YOUR FIRST DEVELOPMENT PART 1
By Geoff Doidge

Your first development can be a challenging prospect. Here are some basics to help you get started on your journey through this complex but potentially very profitable process.

Ten steps for good development:

1. The right site
2. The right strategy
3. The right structure
4. Feasibility
5. The team
6. The approvals process
7. Construction finance
8. The tender process
9. The construction process
10. Marketing and/or Leasing

In Part 1 we discuss Steps 1 to 5:

1. The right Site

As you begin your search for the right site here are some key aspects for good site selection. Your development site may well be the deal maker or deal breaker.

• Zoning: Is the land zoned for what you want to do? You can build a house in an area zoned for units but you can’t build units in an area zoned for houses. Rezoning applications are notoriously difficult and time consuming.
• Slope of site: Is it reasonably level or is it steeply sloping? Level sites are cheaper to build on: No retaining walls, no major excavation, etc.
• Services: Stormwater: Can you get the stormwater off the site? If the site slopes down away from the street, is there access to a stormwater line at the rear?If the line is in the neighbour’s property you will need permission to connect to it. No permission means no connection and maybe no development.
• Sewage: Do you have access to a sewer line? Again, if the sewer is in the neighbour’s yard, you will need permission to connect to it. Are you on a Combine (or shared) Drain?  Decombining drains is a very expensive process. Check with your Town Planner.
• Frontage: Is the frontage wide enough? Councils often have a minimum frontage for developments. You also have to allow for setbacks from the side boundary.
• Demolition: Are there any Demolition controls? Some character homes or pre-war homes in some cities cannot be demolished. Very strict and potentially expensive controls can apply to heritage listed homes. Be very careful if you are planning to buy one of these.
• Due diligence: If you plan to put a development site under contract then you need to have the appropriate contract clauses in place so you can carry out your due diligence to check out the above steps and any other site aspects that should be investigated. Ask your solicitor and Town Planner.

2. The right Strategy

What is your intent? Your main options are:

• Buy, build and sell all properties.
• Buy, build and hold all.
• Buy, build and sell some and hold some.

This is where you call in a key team member. Your ‘property wise’ accountant. It helps if your accountant has been involved in previous developments. There will be many tax issues to consider depending on which strategy you intend to follow.

If you are a long term ‘buy and hold’ investor as distinct from a short term ‘buy and sell’ developer, the intent is different so the structure and tax treatment will probably be different. Check with your accountant.

3. The right Structure: (for Ownership)

The strategy you select will affect which tax structure you should use. The main structures are: Individual names, partnership, company or trust. You will also have to consider asset protection, so you will need to involve your property solicitor for advice on these aspects.

4. Feasibility and Market Analysis

It is critical you carry out a feasibility analysis before you proceed. What is the point of developing a project to make a loss or a very small profit? Many developers require a profit (before tax) of over 20% before they would proceed. That figure will also have a contingency figure of say 10% for unforeseen circumstances, e.g. interest rate rises, construction problems, bad weather, rock etc…

If you are inexperienced in this field, there are consultants like Quantity Surveyors available to do the analysis for you.

What is your market? Make sure the building and location you are providing suits the end user. Is it for DINK’s (Double Income No Kids) or are they students or are they families? This will be especially important if you are building to sell.

5. The right Team

Realise you can’t be an expert on everything. The team will consist initially of your Designers (Draftsperson, Architect). Townplanner: will assess the site and calculate the number and size of building that can be erected on the site subject to the Town Planning regulations. He will consider density, setbacks, height limits, carparking, stormwater, sewage disposal, and will submit the Architects drawings to the Council as part of the D.A. (Development Application).

Others are:

• Accountant: Tax and structure
• Solicitor: Asset protection and contract clauses
• Civil Engineer: Structural design
• Hydraulics Engineer: Water, stormwater, sewer design
• Soils Engineer: Soils test and analysis
• Land Surveyor: Identification Survey of Block
• Landscape Architect: Landscape Plan
• Quantity Surveyor: Costing, feasibility.
• Private Certifier: Ensures the Council conditions have been complied with.

We are are half way through the 10 Steps to Good Development. In Part 2 we will cover all the tricky bits! Approvals, tendering, getting the money, construction and finally selling &/or leasing.

YOUR FIRST DEVELOPMENT PART 2