‘You make your profit when you secure the right site’. It is arguably one of the main reasons why people fail. They will purchase the wrong site, for the wrong reasons, for the wrong price and in the wrong location.
I always do a brainstorm session at my Workshop and ask the attendees to list on butcher’s paper where they go to source a development site and invariably the same answers come up; real estate sites on the internet, the papers, sometimes word of mouth, Real Estate Agents, family and friends.
The problem with those sources is that this is what you do when you look for a site passively. In other words you’re waiting for somebody to put a site up for sale and then you’re hoping that it’s the right one for you. And if it’s not quite what you want, against your better judgement you may try and make it fit into your business plan because you are anxious to start developing. I can tell you that this will absolutely increase your risks and your chances of failure.
Apart from the fact that the site is now on the market and you will have to compete on price, perhaps at Auction to buy the site, there is a reason why the site is for sale in the first place. And often it is not a good reason. Let’s face it if the site was going to be a ‘cracker’ and make lots of money, why is it being sold? Don’t get me wrong, not every site on the market is a “dog”, however, you have to do your due diligence and make sure that there are no technical or other hidden issues.
For example if it is a DA approved site the conditions of consent may be onerous and require costly resolutions which make the site unviable. Most of the Sites that are for sale that I have assessed are not fundable. In other words the Owner has not been able to secure the necessary finance to do the Construction. This is a huge red flag. Despite all the complaints about how hard it is to get development funding from the bank, the harsh criteria does provide us with the comfort that if a Bank is willing to fund a Project, it is relatively “safe” to do.
A colleague rang me a year or so back and he said Jim you might remember me, I rang you a couple of years ago to attend your Workshop, but I could not make it there in the end. He told me that at the time that he called originally that he had just sold his cold storage business and was cashed up. He was looking for something new to do and that he had decided to give property development a go. He said “there was a block of land approximately 10,700 square metres for sale and I bought it”. I asked him why he bought that particular site and his answer was “it was cheap”
As it turned out, he had bought a light industrial site, in Regional New South Wales, and managed to get Development Approval for a five site sub-division which he had intended to sell. Hence his phone call. After some three years on the market, he could not find one person interested in buying any of the sites. In the meanwhile the DA required him to raise the level of the site because of flooding, put in sealed roads and gutters and the site which he had bought for $500,000 had now cost him $900,000 and the interest is still clocking up.
To add to his woes, he is not a resident of the area and has had to travel to the site countless times to resolve issues. Sadly, the last time we spoke, he still has not been able to off load the site, not even below cost. I would be remissed if I didn’t mention that the Global Financial Crisis did not help matters either. We will be talking about external risks in the Workshop.
To run a business (remember you’re running a Property Development Business) you have to be able to have control about how, when and the amount of money you want to spend to make money. The best development sites never make it to the market. So what I would like to share with you is how you can pro-actively source property development sites at will and based on your pre-determined criteria. I want to share with you my proven system for locating the best development sites. I have called it The Funnel Approach.
When sourcing a development site it is fundamental that you should be able to obtain a site that you have “designed” for your own purposes. In other words you need to decide for what specific purpose you want the site; for example, I want to do a luxury residential development, a mixed use in a town centre, a commercial or industrial development.
This pre-determined criteria method is critical for you to master because what I will show you is how you can “take orders” from clients seeking sites and fulfil them to make your own very profitable Site Acquisition Business. Your clients might include for example other developers, corporate clients and building companies who are geared to build, and are looking for sites with specific requirements and in predetermined locations. More on that later.
You will as a matter of course need to set a budget, and you do not have to be limited by your own bank account here which I will discuss later in this book, and you will also want to pick a location that you would like to be active in developing.
One of the givens for me having developed now for some 14 years is to know your patch. Pick a location that you have ready access to, and it might be where you live or the next municipality along, but you need to get to know it like the back of your hand.
You will know at any given time what’s selling, for how much and so forth. You will know all the Real Estate Agents around the area and you will be very familiar with the Local Council, the Councillors, and the information on their Website. Even the local rag is a great source of information. You can rest assured that if there are any controversial developments proposed in the area, it will make the local paper. In addition, Council is obliged to advertise any proposed development above a certain criteria as defined in their Local Environment Plan (LEP).
At the Workshop I will share with you how my Funnel Approach works. From this knowledge alone you can start your own niche Site Acquisition Business.