Chapter 1 Finding the opportunity (sketch)
TV shows about home improvements are surprisingly popular. I say 'surprisingly' because it never occurred to me to watch one of them, despite having been asked many times to do so. These shows tend to focus on home improvements or extensions. There is usually someone embarking on some sort of building work, supported by a great TV host and an endless supply of workers. The project goes from start to finish in the time it takes to watch one episode.
The end of the show is usually the best part. There is always an element of secrecy surrounding it, and, for the sake of great entertainment, it is convenient to cover the owner's face with a veil so that we can film their reaction when they see the final result. When the new space is unveiled, happiness and wide smiles abound on screen. Sometimes the owner cries because the end result is so beautiful â something that was initially perceived as out of reach for ordinary people. Emotions can run high.
Later, as is common practice in these TV shows, comparisons are made between the old and the new. Several weeks or even months of work are visualised in the transformation, and the audience is mesmerised by the look and feel of the new space or spaces.
As a friend of mine once told me, âevery time I watch one of these shows I just feel like going amok and tear down all the walls in my houseâ. I was not quite sure what to say back then. Whether to be supportive or suggest a more considerate approach, still, regardless of my response, one thing is certain, if you think that tearing walls down is as easy and as exciting as TV shows make us believe, you better think twice.
Introduce the definition of a development project (sketch)
Troubles in a development project arrive as soon as the capital dries up, or you canât find workers, or stakeholders canât agree on anything, or government agencies donât approve a project, or the tenders are back and over budget, or the market conditions have changed and the house cost more to build than people are willing to pay for it; or the craftsmanship is of poor quality and the list of defects so long, that essentially you start another job before reaching th end. 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. While I don't want to discourage potential property developers from taking on a development project, I definitely don't want to give the impression that it's all good fun, from start to finish. It can backfire, but I am hoping this book will help you navigate the ups and weather the downs.
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 strategyâs ability to outperform the market, or its âedgeâ. 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 â 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.
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