Chapter 1 Finding the opportunity (sketch)

I lost count of how many times I saw my wife lying on the sofa watching TV shows about home improvements and extensions. Personally, I never really liked these shows. Initially, I wasn't sure why, but I eventually realised that what I disliked the most was the way property development was presented to viewers.

My wife always liked the part where the materials are selected and the discussion about the look and feel of the new space reaches a new level. Her favourite part is when the show compares the renovation at the start and at completion. Several weeks or even months of work are visualised in the transition. It's as if the whole job was completed with ease.

Unfortunately, property development is not as easy as drinking cocktails. Troubles in a development project arrive as soon as the capital dries up, or stakeholders can’t agree on anything, or government agencies don’t approve a project, or the tenders are back and everyone is over budget, or the market conditions change, or craftsmanship is of poor quality. Trust me, the list goes on. I am just highlighting the most obvious ones.

If your favourite TV shows about home renovations inspired you to pick up this book, I can assure you that property development is not as glamorous as it seems. The end result may make the cover of a magazine, but the journey is rough and bumpy. Anyone about to embark on this journey will need strong nerves.

Introduce the definition of a development project (sketch)

A development project in the context of this book is the plan to transform a property opportunity into reality in order to achieve a specific objective, or objectives.

But before we can start turning visions into reality — and getting grey hair in the process — we first need to identify the opportunity. One of the biggest challenges in property development is finding the right opportunity because securing a greenfield or brownfield site involves making many assumptions and considering many variables. We will discuss these in the final chapter of the book. In this chapter, however, we will focus on identifying opportunities. But before we begin, let's review the intrinsic characteristics of a property.

Introduction to the intrinsic characteristics of property as an asset class compared to equities (sketch)

Write in here a summary of my MSc thesis about Property derivatives,; and welcome people to read as it is available online.

The search for alpha. Introduction to development regulations. How to unlock value in a property (sketch)

In investing, alpha (α) is a term used to describe an investment strategy’s ability to outperform the market, or its “edge”. Alpha is therefore often referred to as excess return or the abnormal rate of return in relation to a benchmark, adjusted for risk. But how does this apply to property investment?

Brief introduction to the Land Residual Value assessment, and other forms of financial appraisals (sketch)

My preferred method for assessing the value of an investment is through the Land Residual Value. This is mostly used to acquire land, but it could also be called the Residential Residual Value or the Commercial Residual Value, since the concept is always the same. We assess the costs of a development project by calculating the total sale value of the asset and the total design and construction costs. The residual value is the difference between these two figures and the sum of money that we offer.

For example, if we are looking at a unit with an asking price of 100k, and our assessment gives a residual value of 95k. Our offer should be 95k to the owner, not 100k.

Banks use other forms of property appraisal.

Planning regulations (sketch)

Describe the situation with my house, which has to comply with three development control plans.

Re-zoning as an example of one opportunity and the Homebush story - key lessons learned (sketch)

As I wrote at the beginning of this book, architecture has always inspired me. I have always felt the spark in property development. It didn't take long in my early days as a consultant to grow weary of making other people rich. I soon wanted to be in charge of my own projects. As we saw in the previous chapter, I just needed to find the right opportunity. At the time, I had mostly worked on major developments, so I assumed that, to get started, I would need to find a good piece of land.

The suburb of Homebush in Sydney has undergone major planning changes. Initially home to low-rise residential buildings, after the Olympics the City of Sydney decided to rezone the suburb and allow for the construction of high-rise buildings in order to make the most out of their investment.

Most of the homeowners suddenly found themselves dealing with people knocking on their doors, either offering to option their house or offering to buy it outright. The goal was to merge two or three properties into one so that a block of units could be built.

Lesson #1 The importance of sorting out the investment capital before looking for development opportunities.

Lesson #2 the magic of property options. Call and put options – an introduction.

Lesson #3 The difference between finding a property development opportunity and getting a building off the ground.

Lesson #4 How to build trust.