Developing takes vision and in order to see the opportunities that are out there you need to get your “eye in”.
I mean that you need to learn how to see the possibilities. It’s the one thing that I spend a lot of time training my students and mentoring clients in.
To be able to look at a site and think creatively about what might work best on each specific block of land.
You have to be able to create in your mind a picture of what it could look like and what will fit onto a block, incorporating what the council want, what will suit the area and many other factors.
Somewhere in the overlap of all those, often conflicting ideas, is going to be a plan that is the perfect compromise and yet it also forms the highest and best use of the land.
It’s not something that you can really formulate.
You can’t turn that creative vision process into a checklist or cheat sheet to make the process simple. It really all comes down to knowing the possibilities and exploring all the options that suit.
But the question is how do you do a feasibility on a site if you don’t know exactly what is allowed to go on there and what is going to be the best and highest use?
It can be very difficult to know if it’s going to be profitable because the profit on, for example, 10 townhouses, is going to be very different if there’s a way to fit 15 townhouses in a different configuration.
If you are looking at a block that’s for sale, there might be other developers also looking at it, there can be a lot of pressure to put the property under contract.
There are a couple of strategies you can use to lock others out of the deal for a time while you create your plan, do your feasibility and even get the Development approval from the council.
The first is within your standard contract.
If you have some scope for negotiation then you put the property under contract. However, that contract will have clauses like, subject to getting suitable finance, subject to soil inspection, subject to …
…well the truth is that you can add as many “outs” as you can that you can use if the property turns out to either not be suitable or turns out to not be profitable.
This will give you time to do some research and due diligence.
Of course, this is not always easy to do because if a property is up for sale there’s likely to be competition for the property if it’s a good one. The more competition the more pressure on you as the buyer and the less negotiation power you have.
Another way to go is to approach people who have properties that look like they’ll work… even ones that are not on the market right now.
If the property looks like it has good upside potential then you can offer them more than the market for the property in the context of an option on the property.
An option will buy you the time you need to get your due diligence done and because you legally control the property for the duration of the option (for example it might be a 16-month option).
In this case, you have 16 months to do your due diligence, even get a development approval on the property, but never actually have to settle on it until you are 100% sure you are going to make money on it.
The upside of doing this is that if you get control of a property via an option and you get a development approval, the property will already be worth more. You can get a revaluation and use the uplift created by getting the Development approval as your ‘hurt money’ into the deal.
Only after you get your surveys, your due diligence, and you get your development approval and you are sure you want to go ahead, do you need to exercise your option and purchase the property at the agreed amount.
If for some reason it doesn’t work out and you decide not to exercise your option then the property control reverts to the owner (the person on the title) and all you’ve lost is your option fee and your expenses.
Option fees can be as little as $1000.
If your deal looks like it’s going to be good but for some reason, you can’t go ahead with it in the allotted time, you can even on-sell your option to another developer and make some quick money that way.
There are some people that that’s all they do, and they never actually do any of the development themselves. While this means that they don’t have to put in the capital and time to do a development they also don’t get the big upsides associated with going the whole hog.
For a developer, these people can also be an excellent source of development sites that are ready to go with all the headache removed…
Either way, when it’s time you need these two possibilities could help you get it.