Property Development Basics Flashcards
Joint Venture Partners
Find someone to undertake project with you to mitigate risk, improve expertise, and generate larger profit. It’s good to pay off financiers before the other partner.
Feasibility
Check profitability: Purchase Price, Closing Cost of Purchase, Acquisition Costs, Holding Costs, Construction, Insurance, Sales and Marketing, Taxes, Contingency, etc.
Static Feasibility
One page document includes major headline items that will incur cost or generate revenue for a project.
Cashflow Analysis
Includes major headline items and the minor items associated with project costs over a period of time to understand cashflow.
Bottom Line
Total Profit of the project
Site Selection
Check market demands, local authority zoning, relative proximity, Necessary land size, ownership, price.
Due Diligence
Identify Market and its price point. Permissibility. Contamination. Community acceptance. Building’s current condition and hazards. Public Infrastructure. Engage experts. Renegotiate.
Acquisition Negotiation
Have an answer to:
“I don’t want market price whilst you make bank.”
“Joint Venture Partnership?”
“Maybe in the future.”
Purchasing a Site Under Option
Getting the right to purchase the property at some time in the future at an agreed upon price. Gives you the “option” to buy it down the road when you’re ready for construction.
Acquisition
- Due Diligence
- Negotiate with owner
- Create design, obtain authority approvals and tender your building work.
- Purchase site
Legal Advice
To mitigate risk, get advice from lawyers:
Property lawyer (for managing development)
Construction lawyer
Commercial lawyer
Insurance
Risk management. Takes care of a number of risk issues and is readily affordable.
Public and Products Liability Insurance
Essential for property owners. Protects you from claims from members of the public.
Professional Indemnity Insurance
Essential for consultants. Protects consultant against claims from their clients for negligence relating to their design work or advice. Insist on your consultants having it in case of a problem.
Workers Compensation Insurance
Essential for employers. Protects developer from a company’s employee’s claim from being hurt on the worksite.
Construction Risk Insurance
Essential for any construction. Covers the cost of rebuilding the then constructed works if it is damaged during construction period.
Procurement
Getting something you need. ie suppliers, builders, design consultants, lawyers.
Scope of works
What you expect from your service supplier
Tendering
Requesting a quote from a service provider. Rule of thumb is three quotes to ensure value and complete scope of works.
Consultants
Advice (Lawyer) or Design (Architect)
Not a builder or contractor (These provide goods or services)
Town planner, surveyor, engineers,
Design
Consultants create design initially for authority approval and then for construction.
Surveyor checks construction cost progressively against budget.
Cost Control
Revenue is number one priority.
Deal with big numbers first.
Small numbers can add up.
Double-check contracts and scopes of work.
Update feasibility cashflow every single month!
Authorities
government, roads, airport, water and sewer, telecommunications and energy supply authorities.
See who has jurisdiction over your property and the necessary steps to acquire approvals. Make it easy for them.
Building Contractors
They have tight margins. Change orders are costly and are products of planning errors.
Lump Sum Contract
fixed price or hard dollar contract. Adversarial in nature because any small delay or change order frustrates builder.
Superintendent (Project Manager)
A superintendent manages the client’s obligations under the building contract. Monitors progress, quality, claims, time extensions, disputes, payments and timeframe.
Sales and Marketing
How will you attract people?
Many times, financiers want the product to be pre-leased or pre-sold.
Use an agent or someone in house.
Settlement
Finalization of the transaction for the sale of the property. Obtain various certifications and title. Repay your debt to financiers. Repay your equity. And whatever is left… Profit!
Musts of Development
Know your market.
Know the demand.
Know your price point.
