Firstly, let us say we are not experts in development. For Mike’s book, How to Invest in Property Without Being Eaten By Sharks he says “I roped in a developer I trust for some thoughts”.
Amazingly, according to an internal contact of ours, something like 40% of all DAs (development applications) that get approved out of Gold Coast Council don’t go ahead. People run out of money or enthusiasm after the long and arduous project or have other distractions or life situations and simply let it lapse. There is a business in finding these and connecting to new investors and project managers.
Every week we see an advertisement for someone to make a quick buck by learning how to do developments. In fact, people are making a fortune out of teaching others HOW to do it rather than doing it themselves. A word of warning. Test and try everything to see if it is true.
Beware Of The Sharks
We know there are a number of people running the seminar circuit charging around $5,000 to sell a CD pack or webinar series on how to do things like this, but really it is a system where greedy graspers make a tidy and easy income out of selling things to people who pay to learn but rarely DO.
The rule of thumb is that if you pay $5,000, the host on stage gets $2,500 of this amount and next month simply rolls another one out interstate. For these people, we believe it is all about how they can build their respective databases and make money out of the ‘interested parties’.
Like many parts of this book, this is a generalisation and no doubt, not true of every supplier in the field. As always, try every teacher and coach and measure them by what they do directly themselves.
There is a Queensland operator we have met who gets his loyal attendees to do the research and testing and then bring to him the projects that they have found which fit the criteria. He then picks the eye teeth out of the deals, uses his ‘client’ as the researcher and risk taker and then arranges to ‘partner’ them in the deal. Of course, he risks no money as the client holds all the risk. He brings his ‘expertise’ to the deal and gets his staff to help process the deal. We are sure a number of clients make money and have no problem but they hold the risk, do the majority of the work and end up giving away a chunk of the profit to the ‘teacher’ who only and always has an upside to benefit from with no downside. Nice work for some!
There are a number of ways to do very small developments and even small to medium developments and minimise risk. The stories you have about developers going broke are usually the greedy ones who take risks and don’t cover themselves for the event of legislation change, weather or serious build delays.
Our suggestion would be to only ever risk what you can afford to lose. Don’t hang out on a limb as the outer limbs get rather shaky and more likely to snap right when you need them most. To find out why we buy property read our blog here.
We actually like the idea of finding good ‘splitter blocks’ if you can get them. You might be able to find a large block of say 1000m2and build a duplex, two houses, a triplex or maybe a block of four townhouses on them, and then sell off at a profit.
While you might hear of these things and see testimonials of how people did this and made a quick $300,000 over nine months, don’t forget, there are many more you don’t hear about who try and fail either because of timing issue, bad research, build cost blowouts or whatever. If it sounds too good to be true, it just may be. Either way, this is a strategy for ‘income generation’. Whereas what we are talking about here is ‘wealth creation’. It’s a different animal entirely. Buyer beware.
As always, we’re happy to chat if you’d like to get in touch and discuss your current strategy. You can reach us on email@example.com