In many funky neighbourhoods there is a lack of modern homes for young families to rent and buy. There can be great opportunities for real estate investors to buy older properties in these neighbourhood with the intention of knocking them down and developing the block into multiple newer properties. Here are the steps to finding a property to develop:
Consider the demographics of the area
It's a good idea to not get too attached to certain neighbourhoods but instead look for areas with a certain demographic. This can include having a certain percentage of households that are single and couples, as well as increasing average incomes. You can also look at local facilities such as proximity to the city, strongly performing local schools and parks or nature facilities. It can be worth taking a walk around the prospective neighbourhoods so that you can get a feeling of how desirable the neighbourhood might be to buyers of newer properties (which can include the number of restaurants, cafes and bars in the area and a general 'vibe' of the neighbourhood). These can all indicate that this is an area where smaller, newer properties may sell well.
Prepare a business plan
Before you make an offer on a property, be sure to complete a business plan which includes looking at how much if will cost to buy the property, demolish it and rebuild new properties. The plan also needs to include the holding costs of paying ongoing costs such as rates and the mortgage while you are developing the property. It is a good idea to show different scenarios in your business such as the property building being delayed or interest rates raising while the property is being developed. You can also model different types of housing that you could place on the blocks (townhouse vs. single storey villa units) so that you can demonstrate out the optimum development plan for your block.
This can help show the finance company that they can confidently lend money to your project.
Organise your finance
When you are working on a development project it is a good idea to speak to a company that has experience in lending money to real estate projects. They are more likely to be comfortable with developing strategies to manage the project risks and can often provide you with advice based on other projects they have been involved with.
If you are planning to develop a real estate property in an up-and-coming area it makes sense to prepare the financials carefully ahead of time so that you can get the necessary finance.
