How to Get Started in Commercial Property Development
Commercial property development is a gateway to great investment returns if done the right way, but it might seem to be a task that’s beyond everyday investors. But that’s not necessarily true. So, is commercial property development right for you?
If you’re new to commercial property development, it’s all about getting the foundations right.
So where do you start? Begin with your strategy.
Are you looking to develop a commercial property to flip for a fast profit and high return? Or do you want to add another asset to your investment portfolio which you’ll hold for the long term? These are just some of the considerations that will influence your plans going forward.
From here, you want to start crunching some numbers. Work with your trusted property advisor and accountant to develop a feasibility model and budget, allowing you to assess potential investment returns (which again goes back to your strategy).
Through this initial process, you’ll be evaluating the risks and considering the many variables upon which returns on commercial development relies.
From there, here’s a list of just some of the things you’ll want to tackle as you get started with your first commercial property development.
While Australia suffered through very uncertain times during the pandemic, the country’s response has set it up for a strong rebound. CBD, retail and office districts haven’t been as affected as many other countries, industrial areas are strong on the back of the ongoing need for warehousing to support ecommerce growth, and even regional areas are thriving. Look for areas where there’s big investment in infrastructure, a growing population and great amenities. You’ve got plenty of location options, but qualified, independent research is required based on your strategy and goals.
Don’t jump at the first site or property you see. Perhaps this should go without saying, but the more sites you visit the more you’ll understand the market, and the more you’ll understand what you are or are not looking for in a commercial property development. Also see what you can learn from other current or past commercial property developments that are similar to your plans.
Be driven by the data
Dig into the data and get familiar with the market and economic trends; this will enable you to buy at the right price, while also getting a better understanding of profit margins and potential rental yields, if you go down that path. Following the data will also mean you avoid falling into the trap of emotional or anecdotal decision making.
Negotiate with your lender and be smart with your equity
Make sure you’re getting the best out of your bank. Getting the right finance deal will have a huge impact on your commercial property development, so don’t just jump at the first deal that your bank puts in front of you. Go to market and explore the many finance options available to you - not all deals are the same, and you have personalised needs based on your circumstances. If you’re in a position to leverage existing equity, play it smart and get expert advice. LVR’s, fixed interest versus variable interest rates, non-recourse lending, and finance terms are just some of the considerations that you will need to understand. Take any opportunity to avoid unnecessary cash flow pressures and remember to stick to your strategy.
Choose quality above cost cutting
When investors are heavily focused on maxing out profit margins, they often squeeze their budget by reducing quality in exchange for cheap alternatives. Going for quality pays, and here’s why: The market will know. You don’t have to be a property expert to know that a property has been developed the cheapest way possible, and that will reduce the interest and ultimately the value of your finished product. Of course you should be firm with your budget, control costs and focus on feasibility, but that doesn’t mean taking shortcuts or doing everything on the cheap. You can be confident that focusing on quality as a key part of your commercial property development will pay off. Implementing the correct cost control methodologies will help you achieve the right balance of cost versus quality.
Invest in, and trust, the experts
You’ve likely heard the nightmare property development stories. Many inexperienced people have made the mistake of jumping into their first commercial property development without the right support or team. It’s a complex process, and failure can cost you just about everything.
At the end of the day, your team is key to success in commercial property development. Of course the builder is key, but you also need an experienced and independent property adviser, accountant, lawyer, financier, planner, architect, cost consultant and more.
Start with your property adviser who can guide through every step, saving time, money and stress.
Talk to the team at Broadway Property. We partner with commercial property developers to help them through the entire process, from concept through to delivery. This includes strategy, feasibility, budgeting, building and managing the teams, agreements and much more.
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Managing Director, Broadway Property
Director, Broadway Property