ADVICE TO ASPIRING DEVELOPERS LOOKING TO ACQUIRE THEIR FIRST DEVELOPMENT SITE:
CEO Mark Pomeroy shares his advice to aspiring developers looking to acquire their first development site:
1. Spend a significant amount of time undertaking thorough Due Diligence and be prepared to spend to stress test your assumptions.
2. Prepare detailed feasibilities and programmes including cash-flow analysis to understand exactly what the equity and debt requirements look like.
3. Speak to financiers before purchasing to confirm your assumptions reflect market conditions.
4. Don’t simply estimate building costs by applying general square meter rates. Every site and building form is unique and building rates can vary significantly across sites. Under-estimating building costs is the most common mistake I see from inexperienced developers. Engage a QS and speak to multiple reputable proven builders.
5. Before purchasing the land, make sure you have the equity needed. If you are hoping to raise the equity post purchase, you may very well end up losing your deposit and be unable to settle. As we have seen over the last 2 years, markets and sentiment can change very quickly.
6. Ensure you allow adequate contingency within your financial model. No matter how good your due diligence may be, it is inevitable there will be unexpected costs incurred through the journey and/or allowances you have made may well be insufficient to cover the actual costs.
Finally, if a deal seems too good to be true, ie, huge returns with managed risk, it is highly likely that something has been missed in your preliminary assessment.
Any questions or thoughts? Leave them below. 👇