Property Development Success Strategies: Live On Your Own Terms
Whether your development project is valued at $1m or $50m great outcomes, high profits and reduced risk depend on one major factor: the quality of advice you receive at the outset. This is where the decisions you make - and the professionals you engage - can halve your anticipated profits or worse if you get things wrong. A lack of strategy and incorrect accounting structures trigger unexpected taxes, generate low returns and put at risk the assets you’ve spent a lifetime accumulating. The very real gains to be made from property development can be yours however, by working with specialists and getting educated on best practice starting with these three essential steps.
1. Have a rock solid intent from Day One
As a Certified Practising Accountant, the most common problem I see is people changing course midstream and veering from their original plan. They may set out to build a project to keep, then see the local market on the rise and decide to sell instead. Unbeknownst to a new developer, this change of intent could trigger serious tax implications. Alternately you may develop with intent to sell and decide to keep your property instead which has a number of other tax implications. Worse still is finding yourself short of funds and deciding to bring investors on board, only to be hit with stamp duty and other tax issues. While the thought of not having flexibility to leverage a property in any way you see fit can be limiting, being prepared for all implications means there’s no room for surprises.
2. Develop a realistic feasibility study
Succeeding with a project mapped out on the back of a napkin may work in a Hollywood movie, but it’s not so much in property development. In the last example, we saw how changing course midstream can impact your bottom line and each of these triggers have dollar signs attached - you need to know exactly what everything costs. We see a lot of developers when they’ve got into hot water because their feasibility studies weren’t thorough enough, underestimating expenses and overestimating profits. Instead of getting into the danger zone, it’s crucial to know exactly how much those costs will be to understand the true potential of your proposed project. This will help you to either go back to the drawing board with your development plans, look at bringing in partners in advance or understand whether you’ve got more to gain from tenanting a project on completion or selling off-the-plan.
3. Asset protection by risk-proofing structures
It’s tempting to skimp on costs by running all your developments through the same tax structure, but using that one entity can threaten your entire asset base if things go wrong. When you understand the rules of property development apply at scale, it doesn’t matter how big or small your project, you need to create a separate entity for each one. But not investing in advice with an industry expert at the front end can cost you hundreds of thousands of dollars if not everything you own. That extra money on accounting fees means the risk stops at that one project, rather than tearing everything else down. We also ensure that we add ‘circuit breakers’ into our clients’ entities to ensure that asset protection is as sound as possible. Having spent years helping developers to get their investment structures right, we’ve seen that this is one of the elements of property development most people struggle to understand. They’re too focused on the upfront costs to see that saving a penny won’t save them a pound - and how much that lack of foresight could cost them in the long run.
By engaging a professional team whose sole focus is on property, you’ll be aware of the risks and rewards upfront and know how to work with them to best suit your individual situation. It’s too late when you get to the end of a project and find potential selling costs put you in the red, or that holes in your feasibility have crushed your $1m payday. Instead, be armed with the knowledge to succeed in property development and start to live the lifestyle that you want to live.
Discover how to take your development career to the next level at our upcoming Master Class in Melbourne. Regardless of whether you’re a new or established investor - and no matter what size your proposed projects - we’re bringing together leading industry experts to guide you to success. Major topics covered include structure, asset protection, risk mitigation, legal documentation, attracting investors and financing your project, town planning, market research and sales strategies, due diligence and financial feasibility, completing the project. Click here for more information and to secure your place.