Seven steps to purchasing a property to develop

There are so many different opinions out there regarding the status of the current residential market and where it is heading, how can one make sense of it all? 

Whether you are reading the newspaper, seeing it on television news reports or reading articles by "property experts" on the internet, everyone seems to have an opinion on where the market is heading. 

It is no wonder there is no consumer confidence with so much negativity being reported in the media. What this has certainly done is made investors stop in their tracks, they are fearful in what they read and yes, things are apparently on hold. 

It has become evident from the enquiries received by our company, people are not looking to buy, but more and more are exploring another market, the property development market. Our company is taking calls on a daily basis from people wanting to know how to subdivide their own existing properties.

More than ever before, we are finding people more curious about property development and how they can get involved, maximise and add value to their existing property. Here are seven steps to follow before buying a property to develop.

Step 1

The first question you need to ask yourself is, “What is my intention with this property development project?” Meaning, are you developing the property to build and then hold onto the townhouses for rental return or are you developing the property to build and sell for a profit?

Step 2

You need to consider the purchasing structure in which you intend to buy. Depending on the purpose of the development, this will dictate the type of company structure you will need to set up. Find a specialist accountant that deals with property development transactions.

Step 3

Clearly understand your financial position, and with the assistance of your accountant, be aware of what your buying power is. Knowing how much you can afford to spend will steer you into certain suburbs.

TIP: This is a business transaction, so do not make decisions with your heart.

Step 4

Do your research on the suburbs you are interested in, physically go out and see what the market is doing in the area you are looking at buying, check the demographics of the area, who lives there: singles, families? This information will help you determine what type of townhouse design you will need to create. Really get to understand what your target market is before you design your development.

TIP: Always go with your instinct. If it does not feel right, move on to the next one.

Step 5

Drive through or walk along different streets, pay particular attention to the different types of buildings in the street. Are there any new town house developments that might have been built recently? If you come across a street and all you see is every block has one house on it, steer away from purchasing in this street because you will have a greater fight on your hands to obtain approval.

Character of an area and particularly in a street plays a key role in the council decision-making process trying to work out if your proposal is an acceptable development for that area.

Speak with the council and find out what the rules and regulations are that govern the area and more specifically the property you are looking to buy.

Step 6

When sourcing a property to develop, pay particular attention to the title documents. It is in this document you will find if there are any restrictions on the property, such as a single dwelling covenant. Also, from this document you will identify if the property has any easements. If you don’t clearly check and understand the importance of establishing whether or not easements exist, then this could potentially be one of the reasons why you cannot develop and build what you set out to do.

Step 7

When you come across a site you believe has development potential, obtain some pre-purchase planning advice from a town planning consultant to confirm that what you have set out to do on the property is legally achievable. I would steer away from obtaining planning advice from the council, only because the advice they will provide you with will be very conservative and your property development will not stack up in terms of profitability.

Again, I highly recommend you do your own research and find out the development approvals around the site you are looking to buy. This information can be found by contacting council and also remember to look into the Victorian Civil and Administrative Tribunal’s website to find out what decisions VCAT has made. This is very useful information and you will quickly establish the precedents already set in that area.

Peter Bozinoski is director of ProjectFacilitator.com.au He will appear on the Channel 31 show Melbourne Property TV from September 5.