How to get started in property development

man with a pen going over peoperty plans

Nina Hendy

Posted January 11, 2022

Property development is a great chance for savvy investors to build on their wealth.

Australians are passionate about property and property development. But knowing where to start when it comes to developing townhouses, duplexes and other higher density housing can be tough. 

There’s no doubt it’s a hot market for those willing to take the leap. Median home prices for metropolitan Melbourne is $1.07 million in the September 2021 quarter, according to the Real Estate Institute of Victoria. 

That’s 6 per cent higher than the previous quarter. Rental yields have also risen by 2.5 per cent in the same quarter, taking median rents to $480 a week, which is a healthy profit for developers. 

The solid growth is providing the impetus for everyday Australians to explore property development as another income stream after a period where job security wavered during the pandemic. 

However, it’s easy to be swept up in the excitement of a new project, and even easier to assume you have the financial capacity to incorporate any unexpected costs. Being aware of the variables that can impact cost estimates when constructing a small development will help you to avoid the unexpected along the way.

The fact is that developing land offers the lure of potentially large returns, but it can be a complex and time-consuming undertaking, with plenty of risks to be navigated if you’re going to make a good return. These risks can occur regardless of whether it’s your first or second project. 

Hiring the A-team

Employing the right team will help protect your investment and navigate the often complex journey – from assessing the economic feasibility of the project and identifying the perfect builder, right through to the marketing and selling of the dwellings.

Property investment should always be carefully considered, as timing is important and there are several development risks that need to be managed, Dan Peterson, CEO of iBuildNew says.

The iBuildNew Design and Construct division is an independent service that can support you through the entire development. The team can work with developers on dual occupancy, townhouses or duplexes, he explains. 

This includes: 

Initial feasibility review – Development review, pre-planning application and design, budgets, financing options, likely sale values and project economics. 

Town planning process – Land subdivision, survey and town planning, VCAT representation, redesign and economics update. 

Architectural process – Feasibility analysis, market product demands, design services, workshop drawings, builder selection.

Builder selection – Identifying quality builders, identifying townhouses/dual occupancy specialists, sourcing competitive and fixed pricing, builder track record and project build/timeframes. 

“We’re completely independent and have partnered with a number of service providers that we trust and know will deliver a great service, providing you with greater confidence, reduced risk and less stress during the development,” he says. 

“Completing a small property development can be a long and complex journey, with many variables to consider and navigate. From assessing the economic feasibility of the project, identifying the right builder, through to the marketing of the dwelling, our service is focused on avoiding pitfalls and mitigating your risks to protect your investment,” he says.

young couple buy first home

Hiring the right team of professionals can ensure your property development is seamless. Image: Getty

Avoiding hidden costs

Having the right team and receiving sound advice is crucial to managing the risks and ensuring a positive outcome, he adds. 

It’s easy to find a builder willing to complete the job on the cheap, which will often lead to a poor-quality build or a development that takes much longer than expected. Both outcomes can result in additional costs to the initial quote, or worse, an incomplete or substandard build.

There are hidden costs in each and every project, too. The cost of landscaping and additional work outside, including driveways and fences, will need to be accounted for on top of the build cost.

Other factors that impact the price of building include dwelling size, and the quality of the build and finishes. Of course, expensive finishes require better workmanship, increasing the cost of both materials and labour. 

“Our team can guide and support the investor through the development journey. Finding the right partners through each stage, including the critical construction phase, is imperative,” he says.

The right time 

“But if you have a parcel of land, perhaps a large block with an old dwelling on it ready to be demolished, now is a good time to start the development process, as it takes time to work through feasibility, design and approval, and then into construction,” he says. 

The front half of the process being feasibility assessment into design and planning can take 12 months alone, he says. 

“The construction market right now is hot and stretched, however, there are now early signs that some of the supply chain pressures are easing, and we anticipate the later part of 2022 will be a good time to be engaging builders for your development, which may perhaps be a dual occupancy or townhouse development. 

“With property prices rising 20 to 25 per cent in the last year across most parts of Melbourne, if the development is well managed, there are some very good returns to be made.”

family outside of their home

Avoid hidden costs by shopping around for tradesmen. Image: Getty

Common mistakes

During the early stages of the design, designers and builders commonly use square metre rates when calculating the overall build size. 

While these square metre rates can be helpful in specific scenarios, they don’t give an accurate estimate of the complete construction cost, he says. 

Once you’ve completed your research, conducting a feasibility study will help you to mitigate your risks. This is a business plan for your small development to demonstrate that it has the potential to realise a worthwhile return. 

Budding builders don’t always initially account for all the other variables beyond the standard square metre rate. As a safe rule of thumb, allow for a buffer of 10 to 15 per cent for unexpected costs on top of what has been quoted. 

Of course, delays to the construction schedule equates to greater holding costs, more risk and less profit. 

Many hands make light work, too, meaning that builders with a larger crew can also complete a project faster than a sole operator. 

Understand the true cost of property development with iBuildNew.
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RACV has partnered with iBuildNew to help guide members through the property buildng journey.