A lot of people ask me about the suburb selection process I teach in my Property Development Formula program. We go into a fair bit of detail around how to narrow down your suburbs to increase your chances of success as a property developer.
For those who are yet to do the program, probably the most important thing to understand is that most people go about suburb selection the wrong way around.
Most people choose the suburb and then try to see what works in the area.
They might try a sub-division and it doesn’t work. They might try a granny flat and it doesn’t work. They might try a duplex and it doesn’t work.
So they get frustrated, and they stop exploring options.
Or they figure if they can’t buy under market value then there’s no point buying at all.
They give up on property development because they’re going about suburb selection the wrong way around.
So what’s the right way?
The right way is to first choose what you want to do, what I call your deal strategy, and then work out your deal size. What you want to do will depend on a few factors including how much cash or equity you have to invest in a project. For those with no funds, you’ll be doing some no money down strategies, maybe deal-finding for other developers or project managing for a money partner. If you’ve got a little bit of capital you might be able to run a splitter or secure a DA in a joint venture with an owner. Maybe you have the funds to do a renovation and then flip, or to relocate an existing house onto a block of land or to strata title a block of units. Those with more funds and more time could tackle a sub-division or a duplex.
The important thing is to pick one strategy and stick with it.
Once you’ve nailed this essential first step you can then figure out where your strategy will start to make sense.
One of the catchphrases those who know me will hear over and over again is that every strategy works but it doesn’t work everywhere.
Yes, you can make money doing cosmetic renovations. You can make money doing splitters. You can cash in on sub-divisions and bring home the bacon with a new build. But profitability is tied to what’s going on in any particular suburb at any given time. That’s where our suburb analysis comes into play.
So our job is to find areas that have the highest likelihood of success for your particular strategy, and to always begin with the end in mind. This means knowing what your finished product will be and then look for areas where:
1. There are a large number of opportunities for our development deal strategy. Keep in mind that you don’t want a suburb where there’s so many people competing for the stock that there are crazy bidding frenzies.
2. There is tangible evidence that other people have converted and are still converting those development opportunities into finished product.
3. There is proof that shows the deal strategy is profitable.
If we meet those three criteria, then there’s a final checkbox to tick:
4. Is there still enough demand for us to do the same property development strategy and make a worthwhile profit?
These are the four fundamental pieces of the suburb selection process.
In order to determine the number of opportunities we need to understand the council rules, so that we understand what zoning and land size will suit our development strategy and deal size.
One of the easiest ways to see how many opportunities exist in each suburb is to do a 30-second check on a tool like National Property Data.
Given that on average a property turns over every 7 to 10 years in Australia we can use a rule of thumb to say that 10 per cent of the number of opportunities in an area are likely to be selling in any given year, which gives us an idea of the size of our deal funnel.
So if there’s only 20 opportunities in an area, only two of them are going to come onto the market in a single year.
If there are 1000 opportunities, 100 of those properties are going to come onto the market, on average. By analysing the number of opportunities, you’ll quickly get a feel for which suburbs to focus on.
Using tools like National Property Data, we then do the research on history of sales in the area in order to determine the average buy price of a raw site, the average sell price of the finished product and then we can see if the difference between the two makes commercial sense to do a deal.
You’ll be asking yourself this question: “If I can buy at the average buy price, run an average deal and sell for the average price, will I make money?”
Did you know that 90% of all developable sites are not profitable?
This means that you could be looking for a deal in an area where you are banging your head up against the wall moaning “Why can’t I get a deal to actually stack up? Why is it that every time I look at something, the numbers just don't work?”
It’s entirely possible that just because an area or a site is developable it’s not automatically profitable.
And while we can't guarantee every single deal in an area will work, we can certainly improve our chances by finding a suburb where the averages are actually working in our favour.
For those who are yet to do the program, probably the most important thing to understand is that most people go about suburb selection the wrong way around.
Most people choose the suburb and then try to see what works in the area.
They might try a sub-division and it doesn’t work. They might try a granny flat and it doesn’t work. They might try a duplex and it doesn’t work.
So they get frustrated, and they stop exploring options.
Or they figure if they can’t buy under market value then there’s no point buying at all.
They give up on property development because they’re going about suburb selection the wrong way around.
So what’s the right way?
The right way is to first choose what you want to do, what I call your deal strategy, and then work out your deal size. What you want to do will depend on a few factors including how much cash or equity you have to invest in a project. For those with no funds, you’ll be doing some no money down strategies, maybe deal-finding for other developers or project managing for a money partner. If you’ve got a little bit of capital you might be able to run a splitter or secure a DA in a joint venture with an owner. Maybe you have the funds to do a renovation and then flip, or to relocate an existing house onto a block of land or to strata title a block of units. Those with more funds and more time could tackle a sub-division or a duplex.
The important thing is to pick one strategy and stick with it.
Once you’ve nailed this essential first step you can then figure out where your strategy will start to make sense.
One of the catchphrases those who know me will hear over and over again is that every strategy works but it doesn’t work everywhere.
Yes, you can make money doing cosmetic renovations. You can make money doing splitters. You can cash in on sub-divisions and bring home the bacon with a new build. But profitability is tied to what’s going on in any particular suburb at any given time. That’s where our suburb analysis comes into play.
So our job is to find areas that have the highest likelihood of success for your particular strategy, and to always begin with the end in mind. This means knowing what your finished product will be and then look for areas where:
1. There are a large number of opportunities for our development deal strategy. Keep in mind that you don’t want a suburb where there’s so many people competing for the stock that there are crazy bidding frenzies.
2. There is tangible evidence that other people have converted and are still converting those development opportunities into finished product.
3. There is proof that shows the deal strategy is profitable.
If we meet those three criteria, then there’s a final checkbox to tick:
4. Is there still enough demand for us to do the same property development strategy and make a worthwhile profit?
These are the four fundamental pieces of the suburb selection process.
In order to determine the number of opportunities we need to understand the council rules, so that we understand what zoning and land size will suit our development strategy and deal size.
One of the easiest ways to see how many opportunities exist in each suburb is to do a 30-second check on a tool like National Property Data.
Given that on average a property turns over every 7 to 10 years in Australia we can use a rule of thumb to say that 10 per cent of the number of opportunities in an area are likely to be selling in any given year, which gives us an idea of the size of our deal funnel.So if there’s only 20 opportunities in an area, only two of them are going to come onto the market in a single year.
If there are 1000 opportunities, 100 of those properties are going to come onto the market, on average. By analysing the number of opportunities, you’ll quickly get a feel for which suburbs to focus on.
Using tools like National Property Data, we then do the research on history of sales in the area in order to determine the average buy price of a raw site, the average sell price of the finished product and then we can see if the difference between the two makes commercial sense to do a deal.
You’ll be asking yourself this question: “If I can buy at the average buy price, run an average deal and sell for the average price, will I make money?”
Did you know that 90% of all developable sites are not profitable?
This means that you could be looking for a deal in an area where you are banging your head up against the wall moaning “Why can’t I get a deal to actually stack up? Why is it that every time I look at something, the numbers just don't work?”
It’s entirely possible that just because an area or a site is developable it’s not automatically profitable.
And while we can't guarantee every single deal in an area will work, we can certainly improve our chances by finding a suburb where the averages are actually working in our favour.
