Episode Details

As our property markets slow down, more investors are interested in becoming involved in property development as a way of "manufacturing" capital growth.

The problem is that along with the big profits there are many potential risks.

However with good education, proper planning and a good team around you, property development is a great way to grow your property portfolio and end up having high growth properties that deliver strong cash flow and good tax benefits.

So in today's show I'm going to share:

• 7 reasons you should consider getting involved in property development
• 13 risks you must be aware of if you're considering getting started in property development
• 8 tips for budding property developers

The benefits of becoming a Property Developer.

1. Savings
2. Profits
3. Easier finance
4. Leverage
5. Tax benefits.
6. Higher rental return
7. Security

The risks of becoming a Property Developer.

Some of the significant risks of property development I have come across include:-

1. Buying the wrong property – not appropriate for development.
2. Buying the right property at the wrong price
3. Buying at the wrong time of the cycle and not having the finance to hold on to your project
4. Not doing a detailed pre purchase feasibility study – and missing out lots of figures.
5. Building the wrong end product – too expensive, or not right for market demographics
6. A downturn in the property market leading to lower property values or increased holding costs until the development properties are sold.
7. Interest rates rising during the development process resulting in increased holding expenses and therefore lower profits.
8. Increases in construction costs during the project.
9. Changes in the supply and demand ratio for real estate market as we are currently seeing in the inner city apartment market. This of course depresses property values and reduces your project profit margin.
10. Unexpected disputes with building or trade contractors or unions which can cause costly delays to a project.
11. Changes to the laws relating to property development could adversely affect the profitability and viability of your development project.
12. Unexpected delays and increased holding costs may be encountered when town planning (DA) approval is required for a development.
13. Some inexperienced developers find that some of the improvements they have made to their properties do not result in an increase in value.

As you can see many of these risks are outside the control of the developer.

Hints for budding Property Developers.

Here's some advice for new property developers

1. Some property investors move into the realm of property development not understanding the rules of the game are very different.
2. Property development is a great way of building a high growth, strong cash flow property portfolio but you need to approach development will realistic expectations.
3. Currently the tighter finance climate is making it hard for property developers to fund their projects. It is likely you'll need much more equity and