By Mark Peart | PEART Land Director.
Many people ask me, “how did you become a land developer?” to which my response is – lots of persistence. Being good at property development is like anything – lots of hard work and embracing failure time after time to learn how to succeed.
Property development is a dynamic and rewarding career path but at the same time it is fought with risk that can be completely out of your control. The skill set to be successful is more than just adding up. Thinking you can buy land for X, then develop it for Y and sell for Z, which hopefully will be more than Y+X. There are some very important skills required plus a good knowledge of matters more than the development of the project. In my time, I have found the following are only some of the more important skills required. To get some additional information you should read this.
- Finance and Accounting
In today’s world of banking, especially since the GFC, many lending institutions will not fund land developments – first time or experienced. Resultantly, developers are forced to look at alternate funding sources for their developments. With the low interest rates we are experiencing at present, there are many opportunities to borrow money for developments from private lenders. It can be a very successful venture for both the developer and private lender. Rates are higher than a bank but the difference (currently between 12% and 8%) is minimal with a good number of pre-sales in place to reduce debt at completion. The biggest benefit with borrowing from a private lender is the ability to interact and build a relationship. Many banks have lost that personal touch and in a complex transaction (like a property development) it is vitally important to be able to sit down and interact with your lender allowing formation of a solid business relationship. I have always believed that good business is created between people who interact face-to-face and build their relationship on trust and ethics. Most private lenders that I have dealt with are older, experienced business leaders that offer great wisdom and mentoring for the business.
- Understanding of compliance matters
Developing can be like putting a square peg in a round hole everyday. It involves complex planning and design issues within a legislated framework. Council planners and engineers administrate this process skillfully and are there to make sure all developments are carried out to the best outcome of the broader community. I have never understood why many developers struggle to co-operate with Councils, at the end of the day these people are only doing their job within this legal framework. Having agreements and disagreements will never create the outcome you require, it is much better to have a collaborative approach to working with Councils to achieve a outcome that meets your commercial objectives but also the rules and regulations. To achieve such outcomes it is important that a developer has a very good understanding of the regulations and act and can show Council you are a expert in such matters. As the saying goes in life you will catch more bees with honey than vinegar so work with Councils and understand they are just doing their job as well to the best of their ability.
- Being a gun at marketing
In today’s world of Social Media, YouTube, Instagram Online Blogging and the like, anyone who is in business really needs to be an expert in marketing. With so much noise in the market, getting your product and/or offering noticed takes more than hard work. It takes imagination, creativity, timing and planning. Being a developer is no different. To sell a project, you really need to understand your buyers. The days of handing over your development to a real estate agent and advertising in the local paper is gone. If you are doing your first development and starting out small, there are some great agents who are experienced in selling projects like yours to the modern market. Once your projects start to grow, it is important that the developer is prepared to sell and market their own projects. A developer’s success will be controlled by the sale prices and rate of sales, which is determined by how the project is presented to the market. The story and passion behind the project, the vision and the community focus are all things that tend to get lost along the way. When a developer takes control of these, it allows them to be the best in class at marketing such projects.
Building a team
All successful businesses make it not only because they have a great offering but also because they have a great team behind it. Building a successful team is more than just employing staff – It is creating a culture and shared vision to achieve your outcomes. Land developing is no different to any other businesses. You cannot develop a site that has a lot of moving parts without great people assisting you. From planners and engineers to surveyors and civil contractors, through to sales agents and marketers, finance and accounting – all these people make up your team and are the ones who will make your projects a success (or not). Never believe you can do everything yourself – to develop a great project and make a profit it will take more than one person.
- Having a strong understanding of economics
All goods and services are affected by the principals of supply and demand. A sale price will always be determined when the equilibrium between the two meet and property development is no different. It is vitally important to know the supply and demand statics of the area and region to determine what price and rate you product will sell at. Having a strong understanding of the macro and micro economics of the region will give you signs and trends to understand which way the supply and demand lifecycle of your project will be over time. Property development have very long lead times until you see any revenue flow into your business which is why predicting economic trends are crucial to determine the success of your project.
In addition to all the above, it is imperative to have the right mindset and strong vision for your development. The best developers are not always the best managers. They are individuals that love the idea of building a community and developing a project from nothing. Once that goal or task is complete they are onto the next.
The debate has always been “what is better to develop – land or apartments?”. In a boom market (like recently) apartments can provide excellent profit for developers, especially when build costs are low and sales are off the charts. When interest rates increase, buyers dry up and a developer is left with completed or half completed projects with no sales – it is financial suicide. Land however, over time will provide long-term, sustainable wealth. Almost half of the richest people in the western world create wealth from the value of land going up over time. They buy a family home, pay it off over the years and create financial freedom from the value of the land going up over time due to scarcity in society. Land developments may not give a developer instance profit as all your profit will be tried up in the long term value of your land and residual land stock but all land developers who create wealth create it over time from lots of hard work and having a long-term approach.
A land developer provides a very important fundamental need to society – providing land for people to build shelter – along with food and water, one of our most basic needs. Developing may seem to most a way to get rich, but I believe it is more about doing our part in society and creating a place for people to create a lifestyle and long term wealth. Having a real purpose for the work we each do each day is of more worth to yourself and society than chasing short term profits.