It's everywhere right now - costs of building have risen substantially in recent times. Builders working on razor thin margins are in trouble.
It would be easy to use this as an excuse to stay away from developing, but although it's worrying, it doesn't need to stop you in your tracks.
Instead, what you need to do is get smarter as a property developer, and look for ways to ensure the money you spend is spent wisely. You might still have issues along the way, but if you take the time to focus on the numbers, you can do a lot to ensure your project doesn't run over budget.
Let's take a look at the 3 main areas which provide lots of potential to save money.
Site Preparation
It's often been said that one of the biggest money drains in property development is getting out of the ground. Sometimes things occur that couldn't be foreseen, but there are also things you can do to save money in this area.
A big one is the topography of the site. A flat site will almost always be cheaper to work with than a sloped one. For starters, there's a lot less preparation work in terms of moving soil around.
The other big saving is soil retention. With a sloped site, you will almost certainly need to spend money on engineering for retaining walls, let alone adding in the cost of building them.
So the money savings can start even before you purchase your development site - the less slope, the better, is a reasonably good rule of thumb to work with.
Building Design
Now you have your site (hopefully a flat one!) it's time to get stuck into the design phase. Again, a lot can be done at this stage to save you money throughout the project. In fact, sometimes it's worth spending a little extra on a good designer for that very reason.
First up is the size of the dwellings you plan to build. Too often property developers get carried away with the "bigger is better" mantra and want to squeeze every last millimetre they can out of a site in terms of building size.
In reality, that's not always a good strategy. The bigger the building, the more it costs to build and often the less outdoor space you get as a result. Now, I'm not suggesting you should build houses you can't swing a cat in (and not just for reasons of avoiding animal cruelty) but you want the spaces you create to be appealing and liveable to your target market.
Doing your research is a good starting point. Who is your target demographic? What size house are they after? If your target market wants 3 bedroom homes, then don't design expansive 4 bedroom homes. Do the best job you can designing what the market wants.
Another commonly held belief is that it's better to go 2 storeys because again, bigger is better, and so you can build a bigger house - or potentially put more on the block. Again, do your numbers carefully on this. Building 2 storeys introduces a whole new raft of costs to the build, and the return when you sell may not justify it.
Sometimes, it's even better to put one less dwelling on the site and make the remainder single storey, if that's the type of dwelling the market is paying top dollar for. As the population ages, this is very much a factor to consider.
And finally, I did say earlier that it can be worth spending extra on a good designer. So now I'm going to say something which might sound like completely contrary advice - avoid spending money on top notch Architects unless the market demands it. Architects can do amazing work, but unless the resulting sale has a price tag to justify it, steer clear.
An Architect is more likely to introduce design elements which are going to cost you more. Don't get me wrong - they do amazing work, but although that cantilevered second storey will look fabulous, the fact is it's going to cost a lot more to build than a more standard "box on box" design. Every change in roof profile, change in building material, corner and edge adds to the cost. Simple is almost always cheaper than complicated, but as I said, do the right market research to see what your market demands.
Fixtures and Fittings
The third category where you can really make a big difference to your build spend is fixtures and fittings. When you can spend anything from a couple of dollars to tens of thousands for a light fitting, there's a lot of scope to adjust your budget.
This is one category where target market research is really important. While it might be tempting to put in cheap fittings and fixtures, if your target market demands luxury and known brand names, all that will happen is you'll struggle to sell the dwellings at the right price.
The opposite is also true. There's no point buying top notch appliances and flooring that costs a fortune but scuffs easily when the market is likely to be investors buying a rental property. They want cheap and cheerful, along with hardwearing. Shop around and look for good deals. Tradespeople will often have discount arrangements with certain suppliers, but you don't have to use their sources.
Our Property Developer Network Annual Membership gives you discounts with a big range of suppliers, for example, and being a large buying group, can often access better rates than your tradespeople can.
So there you have it - three main areas where you can tighten your belt through the property development process. The key takeaway is to do your due diligence, both in terms of site finding and demographics research. Put in the work, and you won't end up with your pants around your ankles.
It would be easy to use this as an excuse to stay away from developing, but although it's worrying, it doesn't need to stop you in your tracks.
Instead, what you need to do is get smarter as a property developer, and look for ways to ensure the money you spend is spent wisely. You might still have issues along the way, but if you take the time to focus on the numbers, you can do a lot to ensure your project doesn't run over budget.
Let's take a look at the 3 main areas which provide lots of potential to save money.
Site Preparation
It's often been said that one of the biggest money drains in property development is getting out of the ground. Sometimes things occur that couldn't be foreseen, but there are also things you can do to save money in this area.
A big one is the topography of the site. A flat site will almost always be cheaper to work with than a sloped one. For starters, there's a lot less preparation work in terms of moving soil around.
The other big saving is soil retention. With a sloped site, you will almost certainly need to spend money on engineering for retaining walls, let alone adding in the cost of building them.
So the money savings can start even before you purchase your development site - the less slope, the better, is a reasonably good rule of thumb to work with.
Building Design
Now you have your site (hopefully a flat one!) it's time to get stuck into the design phase. Again, a lot can be done at this stage to save you money throughout the project. In fact, sometimes it's worth spending a little extra on a good designer for that very reason.
First up is the size of the dwellings you plan to build. Too often property developers get carried away with the "bigger is better" mantra and want to squeeze every last millimetre they can out of a site in terms of building size.
In reality, that's not always a good strategy. The bigger the building, the more it costs to build and often the less outdoor space you get as a result. Now, I'm not suggesting you should build houses you can't swing a cat in (and not just for reasons of avoiding animal cruelty) but you want the spaces you create to be appealing and liveable to your target market.
Doing your research is a good starting point. Who is your target demographic? What size house are they after? If your target market wants 3 bedroom homes, then don't design expansive 4 bedroom homes. Do the best job you can designing what the market wants.
Another commonly held belief is that it's better to go 2 storeys because again, bigger is better, and so you can build a bigger house - or potentially put more on the block. Again, do your numbers carefully on this. Building 2 storeys introduces a whole new raft of costs to the build, and the return when you sell may not justify it.
Sometimes, it's even better to put one less dwelling on the site and make the remainder single storey, if that's the type of dwelling the market is paying top dollar for. As the population ages, this is very much a factor to consider.
And finally, I did say earlier that it can be worth spending extra on a good designer. So now I'm going to say something which might sound like completely contrary advice - avoid spending money on top notch Architects unless the market demands it. Architects can do amazing work, but unless the resulting sale has a price tag to justify it, steer clear.
An Architect is more likely to introduce design elements which are going to cost you more. Don't get me wrong - they do amazing work, but although that cantilevered second storey will look fabulous, the fact is it's going to cost a lot more to build than a more standard "box on box" design. Every change in roof profile, change in building material, corner and edge adds to the cost. Simple is almost always cheaper than complicated, but as I said, do the right market research to see what your market demands.
Fixtures and Fittings
The third category where you can really make a big difference to your build spend is fixtures and fittings. When you can spend anything from a couple of dollars to tens of thousands for a light fitting, there's a lot of scope to adjust your budget.
This is one category where target market research is really important. While it might be tempting to put in cheap fittings and fixtures, if your target market demands luxury and known brand names, all that will happen is you'll struggle to sell the dwellings at the right price.
The opposite is also true. There's no point buying top notch appliances and flooring that costs a fortune but scuffs easily when the market is likely to be investors buying a rental property. They want cheap and cheerful, along with hardwearing. Shop around and look for good deals. Tradespeople will often have discount arrangements with certain suppliers, but you don't have to use their sources.
Our Property Developer Network Annual Membership gives you discounts with a big range of suppliers, for example, and being a large buying group, can often access better rates than your tradespeople can.
So there you have it - three main areas where you can tighten your belt through the property development process. The key takeaway is to do your due diligence, both in terms of site finding and demographics research. Put in the work, and you won't end up with your pants around your ankles.
