Legend has it that the late Sam Walton, founder of Wal-Mart, used to fly over towns he was considering for new stores just so he could get an eagle’s eye view of which way the place was growing. Where he saw new houses, new businesses, new roads and highways is where he would build his new store.

Good lesson: If you are going to make money buying and selling land, make sure it’s where people are headed.

There are TWO basis ways to make money on raw land: You can “BANK” it or you can “DEVELOP” it.

In this article, I will share the first way to make money on raw land, which is called Land Banking.

Banking is the “buy-and-hold” of a parcel that you believe will become more valuable at some point in the future. On the mega-deal scale, land banking is quite the norm in Las Vegas, where hotel and gaming companies buy, hold and trade bare desert parcels like kids swapping baseball cards. At the center of the Giant $7.9 billion acquisition of Mandalay Resorts by MGM Mirage that closed in 2005, for example, were 100 acres of undeveloped land on the fabled Las Vegas Strip. The four parcels were valued for tax purposes at $24 million per acre, a third of the value of a deal that included four brand-name hotel-casinos. But here’s the kicker: Just 10 years earlier, Mandalay had acquired the biggest portion of that undeveloped land for just $1 million an acre.

“We all should have bought property back in 1977,” MGM chairman Terry Lanni told the Las Vegas Review-Journal at the time that the deal was announced. “We could have just taken a dart gun and [picked] anywhere and done well with it.”

On a more down-to-earth level, smaller investors can bank properties, too, either buying and holding larger parcels in the path of development or picking up “remnant” lots in developing or already developed areas. You can find these remnant lots in even the best newer neighbourhoods or subdivisions. By definition, every place has some properties that are less desirable than others-landlocked lots in a lake community, for example, or residential-zoned parcels that front on major streets.

[To be Continued – In the next article, I will be sharing the second way (Land Development) to make money on raw land]

Sustainable development was coined in 1987 by the Bruntland Commission where they defined it as, ‘development that meets the needs of the present without compromising the ability of future generations to meet their own needs’. Since then, sustainable development theory has been greatly expanded and these ideas have been utilised around the world. The need for development to become more sustainable is important, as many of the planet’s ecosystems are degraded. Without the essential services provided by these natural systems, the planet cannot sustain life. For this reason, sustainability has been integrated into development at an ever-growing pace.

There are many different examples of development for sustainability around the world, with sustainable cities, eco-industrial parks, and corporations all moving towards greater sustainability. The following article will describe the above movements and provide examples of sustainable development.

A sustainable city considers the natural environment in its design and aims to reduce the input of energy, water and other resources, as well as minimising the generation of waste and other environmental disturbances. Vitoria-Gasteiz in Spain is one example of a sustainable city or eco-city. It has implemented a policy of mixed land use and high density development along its major transport routes. An upgraded public transport system allows more residents to live there, while remaining green belts still provide habitat for wildlife and recreational areas for people.

Eco-industrial parks are areas where industries are placed together to co-operatively manage the use of resources and environmental impacts caused by their operations. By sharing resources they improve efficiency and create less waste. An eco-industrial park in Kalundborg, Denmark has a number of businesses that utilise the by-products of other manufacturers. The waste created by a power station in the park is used to make cement by another firm. Other businesses use heat generated by the power plant and cement factory for some of their processes.

Corporations are also recognising the importance of incorporating sustainable development principles into their operations. In America, Interface Inc., a major carpet tile producer has greatly improved its ecological footprint. By using recycled and more environmentally friendly products, and more efficient manufacturing processes, they have reduced their energy and water consumption. The levels of waste, particularly hazardous waste have also been greatly reduced.

By the adoption of sustainable development, all of these examples have improved their environmental performance. As more and more governments, industries and individuals incorporate sustainable development, the future of the planet will begin to look brighter.

The Background of CID – As the development of real estate continues to expand in Idaho, the impact caused by such expansion requires the necessary construction of public infrastructure to accommodate such growth. In 2008, Idaho legislature enacted the Idaho Community Infrastructure District Act (“Act”). The purpose of the Act was to create new mechanism for the financing of public improvements for the public agencies and developers alike. The Act, styled after similar legislation in New Mexico and Florida, addressed a critical issue of how to pay for new public improvement burdens in a cost effective manner. The Act authorizes bonds to be issued and repaid with a mechanism that taxes or assesses the land benefiting by the new public improvements. This provides for much needed community development which may otherwise be infeasible due to the significant costs imposed by the extensive public improvement burdens. At the present time, a Community Infrastructure District (“CID”) is allowed in an incorporated city or in the county if within the City’s comprehensive planning area and the city consents to the CID formation. The Act allows for the issuance of general obligation bonds, special assessment bonds or revenue bonds or any combination thereof. The projected annual assessment, tax or revenue stream secures the repayment of the bonds.

Eligible Public Improvements Available For CID Financing

• Water Improvements
• Sewer Improvements
• Flood Control Projects
• Roadways
• Public Parking Structures
• Landscaping and Lakes
• Lighting and Traffic Control
• Parks
• Recreational Facilities
• Public Safety Facilities
• Financing Costs
• Real Property Interests
• Development Impact Fees

A sound CID should be established with the following overall objectives in mind:

The real estate developer’s financial goals should be met whenever reasonably possible since their project and its customers will be repaying the borrowing costs of the CID financing so long as it does not present any undue credit risk;

The real estate developer should use an experienced consultant to assist them in understanding all available options when going through the CID process;

On larger development projects, the CID financing should be structured to allow for multiple bond issues at different points in time and improvement areas should be employed to minimize the financial obligation on unimproved or underdeveloped property; The particular development project characteristics or constraints should be understood so that relevant risk associated with the project’s development and its ability to repay bond debt is clear. Examples of this are environmental constraints, infrastructure constraints, and private financing caps;

The legal and engineering side of the construction and/or acquisition of the improvements should be understood if tax exempt bond financing is being used. More specifically, the specific construction related guidelines and procedures should be spelled out when a real estate developer is constructing the public improvements and seeking reimbursement from CID bond proceeds;

The estimated annual cost and the maximum annual cost of the CID financing to the borne by all property owners involved in the development process needs to be fully understood and properly disclosed; and

The project’s appraised value needs to be properly performed consistent with sound bond underwriting and appraisal practices because the CID bonds are ultimately secured by the projects value. The appraisal instructions should be clearly defined from a CID bond credit perspective. For example, if bonds are being issued on an appraised value that assumes the project has unimproved lots with no performance guarantees at the appraisal date, then the appraiser has overstated the value for the value-to-lien ratio.

For more information in properly establishing a CID please contact http://DPFG.com

Land is classified as per the usage and development in real estate. Some of them are commercial, industrial, residential, mixed use development, SEZ, agriculture and government land. Most of the land is sourced by the government, who in turn classify it into different categories and auction it in the open markets. Un-productive land i.e. (cannot be used for agriculture and farming) is converted in to these zones for future development. I have seen some people who own large land banks, most land banks owners have a scattered form of land bank which makes it difficult to sell later, consolidated land parcels are better to handle and sell in parts, or collaborate with a developer to earn a larger profit. Sometimes it is more profitable to joint venture your land parcel with a colonizer or developer for residential and commercial development, rather than selling it. This is a better strategy to earn better profits, and also keep the land.

A few points you need to keep in mind while buying land, may be for industrial development, building your own dream house, setting up a resort, hotel or a simple investment.

1. The ownership title should be clean

2. The land should be transferable to your name

3. Ownership should be verified by a legal expert

4. The land should not be mortgaged

5. Free from all legal implications

6. Should be zoned as per the development

7. Local government records should confirm the ownership i.e.( industrial / commercial land)

8. Location of the land or residential plot

While buying commercial, industrial or residential land, involve a real estate agent who would show you a larger number of options available in the local market, to understand the price value and locations. Local neighborhood development, an over view of the future developments going to take place could give you a larger prospective on your investment.

Boundary Survey – This is a survey of property boundaries according to evidence such as recorded deeds, plays and physical presence. This does not involve interior improvements in regards to buildings or drives. The only improvements that are noted are those that affect the use of or the title to the property such as utilities, buildings along the boundaries, fences, sheds, streets, etc. If there are any missing corner markers then these are also replaced and a final map is created that shows the boundaries and improvements.

Location Survey – This entails the same as a boundary survey however this form of Mobile land survey includes all interior improvements. Like the boundary survey, corner markers are replaced and a final map is prepared that shows all the improvements and boundaries. This is the most common type of survey required where a loan or mortgage is concerned.

Topographic Survey – Not only does this Mobile land survey include improvements but also topographic features that include water courses, roads, ditches, contours, embankments and elevation. This is most commonly used for site design and development in construction or subdivision maps & plans.

Site Planning Survey – This combines the work done in boundary and topographic surveys to setup a base for future designs and improvements. Commonly used for additions or new home development, subdivision development, commercial land development, new streets, playgrounds, etc.

Subdivision Survey – This form of Mobile land survey involves a topographic survey on a piece of land that is set to be divided into small lots for the purposes of estate division or within a subdivision. This method is for construction and recording and can be used for site design, streets and drainage calculation.

GPS – This form of Mobile land survey utilizes a portable system to gather data that’s being transmitted by satellite. GPS is used to calculate the position of an object on the surface of the earth. These surveys are primarily used to establish control points based on coordinates for the State Plane Coordinate Systems, larger surveys used for subdivisions and boundary surveys on large tracts of land. This can also be used to gather data regarding the location of streets, residential and commercial buildings, utility systems, property lines, water courses, etc. The data obtained through a GPS Mobile land survey can be used in future planning and development of property as well as with preservation of existing land.

Developers and Builders are always on the lookout for their next deal, and if you are selling your land you do not want to be passed by. Generate interest by the most active builders in your area by getting decision makers the information they need, and here is how to do it:

Gather Property Data

Zoning

This is first question any builder or developer is going to ask, what’s it zoned? Zoning is crucial to developers because it is going to determine how many houses, units, or square footage (AKA “density”) the developer can build on the tract. Find out how many units per acre and of what type are permitted. You can find most city & county zoning ordinances online at http://www.municode.com, but details vary between municipalities. If you are not sure what your property’s zoning is, take a look at your tax bill. If you are lucky, it will be printed on the bill. If not, jot down your parcel ID number and call your city or county zoning department for this information. And don’t forget to check with them to see if there are any zoning overlays or future land use plans affect your property!

Utilities

Find out what utilities are available to your property, or located nearby. These include water, electricity, phone, gas, and especially sewer. Sewer access is golden, because it usually improves density and thus a developer’s bottom line.

Plat or Survey

Make sure to have a plat or recent survey handy. Builders and developers are going to want to see how the land is shaped in order to get a better idea of how a future development may lay out. If available, surveys with topography plotted are best.

Pictures

Pictures sell property! This goes for land, too. Try to get wide angle shots in good daylight with the sun at your back. If your property has unique features such as a lake, mountain views, a river/creek, etc., make sure to document them.

Maps & Aerials

It’s always good to have a bird’s eye view to put in front of interested parties. At the least include a map depicting the parcel’s location, and how to access it. There are a number of free or low cost aerial imagery applications out there including Google Earth, but high-resolution imagery is usually only available for larger cities and towns. Depending on size and price, you may want to contract an aerial photographer. Most aerial shoots cost between $300 and $600 depending on the work order and location.

Demographics

Can the local populace support a development at the price you have set for your land? Demographic data on a particular area can be used to set price points on a future housing development, and the most important two are population and household income. Try to include a one, three, and five mile radius if possible.

Area Highlights

Put a list together of area attractions, such as recreational lakes, beaches, parks, etc. Also, keep an eye out for favorable economic situations in the area. Anything that will build a job base such as a new plant opening, or corporate relocation is a selling point. More jobs means more housing demand, which means better development opportunities.

Make a Property Brochure

With the above information, you should be able to put together a professional brochure, which you can get in the hands of developers and builders that are active in your area. Make sure to produce a document that is printable and available in electronic format. Adobe PDF works best for property brochures, but MS Word should work fine too. Make sure to highlight the most desirable aspects of the property on the front page as well as the price. The cover should draw a reader in for further study, and if the property is priced correctly, you should not have to hide it. When printing, make sure to use a high quality inkjet printer or go to a local printing shop, the brochure must appear professional.

Develop a Mailing List

Yes, there are still some viable uses for snail mail. Most executives at best delete promotional email, and at worst may never receive it. Besides being highly likely that a decision maker will see it, putting a full color brochure in front of them says to them that you are serious, and you have got something that they need to see. First, you must develop a list of developers and builders that are active in your area. Visit or call the local chapter of the National Association of Home Builders, or see if members are listed on their website. Also, check with local business publications. Many of them publish lists of developers ranked by activity and size. A quick call to developer or builder can determine what kind of developments they are involved with (industry term is “product”), and who the point of authority may be. Mention that you are interested in sending a package to them concerning a piece of land, and you may even get that person on the phone! If you can’t determine who that may be, or the secretary is being difficult… send the package directly to president or CEO. Make sure to include a phone number and name that is easy to find, send them out, and be sure to follow up in one to two weeks!

As mentioned in my previous article ‘obtaining development approval for your land’, I discussed the importance of market research in regard to many aspects of the development at the early stages, such as knowing whether you have purchased the land at the right price, knowing the number of ‘units’ you can ‘grow’ on the land, knowing the correct zoning and height regulations for the land just to name a few! I have written this article because I want to reinforce the importance of market research to you before you go and buy the land and before you go about throwing your money away!

Most of us do this because we are passionate about real estate development, but we also do it to make a profit!!!!! And as the old saying goes ‘you don’t go broke making a profit’. And that is what developing is about. I am getting a little of track here, but I also want to reinforce the important point that you do want to make a profit, but you must also guarantee your team (eg BUILDER) is happy and makes a profit! So, getting back to market research, this is the time where you do some work. You spend some money on gas/petrol and throw on the boots and get out and about in your ‘patch’, the area you are making your own! This is another story, and something very important to your success also. That is, choosing the right patch. I will help you with that later.

As a professional developer, you will be doing this at the most fundamental level as it is essential to your success in this business! You will learn about and become very familiar with Qualitative, Quantitative research and market analysis.

You must determine the different locations in your town/city eg ‘richville’, ‘poorsville’, ‘mediocresville’ and so on. You see what I am getting at? This is the start of your market segmentation! Can you put boundaries on this information? What about boundaries on the areas you wish to start your development career in? Do you know how much you should be buying land for in your patch, not an estimate, exact figures? You need to, this is what I will show you how to do. This is what Real Estate Development Market Research is all about!

So basically what I am getting at here is, you need to know the exact price you should be buying your land at!!!!! Not a guess price because Mrs Jones told you that Bob down the road sold for $X so that block your looking at is on the corner so you would have to pay at least $X more! Stuff that is tangible, and also not stuff you have bought from an online real estate marketing site that gives you prices of the latest sales in the area, or what they claim to be the latest sales, that is the problem, because we talk about ‘real time’ market research and in this game that is the ONLY thing that counts. Developers who rely on this information are off the mark and have missed the boat. Markets change and to obtain research that is 3,6, 9 or 12 months old is exactly that, OLD! You need yesterdays prices and today’s prices, I hear you asking how do I get that? Through learning the right way! How do I learn the right way? By learning from someone who has done it over and over again successfully, by choosing the right mentor and following a system that works no questions asked!

As the media continue to push down our necks all the negative garbage that is happening in the property arena, and you see more and more property developers not doing well, you must obviously ask the question, why are they doing so bad? What did they do wrong? The fundamental answer to your question is in the above! If they had done their market research and if they had been vigilant, there would not be so many of them in the predicament they are in now. Eg Florida, their research would have told them that ‘units’ (residential dwellings) were starting to stock pile and developments would have been put on hold. New markets analysed and a lot of money saved! Remember, after expansion always comes recession, and after recession always comes expansion and this will not change! So you ask the question, how then do I know when the change between recession and expansion will start? DO YOUR MARKET RESEARCH HOW I SHOW YOU AND YOU WILL KNOW. You will be ahead of the game!

A lot of people look at the real estate land developer and find themselves a bit flummoxed by what the position actually entails. Certainly, most understand that developers buy and sell real estate. They aren’t, however, clear on what happens before and after a purchase that enables these people to traditionally make a tidy sum in profit. The field is a great deal more complex than it seems.

So, what is involved in land development?

In addition to having the capital to buy and sell property, a land developer also needs to have these skills or a professional staff to back up buys to make a successful go at the effort:

• Market research ability – Successful real estate developers not only purchase land, they also develop the property with buildings or other features. To take a piece of land and “add value” to it and make certain it sells at a profit, developers need to know what a local market lacks. For example, a successful developer would not likely build the 12^th apartment complex in an area where vacancies are high.
• Ability to exercise patience – A land developer does not make a huge profit overnight. In many cases, developers purchase land and hold it for a time before they make a decision on how to proceed. Even if an immediate project is planned, construction and development still takes time.
• Ability to navigate government and legal processes – Real estate development often involves a great deal of government and legal red tape. Once land is purchase, it often needs the proper zoning for development, permitting for construction and so on.
• Ability to oversee construction planning, design and fulfillment – To be a real estate developer, there is a need to actually turn the dirt on property purchased. For real success to happen, developers need to make certain their projects appeal to potential buyers or tenants. They also have to see those projects through the design and construction phase. A real estate land developer must wear many hats or have a company staffed with the right people to take raw land and turn it into a commercial, residential or industrial development.

As Billion dollar property developer Colm Dillon says it.

“If I had a prayer said for me every time I got an email about problems of buying land first, I would have a guaranteed place in heaven.”

Please don’t do that anytime, but particularly if you are new to development. You will hurt yourself financially and it is a deep hold to get out of, OK?

Let me give you some land buying advice now and if I happen to repeat myself in some of my commentary, just use it as a reinforcing tool. Land is only worth what you can do with it.

Now I am not discounting it beauty or its views in making my comment, but remember we are in the development business and buying land is a fundamental cost factor … we just can’t afford to get it wrong.

If when buying land and anticipated subdividing it into ‘X’ lots or building ‘X’ number of units on it, only to find out later that you were not allowed to do that, I don’t think the beauty or views would offer you much solace or gain you much sympathy from the lender.

Before I say much more, I had better say something to you guys who are not buying land because you already own some land.

If you have owned land for some time as an investment or you inherited some land, then you job is to find out what you can do with it … its capacity.

So you are in the same place as a new person buying land, except you would have bought it at a better price or inherited it with no debt.

Developers talk of a buying land’s capacity. Elsewhere I think I have written about the farmer knowing his/her land’s yield per acre. They could even break it down to the yield for a good weather season versus a poor rain season.

Their land yields so many tons per acre and if the crop sells for ‘$X’ per ton, it is easy to work out the value of the land.

With a developer it is the same. How many ‘lots’ or ‘units’ can I grow on this land? How many dollars can I sell my lots or units for in a good selling market or a poor selling market.

Can you see the analogy in these two situations? Can you also see that the $million dollars you paid for the land anticipation of developing 10 lots or units gives you a base land buying price of $100,000 per lot or units.

However if you found out later that you could only develop five lots or units, the land content has just doubled to $200,000. I don’t know many business that can be successful if their raw costs double, because of a lack of knowledge, do you?

So buying undeveloped land is a ‘work in progress’ situation. In fact what I am leading too, is that you don’t buy land as a first step in your development career at all.

You get control of the land for a sufficient period of time to allow you to actually determine its capacity … in so doing you ‘prove’ the value of the land in today’s market … you ‘prove’ its development financial viability, before you actually buy the land.

So with all these techniques I’ll teach you, I hope you can see how we reduce our ‘commercial risk’ in every development opportunity”.

Whether we realise it or not, managing risk is something we all deal with everyday. For example, the simple process of crossing a street involves a certain degree of risk which we manage without even blinking an eyelid. Imagine for a moment crossing a busy street without looking left and right, without gauging the direction and speed of traffic, and without gauging the distance of the street we are crossing. Thankfully most of us are very good at managing these everyday risks effectively.

But what about managing the risks of something as complex as a property development project? Well, whilst the risks are more numerous and greater in complexity there are still certain measures you can take to manage them effectively. Let’s take a look at some of the more notable risks in performing a property development project and how you can manage them effectively.

Risk #1 – Not Having Enough Knowledge

By far and away the greatest risk in property development is the risk of undertaking a project with insufficient knowledge. I have seen it many times before where individuals undertake their first project with sugar coated expectations of how easy property development is only to find themselves in strife half way down the track because they were not willing to invest in knowledge. Many people will tell you that ignorance is bliss but when it is your money in the deal and your name as guarantor on the loan ignorance can be a very costly thing! So, how can you manage this risk and become more knowledgeable in property development? Well, there are three main options available to you.

Firstly, track down some quality property development books and acquire a comprehensive knowledge of the property development process. Secondly, with this knowledge you should then attend a quality property development workshop to sharpen up the practical application of your knowledge. Thirdly, having read some books and attended a workshop you should then be equipped with the necessary knowledge to undertake your own property development project. For those that lack the necessary confidence to undertake their own project it is possible to team up with an experienced property development manager to manage your first project. This way you can learn ‘on the job’ under the guidance of an experienced property developer and progressively graduate yourself into managing your own projects.

Risk #2 – Paying too Much for Your Development Site

There are few things worse than paying over the odds for a development site and being left with the prospect of bearing all of the risk and performing all of the work necessary to complete the project only to break even or make a tiny profit.

So how do you manage this risk and ensure that you do not pay too much for your development site? Well, it all comes back to the number crunching prior to purchasing the development site. It is absolutely critical that a comprehensive financial feasibility is performed prior to purchasing a development site. Given that a financial feasibility is only as good as the assumptions made in it, it is absolutely critical that you do your homework to ensure the accuracy of your assumptions.

As part of your financial feasibility you can calculate what’s called a residual land value. A residual land value is simply determined by estimating the project’s gross revenue then subtracting the various expenses (excluding the development site) and an adequate profit margin to leave the residual value of the development site. A residual land value will provide you with the maximum amount that you can afford to pay for a development site therefore ensuring you never pay too much.

Risk #3 – Purchasing a Lemon Development Site

Whilst we all understand the risk of purchasing a lemon car, few people realise that it is possible to purchase a lemon development site.

So how do you manage this risk and ensure that you do not purchase a lemon development site. Well, it all comes back to performing a thorough investigation of the development issues of the site, better known as a due diligence analysis. The due diligence analysis may be performed either prior to purchasing the site or as a condition of the contract. Either way, the performance of a thorough due diligence analysis should incorporate each of the following issues:

* environmental and heritage issues (e.g. presence of vegetation protection orders, heritage listed buildings etc.)

* flood issues (e.g. presence of a flood regulation line)

* geotechnical issues (e.g. presence of acid sulphate soil, contaminated soil, underground rocks, underground water, unstable fill etc.)

* mining issues (e.g. impact of mining subsidence)

* service issues (e.g. proximity of services to site, capacity of services for the proposed development etc.)

* stormwater issues (is there a legal point of discharge, if not are adjoining owners amenable etc.)

* title related issues (e.g. presence of caveats, covenants, easements, encumbrances, interest details, administrative advices, unregistered dealings etc.)

* zoning issues (compatibility of current zoning to the proposed use)

Whilst a development site with the necessary local authority permits in place will have overcome most of these issues, it is nonetheless advisable to investigate the various issues as a matter of course. A thorough due diligence analysis can be a rather time consuming process but given the cost involved in getting it wrong it is time very well spent!

Risk #4 – Construction Costs Blow Out

Construction costs are generally the greatest expense component in a property development project. As such, it only takes a slight proportional change in its cost to have a significant impact on the projects bottom line.

So how do you manage this risk and ensure that a blow out in construction costs does not destroy your bottom line? Well, the best way is to ensure that you use a lump sum fixed price contract. A lump sum fixed price contract is a contract where the price is determined by the building contractor which includes all associated costs such as materials, labour and profit margin. As the name suggests, the contract price is fixed from the day the contract is signed. The only things that will vary the price are variations to the contract or fluctuations in provisional or prime cost items. As such you should try to limit the number of variations made to the contract, and whilst nothing can be done to control fluctuations in provisional or prime cost items, it is possible to keep these items to a bare minimum when detailing the contract.

Risk #5 – Building Contractor Goes Bust

Perhaps every developer’s worst nightmare! By this point in a project most of the hard work has been done and you could certainly be forgiven for having your eyes fixed on completing construction and banking the settlement funds. However, all of this can change in an instant if your building contractor hits financial difficulty and cannot proceed with the works.

So how do you manage a risk such as this? Well, whilst circumstances can change quickly in the construction industry there is certainly a lot to be said for using a building contractor with a good reputation and a proven track record. As a developer you should feel free to make enquiries into the building contractor’s project history and financials. After all it is your money in the deal and your name as guarantor on the loan so there should be no reason to feel shy about asking for this sort of information.

Whilst there is no substitute for using a proven reputable building contractor, we are fortunate in Australia in that it is a requirement for building contractors to take out warranty insurance. During construction warranty insurance covers against the building contractor becoming bankrupt or placed into liquidation and against the building contractor failing to complete the works under the contract. After construction it covers against the building contractor failing to fix any defects and against the building suffering from the effects of subsidence or settlement. It is usual practice for building surveyors or local authorities not to issue a building permit until evidence that the building contractor has taken out warranty insurance is provided. Nonetheless, it is prudent that you ensure for yourself that warranty insurance has been taken out.

Risk #6 – Shoddy Construction Work

We have all seen the stories on ‘A Current Affair’ where the hard working Australian family put all of their money into building their dream home only to arrive on handover to something that is not only displeasing to the eye, but a danger to live in. Whilst these stories are very extremist they do demonstrate a very significant risk that if left unmanaged can be potentially disastrous.

So how do you manage this risk and ensure that you are not met at handover with shoddy construction work? Well, once again there is no substitute for using a proven reputable building contractor. For all of the work that goes into a property development project it is the quality of the construction on which your reputation as a developer can live or die. It is therefore absolutely critical that you do your homework on your building contractor. Always insist on getting the building contractor’s project history including contact details for referees from previous projects. This way you can visit the projects and make contact with the previous developers to satisfy yourself as to the whether or not their workmanship meets your standards.

Whilst engaging a proven reputable builder can mitigate this risk to a large extent, you should not simply sit back on your laurels waiting for a phone call when construction is finished. I’m sure you would agree that it is better knowing if something is progressively going wrong and be able to rectify it than to find out at the end that it is beyond rectification. This same rationale applies to construction work and the process of performing regular building inspections.

Throughout the course of a property development project a number of inspections should be performed by various individuals. The structural engineer will need to perform inspections at a few key stages of construction (e.g. footings, slab, framing etc.) to ensure that the approved plans and building regulations are being followed. It is also advisable that you engage your architect or building designer to perform regular inspections to ensure that the works are being performed in accordance with the plans. Once practical completion has been reached you will need to perform a final inspection. By this point, the final inspection will be concerned with minor defects that will be covered under the defects liability period. Generally, the developer and either the development manager, architect or building designer will perform the final inspection.

Whilst the before mentioned risks are by no means an exhaustive list, it should however give you a feel for the more notable risks in property development and how you can manage them effectively. Given the high stakes involved in property development any mismanagement of these risks can prove very costly indeed. If you are not experienced in managing property development projects and do not want to learn the hard way than engage an experienced development manager to act on your behalf. This way you can reap the rewards of being a property developer without becoming another causality to poor risk management.

By Luke Andersen

Partner of Positive Property Strategies and co-author of ‘Residential Real Estate Development: A Practical Guide For Beginners To Experts.’