You've probably heard me mention the concept of "shiny object syndrome". This is where someone jumps from strategy to strategy, or area to area, without any real plan or thought. It just looks pretty.
But this can happen with deals too. Two or three glittering, gorgeous deals that shine and sparkle to the point you're so dazzled you can't decide which one is the best.
Help!
I'm going to start from the absolute beginning, which is what I teach in my Property Development Formula - 1 strategy, 1 council, 3 suburbs.
To be blunt, the most common reason I see people spinning in place, unable to make a decision, is because they've ignored this approach.
Most often they're looking at 3 different types of deals, in different suburbs, which are often not suburbs they've become an Area Expert in. Of course they're confused! They don't have enough information to make a decision.
If you're interested in understanding my approach, then check out my course "The 7 Step FORMULA to Financial Freedom". It's completely FREE!!
For the purposes of this article, though, I'm going to assume that you do have 1 strategy, 1 council, and are an Area Expert in the suburbs where the deals are located. You just have multiple potential deals to choose between in those suburbs.
Highest & Best Use
First up, you need to thoroughly investigate each deal to determine if the outcome you've chosen is the best use for the site.
As an example, the agent may have listed it has the potential for 3 townhouses. A site of that size, though, could also potentially be a duplex, or maybe 2 bigger townhouses, or just knock down the existing house and build a McMansion. It may even be best to just subdivide and sell the lots.
So your first step is to make a list of all the ways the site could potentially be carved up, and do a rough feasibility for each one. Your numbers don't have to be pinpoint accurate at this point, as long as the various costs are consistent across all the feasibilities.
Once you've done that, you'll start to see what the most profitable outcome is for each of the development sites. You still need to ask the question - is that highest and best outcome a match for the strategy I've chosen.
It it's not, then consider passing the opportunity on to someone else who does specialise in that strategy.
Profit
Once you have all the feasibilities, the next step is to annualise the results. What does that mean?
Well, say you have a site that can make you a 20% profit in 24 months. Great! As developers we often hear 20% being suggested as the holy grail of returns on a project.
How does that compare with a project that delivers 15% in 12 months? That's where annualising comes in. For the first deal, your 20% profit works out to be 10% per year. The second one, though, is 15% in a year. Which is the best return?
Now that we've annualised the results, it's easy to see that the second project - 15% in 12 months - gives the better return.
Effort
This is a piece that many property developers leave out of the puzzle. How easy is it to make that return?
I love splitter blocks, where the site has more than one underlying title. They're incredibly quick and easy to execute. You just need to send the paperwork to the Titles Office, requesting the site be split back into its original titles. Easy!
Okay, there's some other things to factor in, such as the location of the house on the site, but it's still a lot quicker and easier than getting a subdivision through Council.
Your time is valuable, so if you can do a deal with very little input, you're winning. Although splitter blocks possibly win the gold medal in this regard, assess what you're planning to do and see how it stacks in time and effort.
For example, although a subdivision takes more time and effort than a splitter, realistically most of that work will be done by your team - planner, architect etc. Whereas a renovation, even if the work is done by tradies, still requires a lot more time and effort from you to coordinate everything.
Still dazzled by all those shiny objects? Here's my favourite mantra to remember when you have multiple deals to choose from - the most amount of money, for the least amount of hassle in the least amount of time.
So put your sunglasses on and get to work breaking down each deal to find the one that best meets that goal.
But this can happen with deals too. Two or three glittering, gorgeous deals that shine and sparkle to the point you're so dazzled you can't decide which one is the best.
Help!
I'm going to start from the absolute beginning, which is what I teach in my Property Development Formula - 1 strategy, 1 council, 3 suburbs.
To be blunt, the most common reason I see people spinning in place, unable to make a decision, is because they've ignored this approach.
Most often they're looking at 3 different types of deals, in different suburbs, which are often not suburbs they've become an Area Expert in. Of course they're confused! They don't have enough information to make a decision.
If you're interested in understanding my approach, then check out my course "The 7 Step FORMULA to Financial Freedom". It's completely FREE!!
For the purposes of this article, though, I'm going to assume that you do have 1 strategy, 1 council, and are an Area Expert in the suburbs where the deals are located. You just have multiple potential deals to choose between in those suburbs.
Highest & Best Use
First up, you need to thoroughly investigate each deal to determine if the outcome you've chosen is the best use for the site.
As an example, the agent may have listed it has the potential for 3 townhouses. A site of that size, though, could also potentially be a duplex, or maybe 2 bigger townhouses, or just knock down the existing house and build a McMansion. It may even be best to just subdivide and sell the lots.
So your first step is to make a list of all the ways the site could potentially be carved up, and do a rough feasibility for each one. Your numbers don't have to be pinpoint accurate at this point, as long as the various costs are consistent across all the feasibilities.
Once you've done that, you'll start to see what the most profitable outcome is for each of the development sites. You still need to ask the question - is that highest and best outcome a match for the strategy I've chosen.
It it's not, then consider passing the opportunity on to someone else who does specialise in that strategy.
Profit
Once you have all the feasibilities, the next step is to annualise the results. What does that mean?
Well, say you have a site that can make you a 20% profit in 24 months. Great! As developers we often hear 20% being suggested as the holy grail of returns on a project.
How does that compare with a project that delivers 15% in 12 months? That's where annualising comes in. For the first deal, your 20% profit works out to be 10% per year. The second one, though, is 15% in a year. Which is the best return?
Now that we've annualised the results, it's easy to see that the second project - 15% in 12 months - gives the better return.
Effort
This is a piece that many property developers leave out of the puzzle. How easy is it to make that return?
I love splitter blocks, where the site has more than one underlying title. They're incredibly quick and easy to execute. You just need to send the paperwork to the Titles Office, requesting the site be split back into its original titles. Easy!
Okay, there's some other things to factor in, such as the location of the house on the site, but it's still a lot quicker and easier than getting a subdivision through Council.
Your time is valuable, so if you can do a deal with very little input, you're winning. Although splitter blocks possibly win the gold medal in this regard, assess what you're planning to do and see how it stacks in time and effort.
For example, although a subdivision takes more time and effort than a splitter, realistically most of that work will be done by your team - planner, architect etc. Whereas a renovation, even if the work is done by tradies, still requires a lot more time and effort from you to coordinate everything.
Still dazzled by all those shiny objects? Here's my favourite mantra to remember when you have multiple deals to choose from - the most amount of money, for the least amount of hassle in the least amount of time.
So put your sunglasses on and get to work breaking down each deal to find the one that best meets that goal.
