Property development has long been a popular growth-generating strategy amongst investors.
The prospect of substantial financial gain within a relatively short timeframe holds inevitable appeal. However, beneath its potential, property development is also a complex undertaking – one that, without the right knowledge of regulations and risks, can lead to costly mistakes.
If you’re thinking about how to get into property development, it’s worth considering the different investment options available to you, and which one you might be best suited to based on your unique goals, experience and requirements.
Below, I look at some of the main options you have when getting started in property development.
Firstly, however, let’s consider the key factors that go into a successful property development in the first place.
How to become a property developer: the guiding principles of success
1. Understand your target market
The number one rule for becoming a successful real estate developer is research.
Property development involves creating a product that is tailored to a specific market. A thorough understanding of your target market, including their buying capacity, preferences, and specific property requirements, is therefore essential.
One common stumbling block for aspiring developers is the failure to align their project with the demands and needs of target buyers. This often results in either overcapitalising – by creating a product that exceeds the market’s affordability – or undercapitalising, by delivering a property that falls short of expectations and demand for that specific location.
2. Be prudent when budgeting, and realistic about risks
Property development centres on achieving a return on investment that validates the associated risks, as well as the commitment of your time and financial resources.
To achieve this, it is crucial to evaluate the financial feasibility of a project, considering factors such as the completed value of the dwellings, transaction expenses, construction outlays, and other related costs.
You also want to ensure you have a contingency buffer in case of unexpected issues, such as delays or higher-than-anticipated material cost increases.
Being realistic about the risks that can impact your property development can help you plan your finances accordingly, minimising the impact of unexpected issues and ultimately enhancing your project’s profitability.
3. Get to grips with compliance and regulations
Behind the glamour of property development, there are a lot of regulatory requirements you need to meet to get a project underway.
It’s easy to underestimate the extensive documentation required to obtain formal Development Approval (DA), as well as the knowledge needed to decode building regulations that can vary between states, local jurisdictions, and even specific streets.
Grasping the intricacies of council requirements is vital for developers, as even subtle modifications to a plan can have a profound impact on a project’s overall profitability.
How to get started in property development: your options
Learning how to become a successful real estate developer isn’t easy; it requires a thorough understanding of the development process, as well as extensive research and resources.
There are several different pathways for those aspiring to develop property, each with their own set of advantages and considerations.
1. Direct Investment
Direct investment involves acquiring land or an existing property and overseeing the development process yourself.
This method of investment offers you full control, but it also requires substantial capital, a lot of time and effort, and a willingness to take on exposure to risks.
While you’ll get the full benefit of the project’s returns if the development goes well, it also means you’re tying your success and capital to the performance of an individual project. This can have obvious negative repercussions if the project doesn’t perform as well as expected.
If you’re keen to undertake your own development, there are professional support options available. Engaging an expert project management team can help to reduce your workload, alleviate stress, and potentially lower your risks.
Some companies provide an end-to-end project management service, from site acquisition and project design, right through to completion and sale of the finished dwellings – meaning you’ll have expert input across all stages of the project.
In the long-run, enlisting the help of a project management team can prove a cost-effective solution, as their expertise can streamline operations, minimise costly errors, and optimise resource allocation – ultimately contributing to improved project efficiency and stronger returns.
2. Joint Ventures (JV) or Partnerships
If you’re wanting to invest in property development, but don’t want to take on all the project funding and risk individually, partnering with other investors in a joint venture could be an option.
In a joint venture, you pool resources with others to share the risks and rewards. This can hold potential benefits if you’re able to partner with a more experienced developer to leverage their skills. However, the expertise of the other parties in the joint venture should be a key consideration.
In addition, you’ll also want to consider how the joint venture is structured and what this means for you from a financial, risk and legal perspective.
3. Property Investment Funds
Similarly to joint ventures, property development investment funds pool money from multiple investors and allocate it to one, or multiple development projects.
These funds are professionally managed by experts who select, oversee, and execute the property development opportunity on behalf of investors.
A key difference with property development funds is that the development sites are held in a separate structure – usually a unit trust. This means investors purchase a share in the development in the form of units, and then receive a portion of the return at the end of the project relative to their unit holding.
There are several potential benefits to this approach:
- Lower capital outlay – Due to their pooled structure, the capital required to invest in property development funds is generally lower than funding a project directly. As an example, investments in our residential development funds at Westbridge Funds Management start from $100,000.
- Non-recourse debt – When investing in property funds, all borrowings are entered into by the fund and not by the individual investor. This means that unit holders won’t be subject to personal guarantees and are not liable beyond the cost of their own units.
- Diversification – Property funds can provide investors with the opportunity to diversify their capital across multiple different projects as opposed to concentrating all their funding into a single development.
- Passive approach – The professional management can make investment funds an attractive option for those wanting to invest in property development without the direct involvement, time allocation and responsibilities associated with managing your own project.
- Access to more opportunities – Fund managers will often have established networks across the local development industry, which can provide investors with access to opportunities that aren’t always available to individuals, such as off-market sites.
Like any investment, though, property development funds aren’t for everyone. A noteworthy drawback of development funds is that they can have strict eligibility requirements and are often only available to wholesale investors, putting them out of reach for some investors.
In choosing how to get into property development – whether individually or through a pooled structure – it’s important to weigh up the benefits and drawbacks of each option, and importantly how these relate to your personal needs and goals as an investor.
Investing with Westbridge
Westbridge Funds Management is an Australian real estate investment company, dedicated to helping investors grow their wealth through unlisted property funds.
Our funds provide exposure to high-quality residential developments and commercial investment assets that offer regular income and/or capital growth potential.
Wanting to get started in property development through property funds? Join our priority mailing list to hear about our future development investment opportunities.
This information has been prepared by Westbridge Funds Management as a general guide only. It does not constitute an offer for sale, or solicitation for the purchase of securities, financial products or other investments. Westbridge Funds Management recommends investors seek professional advice before making a decision to invest. Mair Property Funds Limited ABN 48 151 957 676 t/a Westbridge Asset Management. Mair Property Securities Limited ABN 28 091 623 862. AFS Licence 238386. Momentum Wealth Projects Pty Ltd ABN 29 090 792 439 t/a Westbridge Urban.
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