Directors Cut – Being a Property Investor
It is all good and well getting into property investment and making a success of one development. But how have I done it for over 20 years successfully? Don’t get me wrong, I have had some very average returns and have even had a couple of developments that have made small losses; but for the most part, my property investment career has been hugely successful!
Anyone can make money in an improving market. The secret is, making money in a bad market isn’t really a secret … it is common sense! You see, if you do your due diligence properly, you should increase your profits in a good market and, theoretically, you should still make a profit when the market goes down. The saying that you make your money when you buy has never been truer. You just need to pick the best value property on the market, make sure you do your due diligence and feasibility thoroughly (to reduce the risk of any nasty surprises) and, as they say, the rest is history.
I suppose it is a numbers game. I would look at thousands of properties every year to get an idea of the market (in a particular location) and compare all of the available properties. After I have looked at all of the properties, and I am confident that there is a supply requirement for the product I am considering building (say a four unit development of 3 bed, 2 bath homes with a home theatre), I start to seriously look at the 10 best value properties currently available.
From here, it becomes a process of elimination. Part of my due diligence is to look at the locations and provisions of services on the sites in question. Sometimes it becomes quickly apparent that a property may not be suitable; maybe there is a drainage or sewer line on the property which will adversely affect the development potential of the site. If there is an issue with a site in question, I am pretty quick to rule this property off my list. I also look at available stock and demand in the area. If there are no family homes in a certain area, but is filled with units and apartments, then there is a need for this type of product.
As part of my due diligence, I also discuss zoning and development potential with the local council. They are usually a wealth of information on zoning, setbacks etc and can also advise on population trends etc. Additionally, I will discuss my proposal with a couple of local selling agents; who can let me know what potential buyers or renters are looking for in the area. They can also let me know what they believe I may be able to achieve in terms of the selling/leasing price of the property. I then go back and make sure this matches with the figures on my feasibility study.
Once I have worked out which property is the best value for money and best suits my needs, I prepare the investment vehicle ready for the purchase. If there are multiple parties involved, it is generally best to form a Unit Trust, Development Trust, Family Trust or the like (speak to your accountant or financial adviser to work out what would be best for your situation). This will assist with signing of paperwork etc; as the Director acting as Trustee is generally the only person who needs to sign any documentation. Additionally, there a tax benefits when it comes to distributing profits once the development is complete. Now, I am ready to place an offer.
With any investment, information is King! The more research I do, the better chances I have of succeeding in the world of property investment and development. The same applies to you! If you have done your homework right, you should hopefully have a development that is in demand and generates a bit of healthy competition between potential buyers or renters; putting you on the path of being a successful property investor for years to come.