Five Keys to Profitable Property Development In Five Minutes Flat.
Five keys to profitable property development in five minutes flat.
Welcome to Five Keys to Profitable Property Development In Five Minutes Flat. I’m your host, Rebekah Blake, from SMSF Property Capital. Let’s start looking at why the traditional approach to property development is broken.
Here is how traditional property development works with the use of bank debt. In this simplified example, we have $100 worth of property being developed. Now, the total development cost is $75, and the available profit is $25. The bank tips in $50, and the investors contribute $25 in equity. Then providing everything goes to plan, the $25 in equity invested produces $25 in available profit, which is 100% profit. So far so good, but what is wrong with this picture?
The problem is that banks retain a massive control over the process. If an unexpected event, such as a GFC, hits, or any number of other hiccups should occur, then the bank could take the assets back and leave investors with nothing.
So key number one to our model is to remove banks from the equation. With our model, development looks like this. Instead of banks, investors contribute the whole $75 required to do the development which leaves us an expected profit of $25. This is a 33% profit. It’s pretty good, but it’s not wow. So property development with debt has the potential to deliver a profit of 100%, and property development without debt has the potential to deliver returns more in the order of 33%. So the question is why would you develop without bank debt? Well, quite simply, it is the “sleep at night” factor. With banks removed from the picture, risk is greatly reduced, and the developer has options even if the market situation changes.
The second big problem with traditional property development is that it is all too often marred by conflict. Developers, architects, builders, and bankers tend to tussle over whose responsibility fixing a particular problem is. For example, maybe the builder complains that the architect specified something too difficult or impractical to build. The conversation becomes more about who is right rather than getting to the end of the development and delivering a profitable outcome.
So key number two is to eliminate competing agendas between the different moving parts. With our model, we line up all the moving parts under one umbrella and their joint goal is to find the opportunity, raise the capital required, build the project, sell the finished product, and then distribute the profits to investors. Now, this team approach avoids conflict, and it ensures that everyone is aligned around a successful outcome.
The third key to profitable development is predict and program the cost of every stage in detail and to fix your costs. Now, this is vital to keeping every step on track and moving forward quickly, because time is money in this game.
Key number four is to recognize that it will not go exactly as planned. Unexpected things can and most certainly will happen, so let’s consider the worst case scenario. And just about the worst case scenario, most people can imagine in recent history is what would happen if GFC2 hit the day after you invested in one of our projects. And to answer that question, let’s take a look at what happened in the GFC1.
Around April 2008, capital city property prices started falling, and they actually lost about 10% of their value until returning to previous levels in about April 2009. Now, in this scenario, if you were developing property with bank debt then it is possible that the bank could take away all your assets leaving you high and dry. But with our no-debt model, you have options. Now, one option would be sit tight until the market recovers. Another option would be to sell earlier at a lower level of profit. Now, hopefully, that scenario won’t occur, but it does give comfort to know that there are options if everything doesn’t go 100% to plan.
Finally, key number five to profitable property development is to focus all your grit and determination on getting to completion. Property development is a production process, and the value is only liberated at the end. A 90% complete townhouse is not worth 90% of the final price. Getting to the end is all that matters. So that’s the theory, but how does it look in practice? Well, let’s look at an actual project, Bryna Parade at Oxenford on the Gold Coast. Now, this is a 58-townhouse project, projected to return 45.98% over 24 months. So please look at the full PDS for full details on that.
As of right now, their project has almost reached minimum capital allocation, has a minimum investment of just $5,000. The average is around $50,000, and the maximum so far has been 500K. As I mentioned above, the feasibility is targeting a profit of 45.98% over 24 months. It’s suitable for investment inside or outside an SMSF, and in short, the project allows you to participate in the potential upsides of property development with reduced risks and reduced outsides. And the even better news is that this project allows you to earn 8.65% on your invested funds until the project commences. Now, that’s an offer from our funds manager, and it’s certainly more attractive than having your funds singing cash at 2%. It’s been a good incentive for our customers to take action. Some conditions do apply to this offer. Please, obviously, refer to our website or ask us for full details.
Now, to find out more or request a PDS, please call us on 1300 76 73 46 or email us at email@example.com. After you inquire, we’ll make a time to connect on the phone and to discuss your situation and goals and to send you a full PDS and info pack.
Now, just quickly, here’s what one of our investors, Brett Rix, said about our model, “SMSF Property Capital provides the opportunity to directly invest in property development – an activity that is beyond the reach of most investors who do not have the time or the skills to project manage their own construction sites. SMSF Property Capital make you feel like you’re a part owner in the actual business. They drag you through the mud on site, share with you the frustration of local government behavior, and take you through the journey of design, construction, and sales. The potential returns are strong with a lot of downside protection.”
If you’re ready to find out more or to invest, please call us at 1300 76 73 46 or email us at firstname.lastname@example.org, and we’ll go from there. Thanks for watching.