May 27th, 2014.
7 Habits of The Extremely Unsuccessful Property Developer
“You learn from the mistakes you make and from the mistakes other people make. The truth is, you don't learn from success; you learn from failure.” – George Clooney.
When it comes to the property development, those who are successful with it share many things in common.
The problem though is that it’s easy to be blinded by their success, chalking it up to luck, and missing the very specific habits and practices that led to their success.
So rather than explore the secrets of the successful, this article is going to plunge into the follies of the failures in property development, in an attempt to learn what not to do.
And so here they are: the 7 habits of the extremely unsuccessful property developer
#1 Buying in the wrong area
There’s a long-standing joke in real-estate that goes like this:
Question: In establishing the value of a property, what are the 3 most important factors?
Answer: Location, location, location
The location of the property is so important that successful property developers spend 100% of their time hunting for profitable projects in a great location. Unfortunately, the extremely unsuccessful property developer ignores this fundamental principle in the hope that the area will be the ‘next up-and-coming area’…despite it not being a nice place to live.
#2 Borrowing more than they can afford
Paying expensive rates for finance is a sure fire route to failure as a property developer, no matter how much money you think you’re going to make. Always shop around for the best deal,work closely with your development finance brokers and be realistic about the total costs of time and money for the entire project.
#3 Being ‘cheap and cheerful’
Even though it’s tempting to cut corners and buy the cheapest of every material to maximize your profits, these will immediately be spotted by potential buyers. Instead, choose fixtures, fittings and appliances that are ‘built to last’ so that you don’t jeopardise the future sale of the property.
#4 Working with ‘Cowboy Builders’
Cowboy builder: a tradesperson who will perform inferior work on your development whilst still expecting you to fit the hefty bill.
Your development project will rise or fall (literally) on the quality of builders working on the project. And as important as it is to not scrimp on the quality of your building materials…it’s even more important to invest money in excellent, trustworthy trades people with a proven track record of delighted clients whom you can check the builders’ references with. One safe-guard against ‘cowboy builders’ – aside from consulting your development finance brokers regarding project costs – is to ensure that your builders sign a fixed price contract, to ensure you don’t get ripped-off if the project takes longer than expected.
#5 Forgetting about ‘The Godfather’
“It’s not personal, it’s business,” said Michael Corleone in the iconic Academy-award winning movie, The Godfather.
The successful property developer always treats the project as a business, and develops the property in line with what a potential buyer would find desirable. In other words, they start by thinking about their potential buyer, and then use the buyer’s desires to direct them to develop a property that the buyer would love to purchase.
However, the extremely unsuccessful property developer starts by thinking about himself, his own personal tastes, and then goes on to inflict them on the building and every person who comes to view the property.
Remember The Godfather: it’s not personal, it’s business.
#6 Starting without the “5 Ps”
Those who succeed take the time to gather the “5Ps” before they start the project. The extremely unsuccessful property developer rushes in without them.
What are they?
One sentence: Proper planning prevents poor performance.
As a result, he has totally unrealistic estimations of time, cost and often doesn’t have the pre-requisite paperwork; a painful sale-sabotaging discovery when he later meets with potential buyers.
Gather the “5Ps” before you start.
#7 Being greedy
Having endured the emotional and financial rollercoaster of developing a property, the temptation is to believe that your house is worth more than it actually is. As a result, the extremely unsuccessful property developer prices the property too highly and sabotages any chances of making a sale.
To avoid this, work well with your team of real estate agents and others to objectively appraise the value of the property before you start as well as once you’ve completed the project.
Have you taken heed of the habits of the unsuccessful property developer? Will you be utilising this knowledge for your next project? Give us a call today to discuss the financial scope of your next development.