be successful. Before you go into any development, you need to be aware of general property development regulation, legislation and process in your areas, so you know what the possibilities are. As well as anything that is going to effect demand, such as population and employment growth, and economic factors such as consumer confidence and finance approval trends.
2 – Under-estimating costs
There are a lot of associated costs within a property development project that need to be accounted for at the beginning. Speak with a specialist multi-unit property development builder, or design and construct team in your area at the start of the process. They’ll be able to give you an accurate run down of the costs associated with your development.
You can also refer to this article: realistic time and budget link
3 – Failing to maximise the lands potential
Cramming as many units as possible in accordance with regulation and code (over designing) is not always the answer to achieving the best return on investment. We have seen many instances where a project has been over designed and the final product has failed to appeal to a purchaser or prospective tenant. Over designing commonly leads to an exhaustive town planning application process as local councils are generally not in favour of an over designed project.
Return on investment can also be compromised if the development is under designed.
There is balance and fine line to getting it right and a reputable building designer, architect or design & construct team will be able to optimize your parcel of land.
4 – Over capitalising on design
A projects design should be relative to the area that it is located in. For instance, if material selection is not applied appropriately and irrelative/expensive material finishes are selected, it is very hard to recover these additional costs in a sale as you will potentially be competing with other relative properties on the market seeking a lesser purchase price. Needless to say this will impact return on investment.
5 – Not understanding the impact of time
Each delay in design, applications and construction impacts your bottom line. The holding costs of a property development project can be significant, as each interest payment is eating into your profit. Being aware of realistic timeframes ahead of the project will assist you in being prepared. Engaging a professional consultant, or design and construct team will also streamline the process and take some of the pressure off.
6 – Not engaging development professionals early on in the process
As you will have noted as you read through the mistakes above, most occur as a result of not engaging professional assistance early on in the process. Whether that’s a trusted, experienced friend, a networking group, a consultant or a specialist multi-unit design and construct team – it’s advisable to get professional help early. Even short delays can be costly and most can be avoided when you have an experienced hand managing the workflow.
7 – Engaging professionals based on price
On far too many occasions we see developers engage professionals based on their price. The old saying “you get what you pay for” couldn’t be more true. We have seen many projects impacted as a result of this.
Case Study 1: A client who approached delcon with an approved town planning permit (sourced by others) on their parcel of land was seeking our services to provide working drawings and construct their project. We immediately noticed that one of five garages was designed to be built over an existing storm water pit and this storm water pit was not adequately documented on the town planning design documents. As a result, the client was forced to re-engage with the original building designer to redesign this section to the satisfaction of local council which came at the cost of time, a very long time as it generated a domino effect of other issues. To the disappointment of the client, this poor quality assurance cost them 6 months.
Case Study 2: A developer had elected a construction company to construct their project as they were the cheapest price. The developer failed to identify that the project specification did not specify all that was required and requested. The project ended up in a stand still and 22 months of litigation. The cost of legal fees and time had very detrimental effects on this project.
It is very important to engage professionals on their ability and reputation. Saving a dollar early in the piece can cost thousands when it is too late.