Financing Your First Property Development
Do you have aspirations to become a property developer? Property development is a highly profitable field where the potential is almost limitless. If you have the skills and know-how, you can easily make hundreds of thousands or even millions of dollars as a property developer. However, there are numerous factors you need to consider and this article will highlight a few of them.
The first deterrent to becoming a property developer is of course, financing property development. You must have enough cash to not only buy but also develop your property. If you've never purchased a house before, there are many different expenses involved besides the cost of the actual house. Some of these costs include real estate agent fees, deposit, legal fees, property taxes etc. For commercial property development, the costs are even higher.
The first deterrent to becoming a property developer is of course, financing property development. You must have enough cash to not only buy but also develop your property. If you've never purchased a house before, there are many different expenses involved besides the cost of the actual house. Some of these costs include real estate agent fees, deposit, legal fees, property taxes etc. For commercial property development, the costs are even higher.
If you don't have sufficient savings to purchase and upgrade a property, you need to find a way to raise the capital required. One option is to get a bank approved loan or use other creditors. Alternatively, you can start property development on your current home, sell it for a profit, then rinse and repeat.
The main aspect of property development is of course, how you are going to further develop the property so that it becomes more valuable and you can sell for a profit. Renovation costs rarely stay within a planned budget, so always have "buffer" money for any additional expenses that may crop up. You will need to plan for the cost of the actual raw materials, labour costs, storage and removal of debris from the work site.
Finding a good building contractor to renovate your property is another hurdle you shall have to cross. You should never arbitrarily choose a contractor and start working with them - this is a sure fire way to fail. Instead, use highly recommended building firms that have been vetted from people you know and trust.
Another tip is to know exactly what changes will increase the value of your property the fastest. For example, in a residential property re-development, one of these is an updated kitchen or adding an additional bedroom. For an office block, you can add better air-conditioning and for a retail development, you can install more parking. This is the key to successful property development – identifying where you are going to make the best and fastest profit.
Once you have completed renovation, you have to consider the day to day costs of running the property. Chances are you are not going to immediately sell the property, so you will need to factor in the cost to maintain it. Some of these monthly costs include utilities, insurance, mortgage, administration costs etc. If you are intending to lease the property, how long do you think it will take to find a suitable tenant?
The main aspect of property development is of course, how you are going to further develop the property so that it becomes more valuable and you can sell for a profit. Renovation costs rarely stay within a planned budget, so always have "buffer" money for any additional expenses that may crop up. You will need to plan for the cost of the actual raw materials, labour costs, storage and removal of debris from the work site.
Finding a good building contractor to renovate your property is another hurdle you shall have to cross. You should never arbitrarily choose a contractor and start working with them - this is a sure fire way to fail. Instead, use highly recommended building firms that have been vetted from people you know and trust.
Another tip is to know exactly what changes will increase the value of your property the fastest. For example, in a residential property re-development, one of these is an updated kitchen or adding an additional bedroom. For an office block, you can add better air-conditioning and for a retail development, you can install more parking. This is the key to successful property development – identifying where you are going to make the best and fastest profit.
Once you have completed renovation, you have to consider the day to day costs of running the property. Chances are you are not going to immediately sell the property, so you will need to factor in the cost to maintain it. Some of these monthly costs include utilities, insurance, mortgage, administration costs etc. If you are intending to lease the property, how long do you think it will take to find a suitable tenant?
Alternatively, you can pre-sell the lease so you know that you will have a guaranteed income stream soon after the property development project is completed. You may have to accept a slightly lower rent but this can be a small price to pay compared to an empty property and no rental income.
The main reason why you should not rush to immediately sell your property after you've renovated it is so that you can watch the market. You don't want to sell if the real estate market conditions are poor as this will greatly decrease your chances of making a profit. Therefore, you need to do market research on the housing area even before you purchase. Houses within an area tend to be within the same price range, so this needs to be deeply considered as you don't want to build a mansion in a lower-middle class community. If you do, then you certainly won't make the profit you could have made if you did the same amount of development on a house in a higher income area.
In concluding, property development is a highly exciting and lucrative field that is very profitable if done right. Once you have the appropriate finance for property development you will be well on your way to being a property developer. For details on property development funding in NZ, try this company, Global Pacific Finance.
The main reason why you should not rush to immediately sell your property after you've renovated it is so that you can watch the market. You don't want to sell if the real estate market conditions are poor as this will greatly decrease your chances of making a profit. Therefore, you need to do market research on the housing area even before you purchase. Houses within an area tend to be within the same price range, so this needs to be deeply considered as you don't want to build a mansion in a lower-middle class community. If you do, then you certainly won't make the profit you could have made if you did the same amount of development on a house in a higher income area.
In concluding, property development is a highly exciting and lucrative field that is very profitable if done right. Once you have the appropriate finance for property development you will be well on your way to being a property developer. For details on property development funding in NZ, try this company, Global Pacific Finance.