Some of the world’s wealthiest people made their money in real estate, taking up 223 spots on the Forbes billionaires list. In theory, making money in property follows the basic rules of investing, i.e., buy low and sell high.
Unlike investing in the stock market, you don’t need to sit around and wait for the market to dictate how much profit you’ll make on your property. Instead, you can make improvements to ensure your initial investment grows.
So, if you’ve got some cash to invest, learning how to develop property could be a good option for you.
Find out more about property development and if it’s something that might interest you.
What is Property Development?
Developing property in its basic sense means improving a piece of land to fit a predetermined goal. This goal could be any of the following:
- An apartment building
- A townhouse complex
- A housing estate
- Land estates
- Offices, a hotel, retail outlets, or other commercial buildings
Types of property development include the following:
- Renovating or improving existing structures
- Converting one type of property into another
- Building a property on vacant land
The ultimate aim is to realize a profit by creating something high enough demand for people to buy or rent at a combined cost that’s greater than what you spent developing the land.
In some ways, property development is like house flipping, except developers are looking to make money over the long term while house flippers are after a quick buck.
The Pros and Cons of Property Development
When you’re actively developing a property, you’re automatically increasing its value instead of relying on the whims of the market to realize a profit. This makes property development an attractive option if you have the finances to start.
Once you’ve developed your first property, you can borrow up to 80% of its value, giving you more leverage to continue with improvements or running costs until you start to profit.
Property development isn’t without risks that can cause additional delays and expenses for your project.
Some of the aspects that can affect whether you’re onto a good thing or not when you’re looking at buying a property are:
- Population growth in the area
- Nearby employment opportunities and job creation
- Supply and demand
- Upcoming infrastructure investments such as roads, schools, and hospitals
- Lifestyle factors like nearby parks and beaches
Coupled with the whims of human behavior, all these factors create a constantly evolving property market. Considering the high costs involved, it’s easy to see why these unpredictable elements make property development a daunting prospect for the uninitiated.
Property Development Tips
While it’s possible to make a great deal of money in real estate development, you could also lose everything. Nothing to do with developing property comes cheap, and even the most successful developers have made bad decisions along the way.
The complex world of property development’s not for everyone, so take time to read through these tips before considering getting started.
Learn as Much as You Can First
Take the time to learn everything you can about the property you’re interested in.
You need to know about the surrounding market, economics, finance options, and town planning. In addition, it helps to brush up on construction basics to avoid forming unrealistic expectations.
Enroll in some courses about real estate and marketing real estate projects. Then, when you’ve got a better idea of everything involved in property development, you’ll be able to make informed decisions if you decide to proceed.
Talk to the Right People
You’ll work with a vast range of people when undertaking a project of this nature.
It helps to talk to some professionals involved in these fields before you start. They’ll help you better understand the finer details and costs involved.
Some of the people to consult include engineers, town planners, real estate agents, construction managers, and quantity surveyors. You’ll need all these services for your project.
It would help if you also had a team of lawyers, accountants, finance strategists, project managers, architects, designers, and building contractors.
Work out the Cost to Completion
Running out of funds is one of the most common reasons people never realize their full property development potential. An unfinished project won’t add any value to your initial investment, and you’ll end up with a white elephant you can’t get rid of.
Budgeting for all the costs involved and unexpected expenses is the most important part of planning your property project.
It’s also important to familiarise yourself with all the time factors involved in property development.
The entire process consists of several stages as follows:
- The pre-purchase stage involves finding a suitable property and conducting a feasibility study
- Negotiating and purchasing consist in agreeing with the current owner and signing the necessary contract
- Getting plans for your development drawn up and approved by the town planner
- Creating the final detailed drawings for the project and finalizing approvals
- Acquiring quotes from all the relevant professionals and hiring your team
- The actual construction of the building can take a year or more
Delays are expected at any one of these stages, so you’ll need a great deal of patience to keep your eyes on the prize. Unfortunately, it can take years before you see any progress in your property development.
Reach Out For Success
With thorough preparations, sound financial planning, and the right team behind you, nothing can stop you from succeeding in the property development world.
Who knows? Your name could be next on the list.
If you’d instead focus on smaller projects, for now, keep browsing our blog for more tips and information on real estate and related topics.