Matching your exit strategy to your goal is key to developments. There are many options you can carry out in terms of the type of development but how you exit is key.
Learn about the main 3 strategies that property developers can adopt.
- DEVELOP TO SELL
Is where you should start in order to build capital and experience. The outcome is to sell all your interest in a development and walk away with a lump sum of cash. You can then cycle this cash back into future projects and you could hold more interest.
- DEVELOP TO HOLD
Is a capital-intensive project 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. Because of its capital-intensive nature you could leverage development partners for capital, but you would have them as stake holders in the long term.
- HYBRID EXIT STRATEGY
The happy middle ground is also known as develop to break even, 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.
As an example: You completed an 8-unit development where the end values were R 500 000 with a cash flow of R 2 200 and the development cost was R 3 200 000.
You can sell 6 units and hold two for R 200 000 capital invested and achieve a 26.4% Return on your investment.
Alternatively sell 7 Units, make R 300 000 profit and still hold a unit for rental income.
Now that you know about getting started as a developer...
and you have considered the 3 main exit strategies...
The next step in your Buy-to-Sell Investor Guide is "Understand the different development project steps":
- Getting started as a property developer
- Three different strategies for developers
- Seven development project steps