Building Financial Success: A Journey into Property Development
With my Superannuation losing value fast, I decided I needed to do something to take my financial future into my own hands.
For a long time my father kept telling me: “Forget the stock-market Grant. Live in your superannuation fund, bricks and mortar is the way to go. Buy at the right time and right place and right price, and you can retire a wealthy man. Property is one of the smartest ways to invest your money”.
Having a quick glance at the rich list in Australia and it was clear the majority of their wealth was created in property.
“BRW Rich 200 Members have often turned to the property sector – and become substantially richer.” ~ Business Review Weekly 31 July 2008
Let’s be honest, we all want to be wealthy for a variety of reasons: Family, Lifestyle, philanthropic – me …. I just want to be able to give my family everything I can ….
So I set myself a personal mission statement of Building Financial Success and decided that my dad must be right (there you go dad, it is written down in black and white .. I acknowledge you were right at least once)… and decided I would achieve this mission via Real Estate.
Deciding that was easy … but what next?
What did dad say?
- Buy at the right time;
- Right place; and
- Right price
The first two seemed easy enough, with enough research {and I worked out how to do that too} you can often (not always) find the right time and the right place to buy, but the right price was a challenge to me.
How do I get to purchase at the right price … and right price for me was below market value … at least 15% below .. I liked the buy and hold method so often used, but if I could always buy below market value I would be able to grow my wealth faster … I want to be able to enjoy the wealth, enjoy my families enjoyment of wealth.. not be an old man and never get see the fruits of my labour.
Whilst there are some unfortunate people in some unfortunate situations, but not many people are silly enough to sell below what the property is worth, and even fewer who will sell at a 15% discount to value.
And why would I want a second hand property as an investment? I knew enough to understand buying investment properties brand new was a sound real estate investment strategy as essentially maximising on my depreciation benefits while minimising on my out-of-pocket expenses, given that buying brand new investment properties means generally lower maintenance costs.
So I needed brand new property, in the right place, at the right time at the right price (which I had already decided was at least 15% below value).
Further research showed me that what is not generally known is that the astute property investors on the BRW Rich 200 list are consistently generating safe and higher than average returns not by paying retail prices like most, but by accumulating properties at wholesale via property development.
By acquiring properties via property developments I would be able to grow wealth safely as well as achieve a better return on investment (ROI) enabling me to reach my financial goals a lot faster, allow me to Build Financial Success.
Below is an illustration of the cost savings of acquiring property as a developer at cost price, as opposed to acquiring property as an investor at retail price. For example these are the figures for 1 townhouse in Duplex project in Toowoomba.
Developer Investor
Market value $405,000 $405,000
Less development profit* $87,032 $0
Purchase price $317,968 $405,000
Plus stamp duty $0 $12,600
Plus Legals (Purchase) $0 $3,500
Total cost of property $317,968 $421,100
Net equity $87,032 ($16,100)
* These numbers are based on a project showing a yield of 27.37% on costs.
As the developer I would have acquired my own investment property $103,000 cheaper than a regular retail investor. A basic duplex – two townhouse – project would save me $206,000 and give me at least $174,000 in equity!
There was my answer … I had to get into property development FAST.
Embarking on a journey to become a residential property developer I again came to the stumbling block of how to start, what is the first step?
More importantly, what are all the steps? What are the steps of completing a residential development from beginning to end.
After spending many hours researching via the internet, reading, talking with builders, developers, financiers and of course my dad; I came up with the following 10 Phases of a Residential Development:
1. Identify Site
2. Initial Analysis – Feasibility & Due Diligence
3. Final Analysis – Complete Feasibility and Due Diligence
4. Negotiate & Acquire Property (Subject to finance)
5. Obtain Finance
6. Development Planning & Design
7. Council Approval
8. Pre-Marketing
9. Construction
10. Sales & Marketing
OK, in all honesty, this list was not my first list, in fact I think my list was as simple as:
- Buy a Site,
- Build it,
- Sell it,
- Make a big profit.
But before I spent any money I expanded it and refined it to the 10 points above.
Now having used these 10 steps to completed various projects I am confident they are truly my[1] blue print to Building Financial Success.
I am in no way saying that residential developments are easy, in fact they are not, but you can be successful if you’re prepared to put in the hard work and learn before you get started …. I learned a lot before I started, but I have learned so much more since .. unfortunately some lessons I learned the hard way.
If you’ve got money to invest, are asset rich and time poor, or your superannuation fund (SMSF) has been underperforming, then residential property development is a viable strategy for you too – contact Malyshka today to find out how we can help you acquire your first property at developer cost
[1] My blue print might not be suitable for everyone, and independent advice must be sourced.
