Property Developers Tips – Tip 2
Welcome back to the second in a video series I am doing where I’m offering tips to property developers.
As a result of arranging funding for over 7,000 property developers, I’ve picked up some tips and techniques along the way that I think you will find useful as you think about your next development project.
So, enjoy tip number two!
Hi, Keith Park at Funding Track here again, and we’re in the middle of a series where I’m sharing some tips for property developers as you think ahead of time about your next project.
And in this, the second tip, I want to share with you an old adage that you may have heard before, that “the profit is in the purchase price”.
Now, what do I mean by that?
Well, with a property development transaction, there are essentially three key areas. There is the purchase price, there is then, of course, the development costs, and then there is the end value of the property.
As far as the end value of the property is concerned, you have very little influence on that. The reality is, the end value is very often driven by market forces, it’s driven by comparable properties in the area. And you obviously look to get the best possible price you can, but you don’t have a huge amount of control or influence on where that figure ends up.
Similarly, with the development costs, they’re really made up of two things. Labour costs being one, and the cost of materials being the other. The reality is, they are pretty much fixed. And again, there’s not a whole lot you can do about negotiating on the development costs.
Whereas with the purchase price, you have control.
You can decide how much you want to pay for that property. And if you can’t get the right price, then you walk away. And be prepared to walk away from a transaction, if you feel that it’s not right for you. Otherwise, negotiate hard, and get the best possible deal that you can.
Because remember, “the profit on a development project is very often in the purchase price”.
I hope that tip was helpful, and in the next video, I’m going to share with you a third tip and this one is all about the importance of having a good solicitor.
So, I’ll speak to you in the next video.