In his latest installment of “Tips & Tricks for Developers,” Dean Parker shares his five critical steps of site acquisition – from submitting an offer subject to due diligence to making a decision on whether or not to proceed with the purchase.
Hi. Welcome to the latest PropertyInvesting.com video blog. Today I’m going to talk about site acquisitions. Our business, “Your Style Homes”, operates out of Brisbane, up here in Queensland. Today I’m standing in Newmarket, in front of a site that we’ve just acquired.
I’m going to summarize this into five steps that we follow: from signing a contract with a due diligence clause, through to actually proceeding with that contract.
The first step is to talk to our town planner. He’s the first person that we would call when looking at a site like this. He will do a desktop analysis and identify any risks and issues with a particular site. He’ll do all of the searches. He will check for easements. He’ll check for the planning zones. He’ll check for anything relating to the site, and let us know so we can make decisions from his report.
He’ll also ensure we can get storm water in and out of the site, and check that sewer is available. All of those sort of issues, he will go off and address those. He will also then advise us of any items we need to prepare in our plans, which takes us to step two.
Step two will be talking to an Architect. We’ll get the feedback from our town planner, and then create a basic mud map of what we can achieve on the site. There is no real detail of the internal of the dwellings at this time, so it’s really just high-level boxes with a layout of the apartment or townhouse we want to build.
Then, there is a whole heap of other details we need to work out to meet the town planning requirements. For example, that will include setbacks to boundaries, car-parking allocations, making sure our drive ways are wide enough, and whether we can get the bins on the site, or if they will be on the street.
There is a whole league of town planning issues that we need to address. As I said, this is initially just a mud map of what can be achieved on the site, and from there we can work out our yield. The yield means how many apartments or townhouses can we fit on that particular site.
Once we’ve got that, we can then talk to builders or a quantity surveyor about working out some basic numbers around construction, giving us a reasonably good idea of what that particular building will cost to construct.
Once we’ve got all of that information, then we go back to our town planner. We get him to review all of those plans and assess whether we can actually do it or not. He’ll then identify the risks. Up here in Brisbane they call it either “impact assessable” or “code assessable.” If the town planner says its “code assessable,” we’re basically ticking all of the boxes, and can proceed. If it’s “impact assessable,” we’re not ticking all the boxes and we’ll need to negotiate with council on some of those items.
Now that we’ve dealt with our town planner, our architect who has drawn up our plans, and the builder to get some pricing, we need to come up with a feasibility report. We’ll put all of those numbers into the feasibility, we’ll identify our acquisition costs, and all our other costs associated with the build, any council fees, any holding costs, any selling costs, any marketing costs. We’ll put that all into a feasibility analysis, which will produce a number at the end – the profit that we can make. That number needs to be around 18 to 22 percent for the projects that we’re doing.
If we can tick that box, the last step really is just making a decision on the project, whether we’re going to proceed or not.
To summarize the five steps… Step one is talk to your town planner. He will identify risks of the site. Step two is talk to your architect to get some basic plans done; a mud map. Step three is to talk to your builder to make sure you’ve got your construction prices sorted and that you can build what you’re proposing.
You then get all those people together and be sure that you’re happy through those first three phases. Step four is prepare your feasibility. Make sure your numbers stack up. Step five is to make a decision to either proceed with the contract or walk away.
You must make sure that you do these five steps really accurately. There is no point getting into a contract, and then figuring this information out and being stuck with a lemon.
Due diligence is really the most important process in any development. You make your money when you buy and obviously this stage is where you avoid all of your mistakes. You must make sure you cover everything off.
I hope you got some value out of this update. I’ll see you on the next one.
This transcript has been edited slightly to improve readability.