Selling to a Developer
- Getting the Right Price: If you're considering selling to a developer, aim to get a price that includes some of the uplift from the development but isn’t so high that the project becomes unviable. Understand the value of comparable land, the potential selling price of the end product, and the costs involved, including building and development expenses like interest, selling fees, taxes, consultant fees, and legal costs.
- Understanding Developer Margins: Developers are typically looking for about a 20% margin (profit over cost) on a duplex development although they’ll often accept a little less (e.g. 15%). Developers who are also builders might have lower costs due to their ability to manage projects efficiently and accept a lower margin on the build component. They may also time the build to suit their workload and market conditions. .
- Real Estate Agent incentives: If you’re selling through a real estate agent, the agent is incentivised to maximise the price for your home as they earn a commission on the sale price. However, depending on the agent, the incentive can diminish for them as you get closer to the final price. For example, a $50,000 increase in sale price might mean a lot to you but might only translate to a small commission increase for the agent.
Joint Venture with a Developer
- Deal Details: Some developers propose joint venture partnerships with homeowners. For example, the developer might offer to cover the development costs while you provide the land, and you split the resulting properties. This approach which may result in a good deal in some circumstances but not always. Ensure the deal is fair by considering the costs of development and the value of the land.
- Access to Expertise: Joint Ventures with a developer give the homeowner access to the developer’s skills and networks, which can be valuable. However, hiring independent project managers and consultants might offer similar benefits without giving up as much control or profit. Developers may be more incentivised to achieve a good result, however, given their profit is it risk.
- Capital Considerations: Developers bring capital to the table. However, depending on the deal, you could find cheaper capital from equity investors, who provide due diligence and leave the project management to you or your contractor, maintaining your control over the project.
Developing Yourself
- Understanding Regulations and Feasibility: Before incurring costs, know what you can build on your land. Contact the council, use planning tools, and consider factors like land slope and significant trees.
- Financial Planning: Find a mortgage broker specializing in property development and explore loan options. If you can’t borrow enough, you can seek investors through crowdfunding platforms, family, friends, or even social media groups set up for this purpose. Investors need a higher return than lenders but are often used by developers to fill funding gaps.
- Choosing the Build Method: Weigh the pros and cons of traditional builds versus prefabricated options. Prefabs can be faster and more sustainable, with fixed costs and timelines, whereas traditional builds offer more flexibility. Volume builders – big companies with fixed designs – can be cheaper than custom builders because they can source cheaper materials and cut costs through consistency and repetition. But variations and upgrades can significantly add to the cost. Volume builders may offer better financial viability than smaller builders given their scale and scope (but not always). Custom builders give you more control over design and, depending on the product you’re after, can work out cheaper than volume builders.
- Project Management: Keeping your project on track is crucial to avoid cost overruns and interest expenses. Prefab homes, built in controlled environments, can help mitigate delays compared to traditional builds. Skilled project managers can manage risks of a traditional build.
Flippable: Your Redevelopment Ally
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