For a Property Developer, there's nothing quite like the buzz you get from finding a deal that stacks up. It definitely produces a big adrenaline rush to the head!
Stop, breathe deeply, and remember that due diligence is key to a good development site. I've said it before, but it's worth repeating: Just because a site is developable, doesn't mean it's profitable.
So before you jump the gun and sign your life away, let's take a look at the top 10 things you need to check.
1. Check The Title
Your lawyer should do this to make sure the ownership details and title are valid, but you need to check a few other things too. Look to see if there are any caveats on the title. If there are, they're the vendor's problem rather than yours, but if the vendor and caveat holder end up in a protracted battle, that could seriously impact your purchase timeframes.
Existing covenants might also impact what you can do with the site; for example, a single dwelling covenant. Again, these can be removed, and sometimes that's fairly simple. But it can also be very difficult or even impossible. You might want to think twice about taking that on.
The title may also list other encumbrances or legal disputes. Be aware that even if these appear to get sorted out before you take ownership, old sins can cast long shadows. Get sound legal advice about whether there's any chance of these coming back to bite you in the backside down the track.
2. Easements and Connection Points
I've lost count of how many times I've seen great sites, only to discover they have a thumping big easement in a really inconvenient place. Easements are listed on the title, but can also be located either using a property research tool, or requesting the information from Before You Dig Australia (the website formerly known as Dial Before You Dig).
Assuming you've done the sensible thing and ordered a bunch of utility information from Before You Dig, check where the nearest connection points are located. Infrastructure can cost a LOT of money if you're a long way from a connection point, or it's in an awkward location.
3. Critical Overlays
Back to your property research tool or open up a government map service. What overlays are on the property? There's plenty to choose from, and many are quite benign.
But there are others which can cause a major headache. Anything with the words "Heritage" or “Culture” in it needs to be thoroughly investigated and understood. Overlays covering flooding or bushfire can have a huge impact on your development, both in terms of yield and cost.
Take the time to read through all the details of any overlays on the site, making sure you have a clear understanding of how your development could potentially be impacted.
4. Site Yield
Now you have a good understanding of the site and any possible constraints, get a feel for the potential yield from the site. Yes, I know this might involve some maths, but grit your teeth and do it anyway! There's no point spending time chasing a site with a yield that doesn't stack up. Learn to love the numbers!
Part of this involves checking the zoning for the site. Understand the zoning of the property and the local planning regulations that govern what can be built on the site. Make sure your intended development aligns with the zoning requirements.
5. Comparables
You need to find comparable sales (note that I said SALES not listings!) for both the raw site and the finished product you intend to create. If you're already an Area Expert you may already know these, but it's worth double checking to make sure you're still working with up-to-date numbers.
A tool like National Property Data (shameless plug!) can help you with that data, or talk to local real estate agents to get their ideas around what those numbers are right now.
6. Demographics
In some ways this one doesn't belong on the list, as anyone using my Property Development Formula will already be an Area Expert - and checking the area's demographics is an important part of that process.
But just in case, I'm putting it in here, because knowing the demographics of the area is hugely important in determining what product you want the site to provide.
Providing sprawling, expensive 4 bedroom homes in an area crying out for cheap and cheerful 2 or 3 bedroom units is not a great strategy. Find out who's moving into the area, and create the product they're looking for - always a winning strategy.
7. Feasibility
You've done all the background research, so now it's numbers time again (I know, I know, you don't like maths!). At this point you don't have to go into forensic detail with your feasibility. All you're looking for is to make sure the higher level numbers make sense.
If they do, then start digging down to get more accurate. In fact, this is a process that continues on throughout the project.
It's possible that although your numbers might be close, they're not quite as good as you'd like. Don't throw the project out straight away. Instead, spend some time doing further research to see whether being more accurate makes the numbers better or worse.
And of course, if the numbers are completely awful, run away.
8. Survey
If you genuinely think the project has legs, then it's time to spend a few dollars verifying a few things. First up is a survey of the site. It's quite astonishing how often fences don't match boundaries, or the neighbour just happens to have built a shed partially on your land.
Get it checked! Granted, you might want to have reached the point where the vendor has accepted your offer but you're still in the due diligence period, before taking this step. Just make sure you do it!
9. Building Inspection / Site Contamination
You've probably already wandered through the house a few times before making an offer, but getting a professional building inspection is very important if retaining the house is part of your strategy. Renovating an existing house rather than knocking it down and rebuilding is often a good way to improve your feasibility.
Of course if your strategy doesn't involve keeping the existing house, getting it inspected isn't important. Conducting a contamination assessment to determine if the site has any environmental issues that need to be addressed may also be something to consider.
10. Pest Inspection
Again, if you're planning to keep the house, get it checked for termites and other pests. Even if the plan is to remove it, there are times when a pest inspection might still be valuable, as it may locate termite nests on site which could have a negative impact down the track. Prevention is always better than cure, so treating the infestation before work starts on site can be a good idea.
Due diligence is essential when purchasing a development site, as overlooking critical factors can lead to unexpected costs, delays, and even project failure. Engaging with professionals, conducting thorough research, and careful planning are crucial steps toward a successful property development project. And while this list is by no means exhaustive, it will at least get you a long way towards finding out what you need to know before you take the plunge.
Stop, breathe deeply, and remember that due diligence is key to a good development site. I've said it before, but it's worth repeating: Just because a site is developable, doesn't mean it's profitable.
So before you jump the gun and sign your life away, let's take a look at the top 10 things you need to check.
1. Check The Title
Your lawyer should do this to make sure the ownership details and title are valid, but you need to check a few other things too. Look to see if there are any caveats on the title. If there are, they're the vendor's problem rather than yours, but if the vendor and caveat holder end up in a protracted battle, that could seriously impact your purchase timeframes.
Existing covenants might also impact what you can do with the site; for example, a single dwelling covenant. Again, these can be removed, and sometimes that's fairly simple. But it can also be very difficult or even impossible. You might want to think twice about taking that on.
The title may also list other encumbrances or legal disputes. Be aware that even if these appear to get sorted out before you take ownership, old sins can cast long shadows. Get sound legal advice about whether there's any chance of these coming back to bite you in the backside down the track.
2. Easements and Connection Points
I've lost count of how many times I've seen great sites, only to discover they have a thumping big easement in a really inconvenient place. Easements are listed on the title, but can also be located either using a property research tool, or requesting the information from Before You Dig Australia (the website formerly known as Dial Before You Dig).
Assuming you've done the sensible thing and ordered a bunch of utility information from Before You Dig, check where the nearest connection points are located. Infrastructure can cost a LOT of money if you're a long way from a connection point, or it's in an awkward location.
3. Critical Overlays
Back to your property research tool or open up a government map service. What overlays are on the property? There's plenty to choose from, and many are quite benign.
But there are others which can cause a major headache. Anything with the words "Heritage" or “Culture” in it needs to be thoroughly investigated and understood. Overlays covering flooding or bushfire can have a huge impact on your development, both in terms of yield and cost.
Take the time to read through all the details of any overlays on the site, making sure you have a clear understanding of how your development could potentially be impacted.
4. Site Yield
Now you have a good understanding of the site and any possible constraints, get a feel for the potential yield from the site. Yes, I know this might involve some maths, but grit your teeth and do it anyway! There's no point spending time chasing a site with a yield that doesn't stack up. Learn to love the numbers!
Part of this involves checking the zoning for the site. Understand the zoning of the property and the local planning regulations that govern what can be built on the site. Make sure your intended development aligns with the zoning requirements.
5. Comparables
You need to find comparable sales (note that I said SALES not listings!) for both the raw site and the finished product you intend to create. If you're already an Area Expert you may already know these, but it's worth double checking to make sure you're still working with up-to-date numbers.
A tool like National Property Data (shameless plug!) can help you with that data, or talk to local real estate agents to get their ideas around what those numbers are right now.
6. Demographics
In some ways this one doesn't belong on the list, as anyone using my Property Development Formula will already be an Area Expert - and checking the area's demographics is an important part of that process.
But just in case, I'm putting it in here, because knowing the demographics of the area is hugely important in determining what product you want the site to provide.
Providing sprawling, expensive 4 bedroom homes in an area crying out for cheap and cheerful 2 or 3 bedroom units is not a great strategy. Find out who's moving into the area, and create the product they're looking for - always a winning strategy.
7. Feasibility
You've done all the background research, so now it's numbers time again (I know, I know, you don't like maths!). At this point you don't have to go into forensic detail with your feasibility. All you're looking for is to make sure the higher level numbers make sense.
If they do, then start digging down to get more accurate. In fact, this is a process that continues on throughout the project.
It's possible that although your numbers might be close, they're not quite as good as you'd like. Don't throw the project out straight away. Instead, spend some time doing further research to see whether being more accurate makes the numbers better or worse.
And of course, if the numbers are completely awful, run away.
8. Survey
If you genuinely think the project has legs, then it's time to spend a few dollars verifying a few things. First up is a survey of the site. It's quite astonishing how often fences don't match boundaries, or the neighbour just happens to have built a shed partially on your land.
Get it checked! Granted, you might want to have reached the point where the vendor has accepted your offer but you're still in the due diligence period, before taking this step. Just make sure you do it!
9. Building Inspection / Site Contamination
You've probably already wandered through the house a few times before making an offer, but getting a professional building inspection is very important if retaining the house is part of your strategy. Renovating an existing house rather than knocking it down and rebuilding is often a good way to improve your feasibility.
Of course if your strategy doesn't involve keeping the existing house, getting it inspected isn't important. Conducting a contamination assessment to determine if the site has any environmental issues that need to be addressed may also be something to consider.
10. Pest Inspection
Again, if you're planning to keep the house, get it checked for termites and other pests. Even if the plan is to remove it, there are times when a pest inspection might still be valuable, as it may locate termite nests on site which could have a negative impact down the track. Prevention is always better than cure, so treating the infestation before work starts on site can be a good idea.
Due diligence is essential when purchasing a development site, as overlooking critical factors can lead to unexpected costs, delays, and even project failure. Engaging with professionals, conducting thorough research, and careful planning are crucial steps toward a successful property development project. And while this list is by no means exhaustive, it will at least get you a long way towards finding out what you need to know before you take the plunge.
