Tips for Successful Property Development
The potential for significant earnings in the property development business attracts both developers and investors. However, numerous mistakes can turn opportunities into challenges that you need to avoid if you genuinely want to succeed in this field.
By steering clear of common errors, you can maximise your earnings and reduce the associated risks. This article provides you with essential tips to help you achieve your property development goals.
Understand Property Development Before You Launch
It’s common to see newcomers in property development conduct minimal research, make rough cost estimates, and then embark on a project. To be successful in this industry, you must have a thorough understanding of how property development works.
If you plan to oversee the development project yourself, you’ll need to collaborate with various professionals, including architects, town planners, surveyors, technicians, lawyers, building firms, building inspectors, and local councils. If you lack the experience to navigate the property development landscape effectively, consider hiring a planning and development manager or participating in a joint venture with a reputable property development firm.
Understand the Property Development Market
Understanding the state of the property market is crucial for success. Conduct thorough research and engage with industry players and stakeholders to answer key questions such as:
- What demographic resides in the selected area?
- What stage is the property cycle currently in for that location?
- What price are buyers willing to pay in the area?
- Will the development be in high demand?
These factors can determine your likelihood of success.
Spend Time Researching the Site
Locating a suitable site is perhaps the most critical aspect of property development. Once you identify a potential site, investigate zoning regulations and subdivision rules. Determine if the site is heritage listed and understand any local area planning policies or proposed rezoning that may impact it.
Complete a Feasibility Study
After researching the site, the next step is to conduct a feasibility study. This study will evaluate the site’s worth, the number and type of houses you can build, and whether you can achieve substantial profits. Conducting a thorough feasibility study is essential; failing to do so risks your investment and can lower your profit margins.
Your feasibility study should include:
- An analysis of the project’s entire timeframe
- An estimation of project and subdivision fees
- The location of services and utilities
- Soil examination, soil type, and drainage requirements
- Any restrictive covenants or easements on the land title
Understand Your Tax Obligations
Your tax responsibilities will vary depending on whether you are an investor or a developer. For instance, investors pay tax on profits made from properties, but if they hold onto the property for over 12 months, they may qualify for a 50% reduction. Developers, on the other hand, may not qualify for such reductions and could have different tax obligations.
It’s essential to understand your tax status before starting any development process. Consider consulting a professional tax accountant to determine the appropriate structure for acquiring your property, whether as a company, an individual, in a trust, or as a joint venture. Each structure has its own legal and financial implications.
