The number of property developers and investors in Australia’s capital cities are ever increasing. The terms ‘developer’ and ‘investor’ are heard often within the real estate industry but what exactly does a developer and an investor do? Are they interchangeable terms? Do they go hand in hand? Most importantly, is there money to be made?
Property investment refers to the purchase of either residential or commercial premises specifically with the aim of financial return. Generally, this financial return is generated through either renting out the property or reselling the property for a profit (or both). Prior to purchasing a property, the astute investor will undertake a significant amount of research ensuring the property location, price point and of course, the premises itself is going to offer a good return on investment.
Property development is more complex than property investment. Generally, a property developer will purchase a block of land, build the maximum allowable amount of townhouses, units or apartments on the property and sell them for profit once construction is complete. It is a quick turnaround with developers often having a strong network of builders, conveyancers, real estate agents and legal experts. A developer may have an established relationship with the local council and thus, be well versed in the planning and building requirements of that municipality. Those in the know advise novice developers to gain experience by trying their hand at investing first. Overseeing the design, approval, financing and build of a new house will allow potential developers to understand the various stages, potential costs and possible hurdles along the way.
Sound financial planning is required if a property development venture is to be successful. Lending criteria will vary depending on the number of dwellings being built as will the required deposit. Often a financial institution will expect a deposit of 20-30% and the borrower will need to demonstrate ability to service the loan. From the perspective of the lender, financing a development carries more risks than financing an investment. To be successful in a finance application, a developer must submit a highly detailed plan including project scope, suburb profile, expenses, risk assessment, property value and projected sales.
Both property investors and property developers have the potential to earn significant returns on their investments. The best chance of success lies with those who have undertaken the required research, built strong relevant networks and have a sound understanding of each step required throughout the project.