Four Things to be Wary of When Developing Property for Profit

07/01/2015   by The Hopkins Group

For those of us fortunate enough to have grown up in “the lucky country”, the national obsession with owning property was never far away.

Our hardworking parents seemingly attained the Australian dream of a house on a quarter acre with relative ease. And every second person claims to know some regular Joe with a rags-to-riches story about building a property empire from nothing.

It’s easy to believe too – after all, if those novices on The Block can flip a property for a profit, so can you! What could there possibly be to lose?

As is happens, everything.

While they struggle to contain their itchy cases of The Block Fever, many first-time property developers often overlook the potential pitfalls. Here’s our guide to the four key stumbling blocks that are too often swept aside by property development hysteria…

Find the Right Place

Don’t let your itchy case of “The Block Fever” rush you into buying any old property. Take your time to find the right place and do your due diligence. Lots of it. For example, is there an easement on the property? Is it a strata title, and if so, will strata rules prevent you from redeveloping? Are there height restrictions?

The key is to ask lots of questions. If anything seems unclear or untoward, walk away.

Consider the Demands on Your Time

Many would-be developers are aware they’ll need to invest considerable time into the property – but their mental picture of that time probably resembles one of those happy wall-painting montages from an ‘80s movie.

In fact, there are countless hours spent on the phone and filling in endless paperwork. You’ll spend a considerable chunk of your life fighting with contractors and various authorities. The added stress can take its toll on your personal relationships, as well as causing your nine-to-five work to slip behind your moonlighting as a property developer in the priority list. Remember that it’s your steady job that pays the bills – until that changes, make sure it always takes priority.

Wear the Right Shoes

So you’ve already picked out your property developer’s toe-capped boots. Now you really look the part! But step out of them for a minute and into the shoes of people buying in the area you’ve set your heart on. Are they likely to be Gucci brogues or Kmart loafers? Ask yourself what kind of demand there is for the type of place you want to develop – you may find your plan to build a sleek yuppie pad on an affordable family-centric street in the ‘burbs isn’t such a smart one.

Also, remember that you’re banking on the improvements earning you a profit – if those improvements price too many people out of bidding for your property however, your profit could easily turn to deficit.

The Market

How quickly are you expecting to flip your redeveloped property? If the market softens when you come to sell, you may find low demand pushing down your asking price – or preventing you from selling at all. If that does happen, can you afford to service any loans on your own home as well as a second property? If the answer’s “yes”, you’ll be in a much stronger position as you can wait for the market to pick up again.

Remember that while other investments can make use of multiple markets, committing to property development means you’re relying on just one – the market your property is in. So consider all the risks and seek guidance from the experts before you go deciding you’re the next Keith Schleiger.

For all the reasons mentioned above, we don’t recommend developing a property on your own. We can however, recommend purchasing off the plan property in the best inner urban areas of a major metropolis. The Hopkins Group works with some of the best developers to source high quality property for our clients. For expert advice on how to find the perfect property, call us on 1300 726 082 or email us info@thehopkinsgroup.com.au





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