Property Development Basics

Question 1

Joint Venture Partners

Answer 1

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.

Question 2

Feasibility

Answer 2

Check profitability: Purchase Price, Closing Cost of Purchase, Acquisition Costs, Holding Costs, Construction, Insurance, Sales and Marketing, Taxes, Contingency, etc.

Question 3

Static Feasibility

Answer 3

One page document includes major headline items that will incur cost or generate revenue for a project.

Question 4

Cashflow Analysis

Answer 4

Includes major headline items and the minor items associated with project costs over a period of time to understand cashflow.

Question 5

Bottom Line

Answer 5

Total Profit of the project

Question 6

Site Selection

Answer 6

Check market demands, local authority zoning, relative proximity, Necessary land size, ownership, price.

Question 7

Due Diligence

Answer 7

Identify Market and its price point. Permissibility. Contamination. Community acceptance. Building’s current condition and hazards. Public Infrastructure. Engage experts. Renegotiate.

Question 8

Acquisition Negotiation

Answer 8

Have an answer to:
“I don’t want market price whilst you make bank.”
“Joint Venture Partnership?”
“Maybe in the future.”

Question 9

Purchasing a Site Under Option

Answer 9

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.

Question 10

Acquisition

Answer 10

1. Due Diligence
2. Negotiate with owner
3. Create design, obtain authority approvals and tender your building work.
4. Purchase site

Question 11

Legal Advice

Answer 11

To mitigate risk, get advice from lawyers:
Property lawyer (for managing development)
Construction lawyer
Commercial lawyer

Question 12

Insurance

Answer 12

Risk management. Takes care of a number of risk issues and is readily affordable.

Question 13

Public and Products Liability Insurance

Answer 13

Essential for property owners. Protects you from claims from members of the public.

Question 14

Professional Indemnity Insurance

Answer 14

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.

Question 15

Workers Compensation Insurance

Answer 15

Essential for employers. Protects developer from a company’s employee’s claim from being hurt on the worksite.

Question 16

Construction Risk Insurance

Answer 16

Essential for any construction. Covers the cost of rebuilding the then constructed works if it is damaged during construction period.

Question 17

Procurement

Answer 17

Getting something you need. ie suppliers, builders, design consultants, lawyers.

Question 18

Scope of works

Answer 18

What you expect from your service supplier

Question 19

Tendering

Answer 19

Requesting a quote from a service provider. Rule of thumb is three quotes to ensure value and complete scope of works.

Question 20

Consultants

Answer 20

Advice (Lawyer) or Design (Architect)
Not a builder or contractor (These provide goods or services)
Town planner, surveyor, engineers,

Question 21

Design

Answer 21

Consultants create design initially for authority approval and then for construction.
Surveyor checks construction cost progressively against budget.

Question 22

Cost Control

Answer 22

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!

Question 23

Authorities

Answer 23

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.

Question 24

Building Contractors

Answer 24

They have tight margins. Change orders are costly and are products of planning errors.

Question 25

Lump Sum Contract

Answer 25

fixed price or hard dollar contract. Adversarial in nature because any small delay or change order frustrates builder.

Question 26

Superintendent (Project Manager)

Answer 26

A superintendent manages the client’s obligations under the building contract. Monitors progress, quality, claims, time extensions, disputes, payments and timeframe.

Question 27

Sales and Marketing

Answer 27

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.

Question 28

Settlement

Answer 28

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!

Question 29

Musts of Development

Answer 29

Know your market.
Know the demand.
Know your price point.