12 Feb Property development – what to know before you start
In today’s show, Nhan Nguyen talks about the steps to take to access an opportunity and what you should be aware of before starting.
Kevin: I had an interesting question posed of me today. Someone rang and said they have a house they’re currently living in. It’s over three blocks of land, just over 1,200 square meters. Just wondering whether they should sell it as is, or whether they should go through the DA, get approval to get the house taken off and become a developer. Interesting question.
I want to pose that question of Nhan Nguyen from Advanced Property Strategies, because I know he faces this both personally but on behalf of a number of people he works with.
Nhan: Good day Kevin. How are you doing?
Kevin: Good. That wouldn’t be an unusual question to ask of you, would it?
Nhan: No, I get that pretty much every day, every second day, because in a market where people are looking to make money, they look at all the different ways, but it depends on many things.
Kevin: Anyone fortunate enough to have a house on 1,200 square meters or over three lots, what would be the steps they should take to work out whether they have the right mindset to be the developer, or whether they should just sell it on?
Nhan: That’s a good question. Oftentimes, when a property like that hits the market, one of the challenges that as a developer or as a buyer I see is the people selling that property put it on the market as if it’s already got the three titles. But part of process is talking to the Brisbane City Council or whichever council they’re involved in, as well as the town planner. These things take time.
It can take somewhere between six and twelve months, and in a project that size, you’re looking at somewhere between $200,000 to maybe $400,000 capital outlay to pull it apart and make it happen.
It’s their mindset, in terms of patience. If they want to get the cash right away, they’re better off maybe selling it, but if they want extract the maximum value, then they’re going to have to deal with the extended timeframe, the risk of not getting approval, and also the extra capital outlay.
Kevin: I guess the dilemma for many people would be they would think, “I’d hate to sell it now for a price and then find twelve months later that the person who bought it from me has got approval to re-develop it and is going to make a $1 million out of it.” Is that the right way to look at it?
Nhan: As you call it, seller’s remorse. That could be one way to look at it, but I think that the person who’s made $1 million, the only way they’re going to do that is through lot of skill and a lot of past mistakes. I’m working on a project at the moment, which I’ll do very well out of, but it’s taken me many projects to make mistakes, cut my teeth on, and get to the point where I can exit a project like that. Everything looks easy from the outset, but it’s not always as it seems.
Kevin: Do you find generally that the town planners you work with, are they independent town planners or are they largely people who are working for the local council?
Nhan: Mostly the town planners, I find if they’re worth their salt, they’ll work for the individual. What they find is they just need to find out what the council wants and then aligning themselves with it. There are obviously the council rules and regulations that you have to adhere to. Then that’s where they have to align themselves with it, because they want to get an approval through, because it’s for their own benefit, their own reputation, and the client to be happy. If they don’t think they can do it, they’ll definitely let you know. They’re pretty straightforward about that.
Kevin: Do you find those outside town planners think more outside the square than someone who works within the council? I guess that’s the point I’m getting at.
Nhan: It really depends. It’s not just any real estate agent or a finance broker. I’d like to say that majority of them are, but I’ve worked with enough of them to really know. There’s always the good ones and always the average ones, as well.
Kevin: In that scenario, if the land were zoned for units, and you have the option to do units or land subdivision, which one would you choose?
Nhan: That’s a really good question. Let’s take a couple of basic scenarios. Let’s not worry about the hundred-unit developments. Let’s just say you can do five units on it or sell it into three blocks.
One of the advantages of land subdivision is that it’s quite relatively low capital cost. If you want to build five units, it might cost you $1 million plus to do five units or townhouses. Then you have to go to the bank to borrow that. If you’re going to do a one-into-three subdivision, the costs are a lot less, the processes are a lot faster, but possibly the profits may not be as high.
Personally, I’m doing townhouses as well as land subdivisions at the moment in two different scenarios. My preference is land subdivision. The construction or the development process is a lot faster and the capital outlay is not as much. But having said that, I’m still doing townhouses because land, once you develop it, you can’t rent it out, you have no income.
It really comes down to:
- One’s expertise.
- One’s requirements at the end.
- One’s patience and capital resources.
Kevin: If you find yourself in a situation like that, why don’t you do what we do: contact he experts? In this case, it’s Nhan Nguyen from AdvancedPropertyStrategies.com, and he’s the man who will have the answers for you.
Once again, Nhan, thanks so much for your time.
Nhan: My pleasure, Kevin.