Property Development 101 Part Eight

© Property Professor articles — www.thepropertyprofessor.net.au.
Reproduced with permission.

So, you want to be a property developer. This can be a great way to make money, if you know what you’re doing. The property development process can be a long and complex one. The more you’ve planned and thought about your project, the more likely you are to succeed. Remember the old saying, “A failure to plan is just a plan to fail”.

This Property Development 101 series won’t be able to teach you everything there is to know about property development. For this you’d need to read many editions of this e-newsletter, books, enrol in courses and /or have years of experience. However, if you read each instalment, you’ll learn about the fundamentals of property development and it will make you aware of what questions you need to ask so that you can make an educated and informed decision.

In the Property Development 101 series, I’ll be outlining the major steps involved in property development. These include:

  • Setting your goals
  • Research
  • How to find development sites
  • Choosing the best site
  • Drawings
  • Feasibility studies
  • Working with council
  • Selecting a builder
  • Finance
  • Project management
  • Real estate agent/property manager
  • Tax

In the first instalment, I outlined some strategies in relation to goal setting and research.

In the second instalment, I detailed some methods on searching for developing sites and then some considerations when selecting the best site to develop.

In the third instalment, I provided an insight into the design and drawings for a development.

In the fourth instalment, I looked at one of the most critical components of property development; the feasibility study.

In the fifth instalment, I considered what you need to do when working with the local council/shire to obtain approval for your development.

In the sixth instalment, I addressed a number of issues you need to consider when selecting a builder for your project.

In the seventh instalment I touched on some of the major considerations in relation to property development finance.

In part eight of the Property Development 101 series, I discuss project management.

Overview

If you lead a busy life or you’re relatively new to property development, I’d strongly encourage you to consider using a project manager. A good one can save you time and money, and you can also learn about the many steps involved in property development.

If you do engage a project manager, get them on board from the very beginning. In this way, they can coordinate the whole project, from initial discussions with council to consulting with the building designer, overseeing the construction and working with the local real estate agent.

Why use a project manager?

I know many mum and dad developers are wary of paying for anything they think they can do themselves or get for free. The reality is, if you plan to spend $1 million to make a $200,000 profit, you shouldn’t skimp on paying for expert advice.

I outline fees later in the article but you shouldn’t quibble about paying tens of thousands of dollars for expert advice if you plan to make hundreds of thousands of dollars in profit.

How do you find a good project manager?

If you’re going to use a project manager, make sure you choose a good one. A good project manager should:

  • Have the right contacts – eg. building designers, local agents, surveyors, engineers, planning consultants, builders, etc.
  • Suit your project. Some project managers specialise in high-density developments. Others focus on commercial property. Find a project manager that has experience and success with projects that are similar to yours.
  • Conduct a preliminary feasibility. This will tell you whether the project is worthwhile or not. If it’s worthwhile, the preliminary feasibility should give you an indication as to how much profit you’ll make. A more detailed feasibility may need to be completed by a valuer.
  • Use recommendations from others. Don’t just search the Yellow Pages for likely project managers. Ask other developers or check reputable blogs or websites for recommendations.

What will a project manager do for me?

Below are just some of the major tasks involved in property development:

  • Finding the right site.
  • Making enquiries to council.
  • Consulting with town planning professionals.
  • Talking with local real estate agents about the best options, depending on whether you want to sell or rent the dwellings.
  • Researching the right number and best type of dwelling(s) to build. This includes determining the optimum size blocks, optimum size homes, configuration of homes and internal layout of dwellings.
  • Providing input to building designers about the ideal development for your site.
  • Assisting in gaining the necessary planning approvals.
  • Conducting a preliminary feasibility study.
  • Helping with the selection of the builder.
  • Liaising with the builder during the construction phase.
  • Advising on selecting the right agent to sell/rent the dwellings.

Project managers can do as little or as many of these tasks as you want them to do.

How much will a property manager cost me?

How long is a piece of string? It’s very hard to specify how much a project manager will charge but here are a few guidelines.

Some project managers will charge a fee based on the percentage of the total project cost. For example, if the whole project including land and construction is worth $1 million, they might charge two to three per cent ($20,000 to $30,000). This doesn’t include finding the project site.

Some project managers will ask for a percentage of the profits. If we use the above example and the gross profit is $200,000, they may charge 10 to 15 per cent ($20,000 to $30,000). This doesn’t include finding the project site.

Some will want to be paid on milestones. There will be an upfront commitment fee, a set fee for finding the property, another fee upon gaining planning approvals, the next fee due when building contracts are signed and so on.

Some charge fees based on an hourly rate.

You might decide that a combination of two or more of the above methods is best for your project.

My personal preference is for a combination of three methods – a fixed fee to find the property, an hourly rate during the project plus a percentage of the profit. If project managers are any good, they shouldn’t have a problem with “having some skin in the game” and being paid in part with the profits they’ve projected you’ll make.

Time is money in property development, so the less time that’s wasted, the more money will end up in your pocket!

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