6 Brilliant Property Tips on Researching a Development Site

I'm almost halfway to my managing broker course book and the book mentioned something about feasibility. I thought to share with you the email I got from Carly Crutchfield, the founder of CCORP Australia. Hi Grace, I hope you have been enjoying the bloody brilliant series so far, this week we look at part 3 of Site Analysis. So far we have covered topics such as council, titles, easements, caveats, DAs, town planners, architects, other professionals and consultants, environmental impacts, fact sheets & site coverage. This week I am going to cover sales comparables, real estate agents, demographics, building inspections, due diligence & what next. We will also look at a client case study too. Sales ComparablesOnce you get an idea of WHAT you can build on the property, you need to work out what the end retail value (ERV) will be. If you are building ten units you want to know what each of the ten will sell for. If the ten units are broken up into 1, 2, and 3 bedrooms then you need specifics of potential sales prices for each so you get an accurate ERV. You will need to check the local area to get actual comparable evidence on what similar properties are actually selling for.You want to know what sales are actually being achieved. RP data is a great source for this information. There are actually a few websites out there that can provide this sort of information, I just use RP Data myself. Sometimes it is very up to date, sometimes its not so up to date. So just hunt around and find which website works for you. If you are not ready for a membership then just pay for reports as you go for now, if you do want membership call our office and they can help you out.Real Estate AgentsAsk real estate agents for any information that they have on sales comparables. Ask what recent sales they have made of properties that are similar to what you are looking to develop. Some of the questions you would want to ask a local real estate agent: What will the market buy these properties for? What could you sell them for? Would the local market buy this sort of property? What sort of properties would the market like to see? Do you have a shortage of any sort of property? What would be a good price point for such properties? How much demand is their? How long would it talk to sell? Market Research As you can see from the above questions, the sales price is very much about the local market – what do they need and want. If you can find the real answers to this you can build something that is needed and wanted and will sell. Here is a list of some questions which can help you get to know the neighbourhood: What is the median price for dwellings in the area? What is the average square meter size per dwelling? What is the predominant demographic in the area? What is the average population? Is there a predominant culture or race? Are there local schools? Is there easy access to transport; trains, buses etc? What other developments have been done in the local area? Are they selling, or sitting there unsold? Is there shopping centers in the area? Are there childcare facilities? Is there entertainment available in the area? Is there transport to the city close by? Are there many convenience stores? Are there parks in the area? What is the future planned infrastructure for the area? Is there a local clubhouse? What are the potential negative things in the area? (such as noise, factories, jails etc) You can get answers to these by talking to local council, agents, and residents. You can also access statistics and information from the Australian Bureau of Statistics.www.abs.gov.au DemographicsWhen you look at these reports also get a view on the demographics of the local market. This helps you decide and design the style and size of the properties. Different age groups, income levels, etc will expect a different property product. Families for instance will probably want easy access for prams, more living space, extra bedrooms, outdoor space and laundries. Students will not necessarily demand all those things in a property and neither would young professionals. Here are some different demographic groups to know about: Couples Singles Professionals Young Couples Retired Families Students Young Families Grown Families Low Income Earners High Income Earners Due DiligenceOnce you gather all this information it can really help to compile it all together into a format that is easy to assess and understand. If you have files and charts and spreadsheets everywhere it can be hard to get a unified view of the potential development, a report makes it much easier to analyse the relevant information.In property development such a report is called a Due Dilligence Report or DDR. At stage two we start to form our DDR after we have done our research as above. Then when we move onto feasibility in the next stage you will be gather all the financials, which you also add to the DDR to help complete the report. A great example of someone who used local information, did research on the market and future infrastructure and found out what was needed in the area is a client of mine, Sam. Case Study: Sam Location: Drummond Cove, WATime: July 2009 to October 2011 Description: 3 residential blocks, 654m2 each - next to each other. Building one at a time Profit: $350,000 The story: Sam and her husband were looking for a development site and had done many, many feasos but nothing was stacking up. They decided to change tactic and focus on one area. They heard about the Oakajee Port project in Geraldton, WA. From this they decided to research the Drummond Cove area – they looked at factors such as medium house price, rental returns, houses for sale, proximity to the soon to be constructed Oakajee Port development. The Oakajee Port development has received a huge impetus recently with a joint federal/state government grant of greater than $600 million. Sam focused on an area that had future infrastructure plans and looked at what was needed in the area which then allowed her to create a successful development. Feasibility: She found an estate that had a few blocks for sale and purchased 3 blocks together for $300,000. She did not have to subdivide and set about doing a detailed feasibility. She consulted with builders, architects and other consultants and after doing a feasibility, it showed a margin on development cost (profit) of 27.28%. Construction costs all up were $750,000, $250k per house. Finance: Sam had difficulty getting bank finance so she decided to do one block at a time. Sam got 60% bank finance and she had to wait 12 months to get it approved. By 12 months, the land value had increased which meant that she was able to get the full amount for construction of the second house. Research: Like a lot of my clients, Sam had been doing a lot of feasibilities on possible developments and was finding it difficult to find a site. One of the most common successful solutions to this is to focus on one area and research it well. I have had many clients tell me when they finished a development that it wasn’t until they decided to focus on one area that they then found a profitable site. Sam decided to focus on Drummond Cove near the new proposed Oakajee Port project. She used RP Data & Real Estate Investar (you can get membership to both these services through CCORP) to find out information on the area and also speaking to local real estate agents and local builders. Challenges: “When we focused on our chosen area finding the site was relatively easy, but when we were looking state wide it was a bit overwhelming and sometimes disheartening.” Favourite part: “I was thrilled to finally get my construction finance approved. However, to date my favourite part has been seeing the house under construction and knowing that it will be complete in a few months.” Project Management: Sam put this whole project together herself. She doesn’t have a project manager and is managing this herself so she is heavily involved in the progress of it. Motivation: “Nothing motivates me more than a lack of cash flow and not wanting to go back to my old job, working 50-60 hours per week!” Sam also can’t wait to “pay off our mortgage and my husband will be able to retire. Also, being able to work from home and be with my kids more.” oOo Record Your ResearchYou may not end up going ahead with the property, but keeping the research could be a good idea – the property could end up on the market for a long time and go down in price, it could end up selling but come on the market again in the future. In fact that’s exactly what happened to me on a property I developed in Blaxland in NSW. More than 5 years ago myself and another developer were going to buy a house on big block and develop it into several houses. We were looking to purchase for $660k. The day we were about to sign contracts another buyer offered over $800k and we lost the deal. I thought “Ce la vie, that’s the property world”…well I may have also thrown a stapler at the wall and kicked my desk. I couldn’t understand how it could have been purchased for that price as my research showed that was too expensive, but you never know the angle someone else might be looking at. In 2009 I heard the property was back on the market, luckily I had kept all my research and information on the property and I was able to just re-open the file and update my fact sheet. I bought the property for $500k and developed it as a joint venture with 4 other partners. SummaryThe best way to understand this information is to apply it. Instead of just reading this section each month, why don’t you follow me through the next few emails by applying the information each month as we go. If you started looking for potential sites as a result as one of the last emails, now research that property using the above checklists and techniques. You have a few weeks to get all the research together and in the next few emails I will show you how to do the numbers and get down to the bottom line as we move on to Stage 3 of Property Development – Financial Feasibility. CheersCarly