A lot has changed in the world of development in the last few years. And that's fine - reality is that change happens (okay, so most people would say s*** happens but I'm keeping this G rated!).
You can't do anything about things that have changed, but you can absolutely control how you respond.
The question is, should your response be to change your development strategy?
There's something I see a lot of people suffering from in the development space. It's called Shiny Object Syndrome. Basically, they're looking at one thing, but a flash of gold from off to the side attracts their attention and they then change direction.
I think this is very much what's happening in this scenario. You've picked a strategy, it doesn't work in your area, so you figure the strategy sucks and you should change it.
My philosophy is that you start out small with your development strategy, and over time as you complete projects and gain experience, you start to scale up.
As you grow, it's often the case that the type of deal you need to do next doesn't actually work in your current area. That's a bummer, because if you've done things right you'll have invested a lot of time in becoming an Area Expert in your chosen suburbs. Remember - 1 strategy, 1 Council, 3 suburbs.
And this is the crux of the problem - changing your development strategy isn't the answer. Changing areas is. In fact, it's quite common to find you move around quite a bit as you grow your development business. It's rare to find a suburb or area that works perfectly for every size of deal.
I can already hear the groans. "But Rob - all that time I spent becoming an Area Expert. Are you telling me I ditch all that and start again somewhere else? Aaarrghh!!"
Yes I am saying exactly that. The good news? Because you've done the Area Expert process before, it's much easier to do again in a new area. So don't panic!
What's important, though, is not to waste your time on new areas that aren't going to work for your strategy either. You need to confirm your strategy and deal size, then look for areas where that type of deal stacks up. Simple, right?
Okay, maybe not simple, but it is logical. You need to make sure the product you're planning to create is suitable for that location. There's no point building an apartment block in the middle of a rural field!
Remember, too, that what you're looking for as a developer is different to the requirements for an investor. So be clear on what you need in order to find an area that works for your strategy and deal size.
Target Market
First up, spend some time thinking about your target market. What type of demographic is going to buy your intended end product?
If you're looking at doing a greenfield land subdivision, then it's potentially first home buyers, looking to build their first home.
If you're doing an infill development, then it could potentially be suited to professionals without kids.
Take apartments as an example. Are you building cheap and cheerful 1 and 2 bedders? Or going for luxe 3 and 4 bedroom apartments with all the bells and whistles?
Spend time looking at what's selling well in areas you're considering, along with the demographics of people moving to the area, to determine whether there will be a market for your product once it's completed.
Price Range
Price range affects the area you choose in two ways.
First up, what can you afford to buy? Now, I'm a big believer in the power of working with other people to get deals over the line, so I'm a bit hesitant to make this point.
But for a lot of people, particularly early on, they want to do a deal with their own funds, and that can potentially restrict whereabouts they can afford to develop.
You also need to look at end sales prices. It's all very well to think that your whiz bang high-end apartments are going to sell for $1.5m, but will that hold true in a cheap outer suburb? Will there be any buyers if you put them on the market at that price point?
This goes back to what I said earlier - look for precedence. If other people have built that product in the area, you have evidence that it's sold and what sort of prices they achieved.
Do The Numbers!
A feasibility is your friend. Even with very broad numbers such as purchase price, rough build cost and sales estimates, you can get a feel for whether or not an area has the chance of stacking up.
If it's already in the red, forget it. If it's a bit borderline, it might be worth doing a more thorough breakdown of the numbers. And if the numbers look good - you've just found a new area to become an Area Expert in!
So the bottom line is if your property development strategy isn't stacking up, the key is to evaluate, adapt, and move to a new area to keep growing your property development business. Ditching your property development strategy is NOT the answer.
You can't do anything about things that have changed, but you can absolutely control how you respond.
The question is, should your response be to change your development strategy?
There's something I see a lot of people suffering from in the development space. It's called Shiny Object Syndrome. Basically, they're looking at one thing, but a flash of gold from off to the side attracts their attention and they then change direction.
I think this is very much what's happening in this scenario. You've picked a strategy, it doesn't work in your area, so you figure the strategy sucks and you should change it.
My philosophy is that you start out small with your development strategy, and over time as you complete projects and gain experience, you start to scale up.
As you grow, it's often the case that the type of deal you need to do next doesn't actually work in your current area. That's a bummer, because if you've done things right you'll have invested a lot of time in becoming an Area Expert in your chosen suburbs. Remember - 1 strategy, 1 Council, 3 suburbs.
And this is the crux of the problem - changing your development strategy isn't the answer. Changing areas is. In fact, it's quite common to find you move around quite a bit as you grow your development business. It's rare to find a suburb or area that works perfectly for every size of deal.I can already hear the groans. "But Rob - all that time I spent becoming an Area Expert. Are you telling me I ditch all that and start again somewhere else? Aaarrghh!!"
Yes I am saying exactly that. The good news? Because you've done the Area Expert process before, it's much easier to do again in a new area. So don't panic!
What's important, though, is not to waste your time on new areas that aren't going to work for your strategy either. You need to confirm your strategy and deal size, then look for areas where that type of deal stacks up. Simple, right?
Okay, maybe not simple, but it is logical. You need to make sure the product you're planning to create is suitable for that location. There's no point building an apartment block in the middle of a rural field!
Remember, too, that what you're looking for as a developer is different to the requirements for an investor. So be clear on what you need in order to find an area that works for your strategy and deal size.
Target Market
First up, spend some time thinking about your target market. What type of demographic is going to buy your intended end product?
If you're looking at doing a greenfield land subdivision, then it's potentially first home buyers, looking to build their first home.
If you're doing an infill development, then it could potentially be suited to professionals without kids.
Take apartments as an example. Are you building cheap and cheerful 1 and 2 bedders? Or going for luxe 3 and 4 bedroom apartments with all the bells and whistles?
Spend time looking at what's selling well in areas you're considering, along with the demographics of people moving to the area, to determine whether there will be a market for your product once it's completed.
Price RangePrice range affects the area you choose in two ways.
First up, what can you afford to buy? Now, I'm a big believer in the power of working with other people to get deals over the line, so I'm a bit hesitant to make this point.
But for a lot of people, particularly early on, they want to do a deal with their own funds, and that can potentially restrict whereabouts they can afford to develop.
You also need to look at end sales prices. It's all very well to think that your whiz bang high-end apartments are going to sell for $1.5m, but will that hold true in a cheap outer suburb? Will there be any buyers if you put them on the market at that price point?
This goes back to what I said earlier - look for precedence. If other people have built that product in the area, you have evidence that it's sold and what sort of prices they achieved.
Do The Numbers!
A feasibility is your friend. Even with very broad numbers such as purchase price, rough build cost and sales estimates, you can get a feel for whether or not an area has the chance of stacking up.
If it's already in the red, forget it. If it's a bit borderline, it might be worth doing a more thorough breakdown of the numbers. And if the numbers look good - you've just found a new area to become an Area Expert in!
So the bottom line is if your property development strategy isn't stacking up, the key is to evaluate, adapt, and move to a new area to keep growing your property development business. Ditching your property development strategy is NOT the answer.
