settings
settings
settings
settings
settings
settings
settings
settings
What Do You Want To Be When You Grow Up?
settings
We constantly ask our kids what they want to be when they grow up, and the answers can be pretty amazing. But as adults, we don't often stop and think seriously about our dreams and goals.
I often ask people this sort of question, and given what I do, it's probably not surprising to find that the two most common answers I hear are "property developer" and "property investor".
And although you might think the two are interchangeable, it might surprise you even more to discover that they're actually quite different. Let's take a look at the 5 main ways they differ.
1. Their Goals
A property investor's goal is to generate some form of income from the property they buy. This can take two forms:
The holy grail of property investing is to get both from the one property. Some property investors also choose the option of investing in a developer's deals as a money partner.
A property developer's goal is to add value to a property in order to make a profit. This usually involves turning that one property into multiple lots or properties, which could include land, townhouses or apartments.
Essentially, they’re creating new property at a wholesale price. Although someone might luck out and make a profit without really knowing what they’re doing, reality is that the more skills you develop in order to improve your property development skills, the better the returns you’re going to get.
2. Their Approach
For a property investor, their approach is to buy the very best deal they can find that matches their strategy. For yield, they're going to look for low purchase price, high rental yield properties that generate a positive return. For capital growth, then it's a case of finding areas showing strong potential that are likely to have a strong uplift in price. Both strategies are to some extent passive - once a property is purchased, the investor doesn't have a lot of say over how rents or prices will move from that point forward - it's up to the market.
A property developer, on the other hand, is very active in influencing the outcome of a deal. They determine where to buy, how they can develop a property for the highest and best outcome based on supply and demand in the area, influence what is built there if that's their strategy, and a lot more. Sure, they will have a circle of trusted advisors to help them achieve their goals, but they need to be more active in making sure that happens.
I often ask people this sort of question, and given what I do, it's probably not surprising to find that the two most common answers I hear are "property developer" and "property investor".
And although you might think the two are interchangeable, it might surprise you even more to discover that they're actually quite different. Let's take a look at the 5 main ways they differ.
1. Their Goals
A property investor's goal is to generate some form of income from the property they buy. This can take two forms:
- Cashflow - this involves receiving a positive cashflow return from the property in the form of rent, and over time those rents should rise
- Capital Growth - capital growth occurs when the price of the property rises. An investor may hold a negatively geared property for a number of years, even though it’s costing them money, because they believe the growth in value will be bigger than the loss made along the way
The holy grail of property investing is to get both from the one property. Some property investors also choose the option of investing in a developer's deals as a money partner.
A property developer's goal is to add value to a property in order to make a profit. This usually involves turning that one property into multiple lots or properties, which could include land, townhouses or apartments.
Essentially, they’re creating new property at a wholesale price. Although someone might luck out and make a profit without really knowing what they’re doing, reality is that the more skills you develop in order to improve your property development skills, the better the returns you’re going to get.
2. Their Approach
For a property investor, their approach is to buy the very best deal they can find that matches their strategy. For yield, they're going to look for low purchase price, high rental yield properties that generate a positive return. For capital growth, then it's a case of finding areas showing strong potential that are likely to have a strong uplift in price. Both strategies are to some extent passive - once a property is purchased, the investor doesn't have a lot of say over how rents or prices will move from that point forward - it's up to the market.
A property developer, on the other hand, is very active in influencing the outcome of a deal. They determine where to buy, how they can develop a property for the highest and best outcome based on supply and demand in the area, influence what is built there if that's their strategy, and a lot more. Sure, they will have a circle of trusted advisors to help them achieve their goals, but they need to be more active in making sure that happens.
settings
3. Knowledge and Skills
For a property investor, it's important to understand overall long-term trends in the marketplace. That way they can recognise emerging trends and buy into areas before prices have taken off. It's also necessary to be aware of local demographics, and understand what local tenants are looking for, so they can supply it. And add in a good dose of negotiating skills, in order to secure the best possible price for a deal.
Property developers need to have an understanding of the same type of factors as an investor - after all, if they're supplying the wrong product in the wrong market, there won’t be any demand for it. However they need to take it a step further, and have a full understanding of how to determine a project's feasibility, along with the organisational skills to put all the various pieces of the development puzzle together in an efficient way for the projected cost.
For a property investor, it's important to understand overall long-term trends in the marketplace. That way they can recognise emerging trends and buy into areas before prices have taken off. It's also necessary to be aware of local demographics, and understand what local tenants are looking for, so they can supply it. And add in a good dose of negotiating skills, in order to secure the best possible price for a deal.
Property developers need to have an understanding of the same type of factors as an investor - after all, if they're supplying the wrong product in the wrong market, there won’t be any demand for it. However they need to take it a step further, and have a full understanding of how to determine a project's feasibility, along with the organisational skills to put all the various pieces of the development puzzle together in an efficient way for the projected cost.
settings
4. Timeframes
While every property investor would love to buy property that doubles in value in a few months, rather than taking years, the reality is that most of the time they need to have a much longer timeframe. Often they'll need to ride out various market fluctuations, allowing enough time to pass for their investment to pay off.
Property developers, on the other hand, have a much shorter timeframe in mind. Some simple deals can potentially be completed in a few months, with most deals complete within 1-2 years. It's rare for anything other than the biggest, most complex deals to take much longer than that.
5. Money
Given the longer timeframes involved, most property investors buy property using their own funds along with bank finance. Although it's possible to hold property long-term in conjunction with someone else, life has a tendency to "happen" over time, so the risk of something going wrong that disrupts this type of financial arrangement rises over time.
Property developers, on the other hand, use a lot of more creative financial strategies, such as investors, managed funds, commercial loans, construction finance etc. The emphasis is on the profitability of the deal rather than the serviceability of the developer. The finance providers either share in the profits or get a fixed return. Either way, property developers often don't need to have a lot of money themselves in order to complete a project.
So, have you decided which one you want to be when you grow up?
Having looked at all the differences, though, there's one thing they both have in common - education. Whichever path you choose, it's important to understand how to take each step of the journey in the most effective way possible. When you can trust the process, you will maximise your chances of success.
While every property investor would love to buy property that doubles in value in a few months, rather than taking years, the reality is that most of the time they need to have a much longer timeframe. Often they'll need to ride out various market fluctuations, allowing enough time to pass for their investment to pay off.
Property developers, on the other hand, have a much shorter timeframe in mind. Some simple deals can potentially be completed in a few months, with most deals complete within 1-2 years. It's rare for anything other than the biggest, most complex deals to take much longer than that.
5. Money
Given the longer timeframes involved, most property investors buy property using their own funds along with bank finance. Although it's possible to hold property long-term in conjunction with someone else, life has a tendency to "happen" over time, so the risk of something going wrong that disrupts this type of financial arrangement rises over time.
Property developers, on the other hand, use a lot of more creative financial strategies, such as investors, managed funds, commercial loans, construction finance etc. The emphasis is on the profitability of the deal rather than the serviceability of the developer. The finance providers either share in the profits or get a fixed return. Either way, property developers often don't need to have a lot of money themselves in order to complete a project.
So, have you decided which one you want to be when you grow up?
Having looked at all the differences, though, there's one thing they both have in common - education. Whichever path you choose, it's important to understand how to take each step of the journey in the most effective way possible. When you can trust the process, you will maximise your chances of success.
arrow_drop_down_circle
Divider Text
settings
Want To Read More 'Property Pulse'?
settings
Looking for more ways you can work with us?
settings
"I've set myself a personal goal of setting 1,000 people financially free by the year 2030 through my education and mentoring programs.
I'm looking forward to you joining us."
I'm looking forward to you joining us."
settings
Rob Flux
settings
Partners & Affiliates
settings
settings
YouTube & Other Pages
