How to get into property development? Part 2 of 14
How to find your first lucrative Property Development deal?
This is part 2 of a 14 part series on How to get into Property Development?
The article discusses what you need to know first in order to get into property development:
- The 3 Major Mistakes made by novice developers when getting into property development.
- Important concepts that you need to understand in order to find your first property development project.
I get a lot of emails everyday and from experience I can conclude that the one thing every developer absolutely must master is, their ability to find lucrative property development deals on a consistent basis. This is the number 1 skill that you need in order to stay ahead of the competition. And if you haven’t got it packaged into a system that you can follow every time, you will either get frustrated, because you will spend numerous hours looking for deals that don’t stack or you will end up paying too much for the site and shoot yourself in the foot.
This is a very important video for anyone starting out in property development and you must pay attention if you would like to become a master at finding deals.
Because Bad deals = No Profit
3 Major Mistakes made by property developers when getting started in property development
Mistake 1: Following the Heard
Have you ever noticed a newbie say, “Everyone is developing here, so should I”. Or “Everyone is buying here and so should I”. That’s how novice property developers make decisions. It’s the heard mentality and it only works in the short term, only for as long as the property market is in an upward trend. This approach, however does not work over a long period of time or in other words, if you wish to be able to continually keep developing as your source of income, you need to take this to the next level and have a system behind it.
If you don’t have a replicable system behind your systematic property research, you will never know where to start in property development.
Why do you plan on developing in Melbourne, Sydney or Brisbane and why aren’t you developing in Perth, Adelaide and so on. The answer to this question shouldn’t simply be, “because I live here”.
For example, I am from Melbourne, however, my first development was in Brisbane and it was based purely on my market research and nothing else.
You have to dig deep on the macro level, chose the state first, then zoom in further to suburb level, and then finally to street level. Most, novice developers cannot back their answers with market research and facts. And over the years in my property development career, the more I have based my decisions on research and numbers, the more successful my projects have been and the more detached I have been from the projects I undertook. So everything I did during the project contributed straight towards the bottom line of the project.
Mistake 2: Listening to Negative Media
The second mistake, novice developers make, when getting into property development, is to listen to negative media. There are two things that you must always remember, 1st only “Bad news sells” – so everyone talks down the property market. 2nd you must not pay attention to the news sites who hire content writers to spin negative stories. Their job is to amplify the negativity. Because, I assume, you are going to be into property development for a long time, you need to have a property research system that you can fall back on to so you are making decision based on facts not just negative media.
Mistake 3: Listening to Economists – Too Much
• Have you ever seen a rich Economist? – I haven’t, & I don’t think they even fall in the top 100 disciplines that make people rich.
• Have you seen a rich property developer? I am sure you have and I pretty sure I have.
So what is it that the Property Developer knows that an economist doesn’t?
Property developers know the rules of property development and property economics and take action by following a replicable system of research and property development. They do their research and understand the difference between the demand and supply of various suburbs. They understand the various factors that play a role in determining house prices. They know exactly where to start and they maximise their up side and cover their downside.
To be exact, they have a working knowledge of Property Economics. In a nutshell, they understand that a deal is a deal – no matter where it is, what suburb it is in. If it stacks up, it stacks up.
They understand the important concepts that you need to understand in order to find your first lucrative property development project.
So before you get into property development, here is what you need to get proficient in. Don’t worry, if you don’t know what these are or how they work, check out one of my property development courses to get started in property development.
Important Concepts for Property Developers
Property Economics – A working understanding of New Govt Policies, Unemployment Rate, Impact of Interest & inflation rate, population growth, house price index, Australian dollar and the over all state of the economy are essential for any property developer starting out.
Property clock & market cycles – an understanding of property clock and the ability to read signals for Maturity, Decline, Bottom & Recovery
Listening for Signals – The ability to separate the Gossip & the Hype from what exactly is happening in the market, is another important skills every novice starting out in property must understand. Another complimentary skills required to efficiently listen for signals involves, leveraging the internet to hear for side kicks and other important announcements that impact property prices.
Understanding Statistics – new developers do not need to be statisticians to read market signals, but they must understand the 8 most important stats to get the pulse of the market.
Understanding Capital Growth – An understanding of capital growth, how it impacts property prices, how it is related to other forces in the market helps in identifying Suburbs with greatest growth potential. There are 6 important metrics that determine a capital growth trend. An understanding of these metrics will help you with suburb selection.
Demographics – Why do people move and how to find out where are they moving now is a very important insight for any property developer. Understanding, this not only helps developers refine what they are you going to develop, but also determine the expected demand for a certain kind of design. And the ability to forecast demographic movement sets them apart from “wanna be” property developers.
Validating Signals – know all of the above signals is not enough. The ability for novice developers to find proof for market indicators is another important skill that you need to know before starting out in property development.
Auto Alerts – And on top of all of the above, automating the entire process using web and technology will give you an edge over any developer in the market.
So to conclude this post, here is what is important for any newbie trying to get into property development:
- Do not base your development decisions on what every one else is doing. i.e. do not follow the heard.
- Do not listen to negative media.
- Do not blindly believe what the economists say, always do you your own research and find data to determine whether it applies to your particular suburb.
Invest time to understand the following important concepts and develop a property development research system:
- Property Economics
- Property clock & market cycles
- Listening for Market Signals
- Understanding Statistics
- Understanding Capital Growth
- Validate the signals you are getting
- Automate the entire process using web and technology.
Click the link, if you missed out Part 1 of 14 of How to get into property development?
Next week, in the Part 3 of How to get into Property Development, I will discuss why is it important to conduct a thorough Due Diligence, before you get into a property development project?
You can also the watch the complete How to get into property development? series on YouTube