\nIn today’s show Nhan Nguyen<\/b>,\u00a0from Advanced Property Strategies, tells us some tips and traps to completing a profitable property development.
\n <\/p>\nTranscripts:<\/h4>\n
Kevin<\/b>:\u00a0 About four or five weeks ago, we were talking to Nhan Nguyen from Advanced Property Strategies about what you need to know when you get started out as a developer. Many people want to move from just being a property investor with a portfolio to maybe developing your own stock. A great move, but there are some things that you need to be aware of.
\nNhan Nguyen joins us again. Nhan, one of the things you said last time we spoke was think big but start small. Assuming we\u2019ve done that and we\u2019re now into it, what are some of the complications that we\u2019re going to come up against and how do we make sure that we actually are on track to do a profitable property development?
\nNhan<\/b>:\u00a0 Thanks, Kevin. Thanks for having me.
\nLook, the word property development and being a property developer is a very widely used word, and there are so many ways that we could cover, whether we\u2019re talking about a block of five units, three townhouses, or just building five new houses.
\nI\u2019m going to just use an example of, let\u2019s say, we\u2019re going to build one house and sell it \u2013 what we call a spec home or a speculative home. In that instance, some of the examples of complications that you\u2019re going to have to deal with is choosing what kind of design that you\u2019re going to build. Is it going to be three bedrooms, four bedrooms, single story, two story?
\nPart of that is really going to come down to your market research on the local area, because if the area is a less expensive area, most people may probably only be able to afford a single-story home, which is cheaper, versus a two-story executive home. That\u2019s the first thing.
\nPart of that is there are some many layers to consider, one of which is what is the layout? Do you do open plan? Do you put an office at the front? Is it single garage, double garage? What kind of tiles do you use? What kind of materials do you use on the roof? Is it corrugated iron or tile. Firstly, you have to consider the end target market and the product that you\u2019re going to supply.
\nMoving on from that, one of the other things you\u2019re going to deal with is choosing a builder. There are many display homes out there and many display villages, and going and investigating and getting referrals from your colleagues who may have built before is a very important step to find out which builder would be most suitable for you. There are a lot of builders out there, and some of them are shonky and some of them are great. It\u2019s up to your due diligence to choose that.
\nThen the step after that is getting a build contract, getting finance, and making sure that you have enough funding for the project. Also, things go wrong \u2013 because being a developer, I know there\u2019s a lot of upside, but there\u2019s also downside if you get things wrong \u2013 so during the construction process, you do need to manage that, even though you may have never been on site before. You need to check out the builder, make sure he\u2019s doing the project and on time.
\nKevin<\/b>:\u00a0 Nhan, a couple of excellent points you\u2019ve made so far, and I think the one I want to pick up on is the selection of the builder. In fact, we\u2019ve had some time put aside in this show to talk about what happens when you get a bad builder. That builder selection is absolutely critical to make sure that the development is going to come in on time and actually make you some money.
\nNhan<\/b>:\u00a0 Yes, it\u2019s so critical. There are many builders every year who go broke, and the reason that they do go broke is that construction is not an easy process. I say it\u2019s a 10,000-piece puzzle put together by 20 different people with blindfolds on, because oftentimes, they don\u2019t talk to each other. They don\u2019t communicate with each other.
\nThey turn up. The tiler might turn up, and then this thing\u2019s not ready. The electrician turns up, and the previous tradespeople didn\u2019t tell him that they\u2019re behind, and then they come back a week later. It\u2019s a puzzle that\u2019s put together, and you really need to look for a builder who\u2019s been around five, 10, 20 years and has those teams and systems in place.
\nKevin<\/b>:\u00a0 And not accept, too, that the builder is going to be able to project manage the whole thing. I\u2019ve seen many, many TV shows where people think, \u201cOh. I\u2019m just going to project manage this myself. It can\u2019t be all that difficult,\u201d and within a matter of weeks, it comes unstuck because you don\u2019t really understand what\u2019s involved in managing a project of that size.
\nNhan<\/b>:\u00a0 Exactly. Part of it is that with working with a builder, you cannot control what is happening in the background. I\u2019ve worked with a builder before, and he went bankrupt because he was spending the money on other frivolous things. He had money coming in, and in the first year, I think he signed up 20 to 30 build contracts, and he just got greedy and he misspent the money internally. His tradespeople were fine, his plans were fine, and his business ideas were fine. However, he mismanaged his cash flow.
\nWhen you\u2019re choosing a builder, you cannot control what happens internally or behind closed doors and with his other projects. He might be a developer, and the bank might foreclose on his other projects.
\nI\u2019m not saying this to scare people. I\u2019ve just seen the dark side, and I\u2019ve nearly been caught myself being involved with builders. For example, with the extension of our house, I watched the builder for ten years, literally, one suburb over to see how they would go through the GFC. Did they make it? Did they go broke? They\u2019ve done well. Especially, because we\u2019re extending our own place, I wanted to make sure that my wife was happy, and I wouldn\u2019t get any long-term complaints.
\nKevin<\/b>:\u00a0 I guess one of the things is knowing what questions to ask or knowing what to look for. Perhaps that\u2019s a subject for another conversation, I would think. We are out of time now, Nhan.
\nI guess the bottom line here is I know we\u2019re sounding a note of caution, but it is something that you have to be experienced at, it\u2019s not something you should take for granted, and make sure you do your homework.
\nNhan<\/b>:\u00a0 Yes. It\u2019s very critical that you do your homework. I\u2019ll write down a couple of points that we can go through maybe next week on how to choose a great builder.
\nKevin<\/b>:\u00a0 Okay, Mate. If you do that, we\u2019ll come back next week with Nhan Nguyen from Advanced Property Strategies, and we will give you his tips on how you select a good builder.
\nThanks, Nhan. Talk to you next week.
\nNhan<\/b>:\u00a0 Thanks for having me, Kevin. Talk to you next time.<\/p>\n","protected":false},"excerpt":{"rendered":"
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