This year’s Financial Review Rich list revealed that of the 200 wealthiest Australians, 63 invested or managed the biggest real estate development projects in the country. Some bought turnkey properties but many choose to go into property development.
Making real estate the category with the highest level of investment.
Investors find real estate appealing because it offers high operating profits during ownership. And once sold, the potential for large capital gains.
There’s no denying the numerous risks involved but once you get the hang of it- the rate of return on investment makes it worth it.
To be successful in real estate development, one of the things you need to understand is how to get better build price for your development projects.
Let’s look into it:
1) Building relationships with different parties
Development is a team sport. And like any game, if your teammates don’t get along, your chances of winning are less.
Usually, the human in property development is often overlooked because the focus is on making the end-product a reality.
But the construction process is surrounded by variables- budgets, cost of materials, and time. The only constant- the human element.
Image Source: Little Fish Properties
Knowing the right people (and having a good relationship with them) not only increases the chances of project success but also better build price.
You'll have building brokers to get you the best deals. Sales agents to help you with transactions. Property lawyers to handle building restrictions and approval processes.
All parties must know what is happening throughout a project to ensure everyone is on the same page. That way, you avoid overlooking key details.
A survey of 600 construction professionals by PlanGrid revealed the following:
4.7 hours per week spent resolving conflict.
3.9 hours per week fixing common mistakes and delays.
5.5 hours finding project information/updates.
Only 3 days per week used for productive tasks.
In the US, poor communication and poor access to project data contributed to approximately $31.3 billion in cost of rework. Which is surprising as the country has the most digitised project development processes.
Not all tension and disagreements are avoidable. But with clear communication and easy-to-find project data, when mistakes happen at the job site, all parties know about it sooner and can work together to resolve the issue.
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2) Leverage Your Knowledge of Building Costs
Getting an accurate estimate of a construction project is one of the hardest challenges developers face.
Especially if you’re still green in the gills and don’t know people who can get you access to the best deals at a discount. Or you haven’t identified construction firms that can fix up houses at a reasonable price.
In short, you don’t have a network you can leverage. What you do have is a deep understanding of building costs.
So, the question becomes: how can you leverage your knowledge of building cost to get a better build price for your project?
a) First, determine the hours each construction phase takes. The number of subcontractors and materials required, as well as anything needed to successfully complete the project.
b) Sub-divide the project into manageable portions and determine the cost of each part. Start by identifying items needed at each stage. Attach a unit cost. Add up all the unit costs to get an estimate. Remember, this only gives ballpark estimates because of the many variables involved.
c) Use a project management tool like BuilderTrend to keep track of your progress. Things like permits and landscaping can fall through the cracks. Having all project information in one place ensures no aspect is overlooked. Plus, you can keep track of costs and compare with your estimates.
3) Utilizing different construction methods
Use different construction methods depending on your needs, timeline, and budget. If using recycled steel or wood saves you money, go for it.
Construction methods like modular building can cost 2,000 - 4,500 AUD per square meter. More money than the 1,600- 1,800 AUD of a traditional building. But in some cases, if the development site is outside of the metropolitan area; if time is an important factor; if you want more control of quality and fewer delays or risk; It's definitely worth looking into.
It takes 9-12 months to build a traditional design house. While the timeframe for modular building projects takes 4-6 months. Making it a great option if you're time-strapped and need to move in or sell quickly.
The construction industry is forever changing. If a new real-estate developer wants to be successful, they must work on building healthy relationships. Use your knowledge of the construction process to get more accurate estimates. And be open to using different construction methods. It may be what sets you apart from everyone else in the real-estate development business and hopefully, making a decent ROI.
Want to learn how we help clients get the best deal for their devlopments? Schedule a FREE call here.