ARE YOU A PROPERTY DEVELOPER OR A RISK TAKER?

ARE YOU A PROPERTY DEVELOPER OR A RISK TAKER?

Do I sell now or rebuild or renovate – then sell? This is one of the most frequently asked questions by potential sellers. The answer is complex and it will vary with every property. The answer may be multiple choice. The first realisation these days, is that buying and selling property in the local Mosman area has become an industry. On the back of a bull property market, which appears to be bullet-proof, families have traded houses as quickly as possible to make the next leap-up in price bracket. For many, the process has been a rewarding one, but beware. Do your homework first and do not rely on history as your barometer for future success.

General advice – Playing the local property market means you’re effectively becoming a ‘mini developer.’ However, there are no guarantees looking ahead. For the inexperienced, the risks are considerable. For example, consider potential downsides first: zoning issues, increasing architect and building fees, lengthy council approvals, holding costs, potential drop in current market growth and then add marketing and agency selling fees. These are just a few issues which can turn a profit into a disaster. In any event, you should consider every option and a good agent should be able to guide you.

Note: developers generally do not touch a property unless they expect to achieve above a 25% or 30% margin, and they’re professionals. Maybe the inexperienced, should factor in 40%.

Here are a few tips to consider:

Conduct a ‘SWOT’ analysis to access your property’s value and financial upside.

Strengths – What are the WOW factors? – Large land size, water views, northerly aspect in living areas, privacy, ideal zoning, not a cent to spend, great location, under-capitalised or renovator’s dream etc.

Weaknesses – Small land size (under 500sqm), overlooked, noisy location, poor access, dark or cold aspect in living areas, undesirable zoning and already over-capitalised.

Opportunities – Rebuild or renovate and you will move up into a new market with major financial upside. Sell unrenovated and potential buyers will pay a premium to develop the property as it represents huge potential and of course, you get the money faster.

Threats – You are given an over-inflated dollar figure of your property’s value, which may lead to over capitalisation if re-developed. Given that the rebuilding process can typically take up to 18 months (architect plans, council approvals and building) you must be conservative with projected rates of market growth. Project building costs at a minimum of $2,500 per sqm and up to $4,000 per sqm for the top-end and ensure they do not get out of control. In addition, factor in minimal market growth to protect the downside. Finally, on completion of building allow at least three months to sell your property, for if you are forced to sell quickly you will limit your financial upside.

There are other more basic questions relating to whether you should buy or sell first and if so, when is the most ideal time to sell your property, based on current market projections? If you need advice, top agents should have the answers and of course, feel free to call any of our team.

Here ends two weeks of school holidays when the Mosman market has been particularly quiet. From all reports, the Spring market will be strong with an abundance of new properties hitting the market. Welcome back to brother Rob who returns as ‘Editor in Chief in time for next week’s Virtual Realty News!

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