- Develop

Why should i develop a property?

Although there may be risks associated with developing your property there are also great opportunities to experience capital gains far greater than what the market on its own can offer.

There has never been a better time for property owners to secure their financial future and set themselves up for retirement. Due to the shortage of housing in suburban areas the government is actively encouraging homeowners and investors to develop their properties ensuring that there is sufficient supply of housing to the meet housing needs of future generations.

It is important when considering whether to develop your property that you are informed as to the pros and cons as well as the costs and benefits so when you begin your development you do so with your eyes open.

With the help of experienced professionals to guide you through the process it is possible to leverage off their experience to ensure that all possible scenarios are considered to ensure that you maximise your profits whilst minimising your costs.

Only you can secure your financial future to ensure that when the time comes to retire you can do so comfortably and with confidence knowing that you are financially secure.

Think about selling before you develop your property

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Many property owners that consider developing their properties only consider their options for marketing at the very end of the development.

However this can often result in them not achieving their desired outcome in the most cost effective and timely manner.

It is advised that a marketing strategy be considered prior to the commencement of the subdivision process. This is because there is no point doing the development if the property cannot be sold at the end of the project.

Your Development Consultant or local real estate agent may have had experience with marketing developed properties and may be able to provide an insight into the most effective strategies which result in the highest returns.

The future value of your development

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Talking to council

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Once you have decided on a block of land it is crucial that you talk with the local council about your intentions to build to ensure?that you are fully aware of any special by-laws, policies or planning aspects in the area or restrictions relating to the land.

When discussing any relevant planning requirements it may also be a good idea to check whether there are any restrictions that have the effect of dictating the materials you use, the style of your house or the timeframe for building.

You may also enquire as to any plans for the area that might affect your enjoyment of the property. Development to be particularly wary of include such things as commercial or industrial activity or road construction which may involve excessive noise or produce unpleasant smells.

Items to consider when lodging an application for Planning Approval include:

Site Coverage Floor Areas this limits how much the block can be covered by buildings

Private Open Space an area of open yard which is private and useable should be provided

Car Parking Driveways areas must be provided for cars to park off the street

Building Appearance the new home should meet the desired character of the area

Energy Efficiency all new houses must have a 6 star energy rating to minimise energy use

Site Frontage Widths ensure the new house has a desirable visual appeal from the street

Front Setbacks this is the distance from the front boundary to the closest part of the house

Side Setbacks are important to ensure adequate daylight to side windows

Rear Setbacks ensure the new dwelling has a useable outdoor area in the backyard.

Property development - the numbers

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Regardless of your situation the most important factor when considering whether to develop your property is the numbers. If the numbers don't show that the project results in a positive outcome for you then there isn't a lot a point in pursuing the development further.

There are many items to consider when calculating the financial costs and benefits of the project however it is useful to analyse your project it 2 ways

1.Cashflow (Money in & Money out)

2.Equity (The value of the project)

Cashflow considers the actual money going into and out of your pocket associated with the project. Where you already own the property there will not be any cost associated with purchasing the property, however if you are yet to purchase the property then this amount and any associated purchase costs must also be included.

If we assume you already own the property? and wish to demolish the existing house, subdivide one into two, sell one block and build on the remaining then the following items will result in Money out

Subdivision Costs

Demolition Costs

Building Designs

Consulting Fees

Holding Costs

Construction Costs

Marketing Costs

The main source of Money in obviously comes from the sale of the vacant block.

If we compare the Money in & Money out overtime this will also highlight where shortfalls of cash may require some additional funding to ensure that the project doesn't run out of money before completion.

The financial outcomes resulting from the development may be viewed differently if we consider the effect the project will have on the value of the property.

Using the same example as above to determine the increase in value as a result of the development we must first consider the current market value of the property and then add this to the costs associated with the development. We then compare this to the future market value of the vacant block for sale and the newly constructed home to determine whether there has been an increase in value as a result of the development.

It is common for there to be only a marginal difference between Money in and Money out of the project however there may be a considerable increase in the value of the property after it has been developed. This may be because the newly constructed home may be worth considerably more than the costs associated with building it.