I want to be a property developer!

[gerryonline]

I am new to property markets, in particular property developing.

I would like to know from some of you guys the costs in buying and developing a property, i.e; what is the percentage of govt. and other costs to the purchase price of property in different states?

Are any of these expenses are tax deductible or only the ongoing expenses are tax deductible. What factors are generally considered for valuing the property?

[Brendan]

Hey gerryonline, Property development can be very profitable, but also has many costs attached with it the main ones including:

- Property stamp duty (How much stamp duty will I pay? - Home Loan Calculators - eChoice.com.au (http://www.echoice.com.au/mortgage/home_loans?pn=/homeloancalculators/stampduty.html) )
- Loan stamp duty
- Conveyancing/solicitors costs
- Building/Pest and other pre-purchase inspections
- Other purchasing costs
(could include BA fees, independent valuation, data costs etc)

And thats before you even start developing the property! At which stage you need to factor in costs such as;

- Planning permission
- Architects and Surveyor costs
- Building and Trade costs
- On-going mortgage costs while the development is being done

Then costs to re-advertise the property, agent costs etc..

The key to getting into property developing is to not rely on a rising market, but to buy a property that is below market value (i.e; below value for that street, or 1-2km radius) and being able to add value that can make it sell at the ceiling price for that area.

Of course the cost of adding that value must not out weigh the profit you wish to make.

Do your figures before you even consider buying a property, get some quotes from builders on how much it might costs to renovate, also don't think you can do all renovations yourself unless you are experienced in it, as this can easily be a false economy.. time is also money in this game!

Some ways to do a reasonable valuation of properties would be to look at things such as;
- Comparable sales
- Summation (adding values of various component parts of a property such as building, landscaping, features such as pools etc)
- Capitalisation (based on rental income and usually applies to commercial)
- Replacement cost (value calculated on cost per sqm of building component)
- Hypothetical Development (used for developers to calculate acquistion cost of land and holding costs etc)

You need to treat property developing as you would treat any business, the property you buy is essentially the product, you add value and desirability to the product, then you need to sell the product for more than you invested in it..

So, do the figures before making the leap!

Good Luck

[Carl Taylor]

Gerry to add on what Brendan has said
when it comes right down to it a property is only worth what someone is prepared to pay for it.

That could be a lot more than others around it, it could be quite a lot less.