- September 18, 2014
- Posted by: admin
- Category: Enconomy, Finance News, Financial goals, House prices, Investment Property, Property Renovation, Wealth
Most property developers would say risk is an unavoidable part of their trade and being prepared for what lies ahead can mean the difference between success and failure.
The most effective way to minimise the chance of things going wrong is to do your homework. Be ready for the following common scenarios to occur and have a plan for how to reduce your risk and work towards returning a profit.
Interest rate rises
It might seem obvious to factor in the possibility of rate rises over the life of your development, but you’d be surprised how many developers have been caught out when they have borrowed too much money on lower interest rates and then could no longer meet their loan commitments as rates started to spiral upward. Talk to us about a loan that can be tailored to suit your individual needs.
Rising building and construction costs
Your budget should include set construction costs but it’s important to have a contingency plan ready for a potential rise in the cost of building materials and labour.
Disputes with builders or contractors
Lengthy delays and budget blowouts are an all too common outcome of disputes with builders or tradespeople. Minimise the risk of disputes occurring by establishing a formal contract and documenting any alterations. Use diplomacy in the face of conflict and try and resolve issues as quickly as possible.
A downturn in the property cycle
You don’t want to be trying to sell your property at a time when demand is drying up, which means as a developer it pays to gain an understanding of what economic and socials factors cause prices to rise and fall. Ideally you want to be acquiring your development site at a time when prices are not sky high and marketing your completed project to coincide with periods of increased demand and rising values.
Changes to property development related laws
There are numerous Council, State or Federal laws that can change in between acquiring your development site and obtaining planning permission. Have a good understanding of the laws related to property development – from zoning and town planning to tax and the environment – and enquire with your local council about any impending changes that may affect your development.
Unforeseen cost blowouts
Structural defects, hidden challenges, contract exclusions and poor cost estimates can all lead to big losses in profit margins. Ensure your finances will be able to cope with this kind of stress to the project budget and manage the risk from the outset by selecting a quality builder with a solid track record, documenting every detail and carrying out regular inspections at important points throughout construction.