How to become a property developer. Moving onto property development is an exciting prospect, but it is best that you start small and take time to understand the processes involved.
Developments are often considered an unachievable strategy for aspiring property investors, but the strategy can be very accessible for all investors.
Why developments are a great investment
A reason why developments stand out from other strategies, such as buy-to-sell or buy-to-let, is the fact that developments create value, while the other strategies focus on accessing or maximising existing value factors. In a South African context, the most reliable way to force appreciation is to explore development strategies. Although developments primarily refer to large multi-storey projects, the fundamentals applied to large projects are the same as for a simple spec house.
Developments have a fantastic opportunity to grow your investment portfolio quicker than most other strategies. The most affordable property you could buy is possibly the one you build yourself.
Developments have a lot of flexibility to suit your goals and objectives.
The road map to becoming a property developer
Find out more about what you need to know about becoming a property developer in South Africa.
1. Getting started as a property developer To get started as a property developer, you will need to build your team of trusted team players in the development field, to help make your goals a reality. This team should consists of:
- Architect: Likely the most important team member, start working with architects early on. The architect will also manage other technical professionals.
- Estate agent: A key role player, not only in the sale of the project, but you will also rely on their insights to conclude the initial feasibility.
- Quantity surveyor: Plays a role during the due diligence and during the project to track and control the expenses and resources. A good QS is key to any project.
- Town planner: Your town planner is involved in your planning Processes. They have great insights on what the planning commission may or may not approve.
- Attorney: Your attorney is key-critical to all property investing. Ensure that your attorney is experienced in developments and have them involved as early as possible.
2. Three different strategies for developers Learn about the main 3 strategies that developers can adopt, which includes:
- Developing to sell: A good place to start in order to build capital and experience.
- Developing to hold: Where you would develop, with the sole intent to hold all the units at the end of the project and generate a rental cash flow.
- Hybrid exit strategy: Where you as the developer would sell enough units to recoup all the development costs. Then the remaining units would be kept, at near zero cost, and you could generate a cashflow from letting them.
3. Seven development project steps The “blueprint” to almost every development is the 7 development project steps, which include:
- Deal evaluation: Examining what potential a deal has, to be financially feasible.
- Commercial agreement: Laying out a purchase process as well as a due diligence period.
- Due diligence: You will aim to reduce your risk and conclude any suspensive conditions laid out in the commercial agreement.
- Planning approval: Your architect will work closely with a town planner to have the plans for the project approved by the city.
- Marketing and pre-sales: Sell as much of the project off-plan as possible.
- Financing: Once the project has sufficient pre-sales, a development partner or bank would be willing to loan the capital required to pay for construction.
- Proceed with development: Only at this stage are builders and bricks going on site. This is by far the least critical point.