Property Developers
Purchase dwellings and land and enhance them to increase their value for resale. Work with Professionals and Technicians and Trades Workers to design, obtain approvals for, build and sell properties for profit.
Should you buy this block?
You are a small property developer, deciding whether to buy a block and build homes on it, with an offer that expires on Friday. It is Tuesday. The block is in a pleasant street, close to a train line. The seller wants an answer by Friday, and you have only a few days to find out whether this will work.
Choose what you would do. Then see what happens. There are often good reasons for each choice.
I have another buyer looking at it this afternoon. If you want the block, I would make the offer today. You can do your homework after. Honestly, blocks like this do not come up often.
Make the offer today to beat the other buyer, and do your checks once the block is secured
You win the block, then discover a restriction that limits what you can build. You have committed money before knowing if the project works, and the pressure came from a person who benefits from a quick sale.
Tell Ivan you will not be rushed and walk away from the block if he cannot wait
You avoid the pressure, but you also miss a block that might have worked. A condition in your offer could have protected you without losing it.
Make a conditional offer, subject to checks on planning rules, services and the ground
Ivan grumbles, but the seller accepts. You have a way out if the checks go badly, and time to learn what you need to know. Good developers buy with their eyes open.
The planning rules allow four townhouses, but the council tends to approve fewer if neighbours object. Your numbers only work with four. If three, you lose money. How do you want to proceed?
Assume four will be approved, because the rules allow it and the numbers only work with four
Neighbours object, the council cuts the plan to three, and your project no longer makes money. Building a business on the best-case answer is a gamble.
Run the numbers for three and four, and talk to the neighbours before lodging plans
You find the project barely works at three, and the neighbours help you adjust the design. Knowing your breakeven point lets you decide with a clear head rather than hope.
Walk away from the block, because three does not work and the risk is too high
It is a safe decision, but you have not explored whether a better design, or a different way to build, might change the result. A little more work might have kept the project alive.
Your equity is thin for this project. I can lend, but I will want to see a contingency in your budget and a plan if sales are slow. How confident are you in your figures?
Say you are very confident, and keep the contingency small to make the project look attractive
The bank lends, but when costs rise you have no cushion. A small contingency makes the sums look better and the project more fragile.
Show a realistic contingency, explain your biggest risks and what you would do if sales were slow
Gus trusts a developer who has looked at the downside. The loan is approved on fair terms and you have a plan for the worst case, which is how projects survive bumps.
Tell Gus not to worry because property always goes up
Gus ends the meeting, because property does not always go up, and he knows it. Confidence without evidence tells a lender that you may not understand the risk.
How it went
By Friday you have a conditional contract, a plan for the planning risk and a lender who trusts your numbers. Property development means taking risk with real money, and managing it by checking carefully before committing. Does that kind of calculated risk excite you or worry you?
This is a simplified, fictional situation to help you explore. It is not professional instruction or a test of your ability.
Case study: The block with the old tree
A fictional case set in a small fictional property development company that builds townhouses on suburban blocks.
The situation
Property developer Marguerite Dumont had agreed to buy a corner block in a quiet suburb, planning five townhouses. The sale was due to settle in three weeks. Then a neighbour told the council that a large old tree on the block was important to the street. The council officer said the tree might be protected, which could change where the houses could sit and even how many fit. Marguerite had already paid for the plans, and her lender was waiting for a start date.
What they did
Marguerite hired an independent arborist to assess the tree before anything else was decided. She asked the architect to try a layout that kept the tree and the garden around it. She met the neighbour and listened to what they valued about the tree, then asked the seller for a short extension while the council reviewed it. She told the lender plainly what had changed and gave them an updated timeline.
How it turned out
The tree was confirmed as worth keeping. The new layout fitted four townhouses, not five, with the tree as a feature in a shared garden. The project made less than first planned, but it was approved quickly, and buyers valued the tree. Marguerite said the first reaction to a problem should be to learn about it, not to fight it.
What would you do?
- Why did Marguerite meet the neighbour instead of simply fighting the objection?
- How would you decide whether a project is still worth doing after the plan changes?
- What do you think a developer needs to understand about the community around a project?