Two Things that make you money in Property Development.
Morning everyone. A beautiful, sunny morning in Melbourne just after the long weekend. I wanted to talk to everybody today about the 2 things in property development that will make you money. Everything else in between is a cost. The 2 things are innovation and marketing. No matter what you do in property development there’ll be just 2 things that will make you money in property development, innovation and marketing. What do I mean by innovation?
Innovation could be in the way you structure deals. Innovation could be in the way you get your finance. Innovation could be in the way you negotiate your settlement terms & conditions and innovation could be in the way you design your stock or townhouses or apartment that you are about to develop, the one that you want to sell.
Innovation in finance is the way you get your finance or the way you get your funding. It could be set up in so many different ways. It could be a JV with the landowner, it could be a JV with the builder, and it could be JV with the money partner. It’s the way you source finance, different kind of finance … Sorry, different ways to finance your deal.
You’ve got to be really creative with all of this and the only way you can be creative with all of this is if you know all the rules, if you know all the strategies, if you know how the mechanics of these deals work. You can innovate in finance, you can innovate in the way you structure your deals. This is related to financial structures and you will need to consult your accountant in order to do that but you’ll have to also determine what your end purpose is, what you really want to do when the project is finished. That will determine the structure and you will need to get advice on it from your accountant. I know that there are some really innovative ways to structure a deal.
The third thing is terms and conditions. You could basically ask for anything and negotiate anything. It all boils down to you being innovative enough to be able to negotiate the kind of settlement terms for your property development project that are most favourable to you. For example, no matter what I do I always, even if I buy something with plans and permit, I always make sure that I’ve got … I always make sure that I’ve got enough time so I can go out and sell my project before I settle so I can save on interest and all those things.
The fourth way you can innovate in property development is the way you design everything. It could be something, which is environmentally sustainable, or something that’s created with good energy rating, for example solar.
The second way is marketing and the reason I say marketing is because you’ve got to really make something that you can sell. If you develop something that you can’t sell it’s going to be a problem towards the end of your project because the only time you actually get your money back is when you actually sell your stock.
Marketing, my friends, is very different from just engaging an agent, any more. The reason for that is the lenders and the banks are actually getting stricter and stricter with the amount of pre-sales they want, the amount of debt they want to cover before they can let you start construction. Marketing comes in a lot earlier than it used to. When it comes in earlier that means you’ve got to have, you’ve got to sell everything off the plan. Imagine you going out and buying something off the plan, which has not been built, and you’ve got to be really certain about so many different things. You got to make sure that you’ve got a good builder. You’ve got to make sure that you’ve got favourable terms. If the project is good, then everything boils down to the actual product. Can they actually see the floor plan? Can they actually see what it’s going to look like? Are the renders good?
Of course you can go and get some cheap renders done from overseas but are they going to do justice to the product that you’re selling? I tried to cut corners when I started and said, “Yeah, no problem, I’ll go overseas, get some really cheap renders done.” But in this industry you basically get what you pay for. If you’re offering peanuts you’ll get monkeys.
Don’t do that, just make sure that the kind of product that you are selling … If you’re selling something for $200,000 I’d say don’t bother with the render because it doesn’t work but anything above 500 and above 600K that you want to sell as your product towards the end of it or even off the plan you got to make sure that you’ve got some really good renders. It is difficult for people, people who have been in the industry can visualize what it would look like but people who are getting in, buying your stuff, they won’t be able to visualize it. They really have to see what it looks like.
Marketing involves material and finishes schedule. You give them a schedule what the colour schemes going to be like, what the materials you’re going to use. I even go out and get a materials board done so people can touch, feel the tiles, the floorboards, any kind of stone tops or anything. I have a sample of it stuck on a board that people can touch and feel and say, “Okay, this is what I’m getting into.” Those are the 2 things that will make you money. Everything else in the middle of your property development project is going to be a cost.
If you can really nail the 2 ends, this is the front end and there’s a back end and the front is innovation and creativity and the backend is marketing, making sure that everything that you’re developing is saleable, you’ll be a good property developer. I’ll see you next week.