Five vital keys to a profitable development site selection

The most important step in selecting a profitable development site is knowing your target market. In particular, you want to know who’s going to buy your stock and why they’ll want to buy it.

While some developers target the top end luxury market I prefer to focus on the affordable segment of the market. This is because there are only a few wealthy people, and generally these people have very discerning and particular tastes that can be difficult to predict.

1. Affordability

There are vast numbers of working and middle class people. So I try to create product that’s suitable for first-timers, down-scalers and investors. This means I’m always looking to develop product that’s around the median price, or even slightly below the median, in a targeted area. This has proven to be a very stable niche because even during crises like the GFC, people still wanted housing and so the affordable segment didn’t go backwards, unlike the top end, which took a beating.

2. Location, location, location

The second vital key to site selection relates to that age-old adage of “location, location, location”. You simply can’t go wrong by starting with an in-demand location. This means knowing where the property cycle is at and targeting general regions that are due for a run on capital growth. Over the past eight years I’ve developed in Perth and Sydney, as they were the hotspots at the time.

However for the time being I’ve turned my attention firmly on southeast Queensland as it’s clear this region is due for a strong run for the next few years as it plays catch up with the rest of the nation. Where else can investors get a three-bedroom, two-bathroom brand new townhouse just 17km from a major Aussie CBD for $339,000? It’s just outstanding value for money and so selling it is a breeze. The stock that we’re currently creating for our clients is positive cash flow from day one ($54 per week cash flow for a person on $55,000 a year income and more for those on higher incomes).

3. Research

Once you’ve made your target region selection, the third key is narrowing the field of selections to find the best site you can for your buyers. In my case as I’m creating stock with investors in mind, I’m always looking for sites that have superior capital growth prospects, and which also will be neutrally or positively geared. So how do I go about doing that?

I use a free app that anyone can download off the internet. You simply type in an area you wish to research and the app will tell you how your area compares with 15,000 other suburbs and 30,000 markets (as it does units and houses). The creator of the app says the tool can allow investors (and presumably us developers too) to select the top one per cent of all property investment hotspots. My latest project is a 33-townhouse development at Doolandella in southeast Queensland. It was selected in part because it got a really great ranking in the app.

Behind the summary number, which is a predictor of the capital growth potential of a suburb, you can also drill into the statistics for your chosen area and look at things like gaps in supply and demand; vacancy rates; days on market; auction clearance rates; vendor discounting and so on. This data is critical in determining that area is about to outperform.

4. Infrastructure

My fourth vital key to selecting a great site is to ensure the area you’re targeting has great infrastructure investment going on that will attract new people to the area over the long term. This means that it needs to have great transport, ideally rail, bus and road.

It needs access to great schools and shops as first-timers and tenants are going to demand this. You also need to ensure your particular piece of land has access to the various services your properties will need. This includes things like sewer, water, electricity and so on. Generally a call to your local council can kick-start that process and give you the relevant utilities you need to connect with to confirm access points for what you want to achieve at your site. If the site already had a development approval all the service access points and limitations will generally be detailed in the development conditions.

5. Healthy profit projections

The final part of your research is ensuring the particular site is going to yield a sufficient profit that the banks will fund your project. Remember banks only lend to viable projects and developers with a track record of successful delivery, therefore you’re going to need to demonstrate that you know your numbers in great detail. Getting fixed price quotes from civil contractors and builders will go a long way to demonstrating to the bank that you’ve done adequate research and that you’re able to deliver a successful project.

If you’d like to see an example of a detailed research report that’s going to make the banks love you, and have buyers knocking down your door, then feel free to drop me an email at Margie@bgdevelopments.com.au with the subject: “SEQ Research Report” and I’ll happily show you the depth of research that we put into our projects before we go unconditional on any development site.

Margie is a property developer, entrepreneur and professional investor, who has completed $60 million worth of property projects including renovations, subdivisions, construction, options and project marketing in the past eight years. She is always looking for new projects and joint venture partners. www.prosperdevelop.com

By Margie Baldock

http://www.psdmagazine.com.au/2014/07/5-vital-keys-to-profitable-site-selection/

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