How Do Property Developers Make Money
Property development and property investment are not synonymous, though they both have a similar aim: to make money, a return on investment. A property investor builds up a portfolio of properties and grows their investment by renting the properties out, and in some instances selling select properties later at a profit. Property developers are more interested in making money by taking a property and developing it to its full potential, usually by subdividing large lots and building smaller homes, or building a townhouse complex or block of apartments. There is a lot of risk with property development, and a significant amount of skill is required in order to maximise the return on investment in a short time.
They Know When to Buy
Everyone always talks about location, but timing is just as important when it comes to property development. The property market is cyclical, with a few years of positive growth, followed by a period of contraction. Close monitoring of the market allows skilled developers to time property purchases as close to the nadir of the downturn as possible, so that in addition to acquiring the property at the best possible price they also have time to develop the property to its full potential as the market starts to move towards a positive growth cycle again.
They Know Where to Buy
Timing and location are equally important when it comes to making money off developing property, with location influenced by a number of metrics. Property developers don’t only look to buy in popular neighbourhoods and business hubs, but also in neighbourhoods where property sales are showing a higher than average growth, driven either by speculative buying by other developers, or first-hand knowledge of unannounced developments that will make the neighbourhood more appealing in the near future. This could be a university opening a satellite campus nearby – making the area more attractive to students looking for student accommodation – or even a new mixed-used development that attracts young families.
Skilled developers will look at the makeup of different areas: the types of properties found in the immediate vicinity and density; other types of developments happening and the stage they’re currently at; recent property sales along with what is currently on the market; along with another key consideration, what is allowed.
They Have Knowledge of Property Regulations
Different parts of a neighbourhood – and the lots themselves – are zoned for different uses, ranging from recreation and business, through to residential. However, even when zoned for residential use, there are densities to also consider and someone wanting to develop a new block of apartments will know to avoid any lots zoned for low density residential, and still be cautious about medium density lots. Similarly, a proposed mixed-use development has to account for how a particular section is zoned, and whether the intended use is permitted.
Developers also know to carefully consider overlays for flooding, bushfires, and heritage areas, along with other restrictions the local government may have imposed for the lot and the neighbourhood too. These could include a maximum height for buildings, a maximum floor space ratio, along with minimum setback requirements and a minimum lot size when subdividing a large lot. Having in-depth knowledge of all of this helps speed up development approvals, since any delay at any stage of the development translate into unnecessary costs for developers.
They’re Able to Realise the Full Potential of the Property
Property development is less about flipping a house and more about being able to envisage – and then realise – a new development that frequently replaces an existing house with multiple units or turns an old office block into stylish studio apartments targeting students and new graduates. A skilled developer looks at the lot, not the existing structure, and sees hidden potential, whether that involves subdividing a large lot into smaller lots and building two or more smaller family homes on them, or seeing a multi-storey mixed-use development that enables young professionals to live, work, and shop in a single block or precinct.
But developers also understand realising the full potential of any property or lot isn’t always about trying to squeeze as much as possible into the available space. It’s about looking at what the existing zoning permits, along with what their own research into the area or neighbourhood reveals about what is needed.
Considering the high-risk of property development, it is usually better to start with small scale property investment before shifting into development. This not only gives you better exposure to the property market in the area you operate in, but also helps you build a network of contacts essential to property development; from planners through to contractors, surveyors, and legal.
With Archistar, deciding where to buy and how to develop property is significantly simpler, with features that include highlighting profitable opportunities, access to thousands of planning documents, easy generation of 3D concept designs, and due diligence reports and feasibility studies all readily available.