PROPERTY DEVELOPER SECRETS Why Property Development is the Ultimate in Wealth Creation & How You Can Make Millions Too
Preface Intelligent investors know that accumulating well selected residential property is a proven, tax effective wealth creation strategy. Property investors these days are much more informed and far more astute than their counterparts of the 1990 s and early 2000 s, and many are looking for an edge to break them away from the pack and fast track their path to financial independence. Until recently this area was the domain of property developers and the very rich. Traditionally, developers have been reluctant to divulge their techniques and secrets to the common man. Their attitude has been, I ve had to make mistakes and learn the hard way, so everyone else can do the same. The great news is the era of secrecy has ended and no longer do investors have to be multi-millionaires or full-time property development experts to share in the massive financial benefits that property development can deliver.
Hi, My name is Bob Andersen, founder of Property Mastermind. Over 30 years ago I was introduced to an investment strategy that I ve not only built a career on, but a strategy that has provided me with a wonderful lifestyle. For over three decades now I have been developing property, and over this time I have been involved in over $1 billion worth of property development projects. Here s a sample of some of my recent projects. 15 apartments 5 townhouses 4 townhouses $962,000 profit 7 townhouses $270,000 profit 17 townhouses $332,000 profit 6 townhouses $462,000 profit $1,219,000 profit $646,000 profit I ve also featured in several media channels including the Australian Property Investor magazine, Money Magazine, Sky News, Your Investment Property magazine as well as featuring in books such as Secrets of Property Millionaires Exposed and The New Way To Make Money In Property Fast.
Whilst I m still involved in property development projects of my own, my focus over recent years has moved increasingly towards sharing the knowledge I have gained with aspiring property developers. Without question, the greatest thrill I have these days is witnessing students use my property development system to unlock financial and time flexibility in their own lives. A lot more money and a lot more quality time equals a fantastic lifestyle. The term property development conjures up different images for different people, so before we journey any further let s take a quick look at what I mean when I discuss property development. In simple terms, property development is the improvement of a building or a piece of land. 4
There are several different types of property that may be developed including: Commercial - Property intended for use by services or wholesale business (e.g. office complexes). Industrial - property intended for use by distribution, manufacturing or warehouse businesses (e.g. factories, logistics, storage). Retail - property intended for use by retail businesses (e.g. restaurants, shopping centres). Residential - property intended for use by individuals and not businesses. Mixed Use property for use by a combination of the above types (e.g. retail and residential) I ve developed all types of property and have found the principles and process of developing each type is largely similar. However, I have found myself drawn to residential property development, both as a developer and teacher, for a few key reasons: Familiarity - We are all familiar with residential property having spent our lives living in it. Consequently, we all have an innate understanding of what is and isn t desirable in a residence, which is helpful when it comes to design and selecting finishes etc. Finance - Residential property development has a potentially lower equity (deposit) requirement than commercial, industrial, or retail development. It is generally easier to obtain finance when retaining completed property and the pricing of the finance (e.g. interest rates etc.) is more competitive. Scalability - Residential property development provides several entry-level opportunities that don t exist with commercial, industrial or retail developments. Entry-level options include splitting a piece of land in two, building a duplex, building two townhouses behind a house etc. Entry-level developments like these require less financial investment and are a great way to cut your teeth before scaling up to larger developments. 5
Within residential property, there are several types that may be developed: Apartments - Attached dwellings on strata title that are often attached to adjoining dwellings on both a horizontal and vertical plane. Also referred to as flats or units. Houses - Detached dwellings each on their own title. Land generally undertaken by dividing a piece of land into smaller pieces of land each on their own title. Townhouses Generally attached dwellings on strata title that are attached to adjoining dwellings on a vertical plane (i.e. through the walls). Specialized Includes other forms of residential property such as holiday, retirement, serviced apartments, student accommodation etc. Being open to developing different types of residential property will expand the range of opportunities available to you, and it can even lead to greater profits when you are able to develop and deliver the type of project that is most in-demand by the market. Now we ve established what property development looks like, let s look at why you should seriously consider taking steps towards being a property developer. 6
Why Property Development? There are numerous property-related strategies out there: Buyand-hold, Options, Renovating, Wraps, Etc. There is, however, one strategy that stands head and shoulders above the rest where return on investment and return on time are the key measures. Property development truly is the pinnacle of all property strategies. You see, so many people go to work for their employer and exchange their valuable time for much-needed money. Even most self-employed people, whilst desperately trying to break this paradigm, often fall victim to the time for money trap. This arrangement may suit those who have landed the holy grail job where they earn a massive income for very little time input, but for most people the money versus time pendulum isn t leaning in their favour. The great news is that property development, when performed using a proven system, offers the best of both worlds great financial flexibility with a relatively small time investment. Let s take a quick look at the results achieved by some of our students. 7
10 apartments 6 townhouses $922,000 profit Duplex $607,000 profit 5 townhouses $600,000 estimated profit 6 townhouses $605,000 profit Duplex $460,000 profit $225,000 profit 8
Importantly, most of these students managed their project whilst holding down their day job. There may come a time, as it has for several of the above students, where the money you make developing property makes your day job lose its appeal, although in the early years I always advocate keeping your day job and develop property on the side. It s the ability to generate significant profits with relatively small time investment that stands property development apart from all other property strategies. What I also love about property development, is the flexibility you have as a developer to either sell your completed properties for cash flow or retain them for long term wealth creation (or indeed, any combination of the two). Receiving large chunks of profit sure is exciting, but if you re able to combine the short-term profitability of property development with the long-term performance of property investment you will enjoy the best of both worlds and secure your retirement so much sooner. You see, as a property developer you can acquire your properties at cost price not retail price like most other property investors. To illustrate the difference, let s look at the following example using standard profit margins. Developer Investor Market Value $600,000 $600,000 Development Profit $100,000 $0 Purchase Price $500,000 $600,000 Stamp Duty $0 $25,000 Total Cost $500,000 $625,000 Net Equity $100,000 ($25,000) 9
As you can see, in this illustration the developer can acquire their investment property for $125,000 less than most property investors. Whilst only an illustration, the numbers are reflective of real-life deals and the profitability in this illustration is equivalent to most financier s and valuer s standard profit margins (i.e. 20% return on cost). Remember, the $125,000 saving is per property. This could be just one townhouse in a three-townhouse project for example. Imagine if you were able to develop two, three or four properties every year using this strategy I ll let you do the maths Ordinary property investors must wait for their property to grow organically before they are able to utilise the equity as a deposit to purchase another property. As a property developer you can manufacture growth upfront which means you are able to build a property portfolio more quickly as you don t have to play the waiting game wishing your property would grow in value. In fact, this strategy is particularly valuable in periods of no or low capital growth as you can effectively take capital growth into your own hands by manufacturing your property at cost. When you manufacture your own property at cost, not only do you keep the development profit, but you also have less debt and receive an increased rental yield as you ve effectively purchased the property at cost rather than retail. Forget negative gearing and having to sacrifice your lifestyle to prop up your rental property. When acquiring well located property at cost price as a developer you will generally be cash flow positive after-tax thanks in part to the substantial depreciation tax benefits that come with new property. 10
There are many benefits to being a property developer, but in summary they are: Profit You can sell your completed property and pocket the development profit less tax. Deposit You can use your development profit as a deposit when retaining your completed property. Growth You don t have to wait for organic growth as you effectively manufacture it during the property development process. Portfolio You can build a property portfolio much faster than paying retail price and waiting for organic growth. Rental You can significantly increase your rental yield by acquiring your investment property at cost rather than retail. Tax You can utilise the favourable taxation benefits of depreciation on new property. Savings You get to keep the advertising fees and agent s commission that would have otherwise been spent when retaining your completed property and you shouldn t pay additional stamp duty. It s easy to see why property development is indeed the pinnacle of all property strategies, but is property development an appropriate strategy for everyone you might ask?
Common Mistakes Made by First-Time Developers Early in my career I made my fair share of mistakes and as time s gone by I ve witnessed numerous mistakes made by other first-time developers. Making mistakes is part of life but making mistakes in property development can cost ten s or even hundreds of thousands of dollars in forgone profit. Let s red flag some of the more common mistakes I ve witnessed first time developers make: 1. Lack of Education Property development is a highly profitable enterprise and the cost of education is negligible compared to what you could lose in forgone profit without one. A case of a little bit of knowledge can be dangerous as most people don t know what they don t know. It s usually only after you have received education and communicated with an expert that you realise how little you knew when you started. 2. Unclear Strategy Whilst you have some flexibility to change your mind during a project, it is preferable to have a clear strategy on whether you will retain or sell the completed property before buying a development site. This decision may influence the location and type of project you target (investment v owner-occupier), and it will also influence the ownership structure. 3. Incorrect Ownership Structure Once you are reasonably clear on your strategy it s important to seek professional advice to establish the correct ownership structure, ideally prior to entering a contract to purchase the development site. Several matters will need to be considered in this decision including your disposal strategy, asset protection, capital gains tax, GST registration, income tax, land tax and stamp duty. 12
4. Inadequate Finance Before looking for a development site you should understand your borrowing capacity and work within it ensuring you retain a buffer. Consider engaging a commercial finance broker or retail finance broker familiar with development finance to ensure you don t come up short of funds. 5. Poor Due Diligence Due diligence is the process of investigation that should be conducted when acquiring a development site. Thorough due diligence will incorporate engineering, financial, marketing and town-planning aspects. 6. Unrealistic Financial Feasibility Part of the due diligence process involves preparing a financial feasibility to confirm the profitability of the project. The financial feasibility needs to include realistic sales figures (ideally not escalated for future growth) and realistic allowances for all costs. Once you have all the inputs you can perform a residual land valuation (aka a reverse feasibility) to ensure you don t pay too much for the development site. 7. Building Properties That Don t Meet The Market Before preparing designs it s important to conduct in-depth market research to understand the design features and finishes your target market desire. Without understanding what your target market wants you risk building a product that may not achieve your sales expectations, or one that may cost you more to construct without being rewarded by the market at sale time (i.e. over-capitalising). 13
Who Should Consider Becoming a Property Developer? For many people the term property developer conjures up images of hard hats, high-vis vests and construction-savvy men giving directions to contractors from the shade of their dual-cab ute. I m here to tell you reality is very different and having educated over 2,000 students over the last 8 years I ve come to find successful property developers come in all shapes and sizes. For me, this is one of the key attractions to property development, the fact there are no barriers to entry and it doesn t matter about your: Age whether you re 18 or 80 Education whether you failed school or have a PhD Ethnicity whether you were born in Australia or immigrated Gender whether your male or female Qualifications whether you re a qualified builder, or a candle-stick maker Wealth whether you are rich or poor 14
Just to prove it, here is a selection of some of my successful students any of them would have similarities with you? 4 Lot Subdivision 8 Apartments 14 Townhouses 5 Townhouses 9 Lot Subdivision 3 Townhouses These are all ordinary people with no prior property development experience, but they had our system to follow. Most of them knew very little about construction, and several of them performed their projects using little to no money of their own. 15
What I ve discovered over the years is there are only two key skills required to be a successful property developer. You need to be able to manage people and manage a process. These two skills are within reach of anybody, particularly when you have a complete and proven process to follow. In fact, many of you probably already perform at least one of these two roles in your existing job. One of the wonderful things about property development is the way you can leverage off other professional s expertise and time. DEVELOPER ARCHITECT BUILDER Building Certifier Civil Engineer Surveyor Carpenter Concreter Painter 16
There are numerous professionals involved in a property development project, but rather than co-ordinate each one of them, you can gain far greater leverage by delegating managerial responsibility to certain team members, who in turn manage other team members beneath them. Take for example the architect and builder. Rather than deal with all the consultants individually (e.g. building certifier, civil engineer, surveyor etc.) you can appoint the architect as the lead consultant so it s their responsibility to manage all the sub consultants. Similarly, rather than deal with all the sub-contractors individually (e.g. carpenter, concreter, painter etc.) you appoint a builder on a fixed price and time contract, so it becomes their responsibility to manage all the sub-contractors. By leveraging your development team in this way, you can substantially reduce the amount of time you need to invest managing people which further enhances the return property development can provide on your time invested. So, we ve established that anyone who can manage people and manage a process are able to become successful property developer, but how important is timing to the success of a property development project? 17
When to Develop Property Over the last three decades I have developed property in all stages of the property cycle. When I performed my first project back in the early 1980 s, land was relatively inexpensive, interest rates were very high (over 20% p.a.), construction prices were low, and sales prices were also low. These days land is more expensive, interest rates are much more affordable, construction prices are relatively high, but so too are sales values. Here is a diagrammatic summary of the typical property cycle consider where your preferred property market may be located now. 18
However, what I ve discovered over the last three decades having developed through all stages of the property cycle (several times over) is that it s never all good, and it s never all bad. I ve managed to make similar returns in property development through each stage of the property cycle. What I ve learned is to make money in any stage of the property market it s important to follow these three rules: 1. Perform conservative and thorough financial feasibilities. Don t assume any growth in sales values over the project and make sure you perform some what-if calculations (technically called sensitivity analysis) to make sure the project can absorb certain curve balls such as construction cost escalation, higher interest rates, and slower sales rates etc. 2. Develop product that is in demand with a point-of-difference to the competition. Be aware of pipeline projects (projects submitted for council approval) and current sales rates in your chosen area and develop what is most in demand and least in supply (whether that be apartments, land or townhouses). Also include some economical design features or inclusions that set your project apart from the pack. 3. Ensure you have financial contingencies. Like any investment strategy, it s advisable to not overextend yourself and to ensure you leave yourself a financial buffer. This is particularly the case for property development. Confirm your borrowing capacity with a financier of finance broker and make sure you work well within your borrowing capacity when selecting what size project to perform. When you follow these rules, you ll be well-positioned to profit from property development in all market conditions. Let s now look at some of the more common mistakes I ve witnessed first time developers make over the years. 19
Summary We ve covered a reasonable amount of ground in this introductory ebook so let s take a moment and summarise what we ve covered: The accumulation of well selected residential property is a proven, tax-effective wealth creation strategy. By developing and retaining property at cost price, you can massively enhance an already proven strategy and build a larger portfolio much sooner. Property development breaks the time for money paradigm with its ability to generate significant profits with relatively small time investment. Property development provides flexibility to either sell your completed properties for cash flow or retain them for long term wealth creation (or indeed, any combination of the two). Your age, education, ethnicity, gender, qualifications and level of wealth aren t barriers to becoming a successful property developer. All you need is a system to follow and to manage people and manage the process. You can start today and do your own small development project while keeping your day job by leveraging your development team s time and expertise. I m convinced there is no other investment strategy with a track record like property development for generating significant wealth, in a relatively short period, with so little time investment. 20
Next Steps So, are you ready to follow in the footprints of over 2,000 Property Mastermind students and learn our proven property development system? YES, I WANT TO BECOME A PROPERTY DEVELOPER! To learn even more about our property development products and market-leading program, visit our website and stay in touch via social media. I hope to see you at one of our life-changing workshops. 21