The 3 BIG REASONS some property developers don’t succeed
Due Diligence Failure
It’s easy to get caught up in the potential opportunity and overpay OR overlook various aspects of the development. There are many variables that need to be considered to ensure success and a surplus on the balance sheet. Have you made sure you have checked over all that needs to be checked? A simple example of oversight may well be that there was a previous application submitted to council and this wasn’t supported due to strong objection from some of the neighbours. It’s important to check and re-check the finer details.
Feasibility Optimism
I don’t mean not to be optimistic about the outcome, I mean be optimistic only once conservative estimates are used as a basis for the development. To succeed from the start you must overestimate the cost of the development and underestimate the end sale value. Of course there is an art to this process and involves all the work required end to end. Another mistake made is missing costs or entire cost centres, example of this is not allowing for certain development levy’s that may be required or not calculating interest correctly.
– Overpay for the sites
– Underestimate the costs
– Bank on higher sale prices or rental yields
Quick Video Breakdown on Feasibility Optimism:
Lacking Back-Up
No development is ever guaranteed to run smoothly and plans may need to change. Part of the game is that you need to be adaptable just in case. If you don’t obtain approval due to something unforeseen what are your next two options on the table? Mitigating risk comes down to thorough assessment and aways having back up plans for the site – both will make you a winner, always.
I have many lessons learnt over my 21 years in the property game, if you’re interested to know more, get in touch!
Thanks for keeping up to date on What’s Happening – speak soon!
Jerry Y