7 Advantages of Becoming a Property Developer
Many property investors and builders move into property development; however, anyone with a passion for property, good management skills, and an eye for a good site may find property development to be rewarding. In this article, we look at the major advantages of becoming a property developer.
1. Build a Large Property Portfolio Faster
Getting into development can be an excellent option for keen investors looking to accumulate a large property portfolio. Instead of selling the properties upon completion, a good proportion of developers choose to retain the entirety or a part of their development project once it is complete. Real estate development software is used by new and experienced developers alike to create accurate feasibility studies to determine the financial returns between retaining a development upon completion as a long term investment asset or to sell it for a short term profit return.
2. Create Exponential Capital Growth
While property tends to double in Australia every 7 to 10 years, by developing their own properties, developers can realise capital growth rates well beyond the average rate yielded by buying and holding a property.
Based on the costs of purchasing a site, construction costs, and tax accounted for, well-planned projects can reap capital growth that exceed the traditional property investment rates, and do so within a far shorter period of time.
3. Economies of Scale
Part of the massive profits that development can potentially offer arises from economies of scale. A development project utilises a large amount of resources to construct a multiple number of houses, offices, or apartment blocks. In becoming a developer, you leverage the economies of scale that may be unavailable in other investment vehicles.
4. Higher Rental Return on Investment
Developers who retain their projects as investment properties can potentially realise a higher rental return to investment, when compared with buying completed houses individually and leasing these out.
Successful property development projects generate higher rental returns on investment. After accounting for all costs of development, the developer who retains their developed properties may have acquired these properties at anywhere from 10 to 25 per cent (or more) below market rates.
By cutting out the middle parties and become the developer themselves, the property developer accesses a better rental return on investment. When they eventually do sell these properties, they will also reap a better capital return on investment.
5. Reaping Profits from an Expanding Population
Australia is set for an expanding population for the foreseeable future. According to the ABS, we’ll have a 30.9 to 42.5 million strong population by 2056; by 2101, this figure will be anywhere from 33.7 to 62.2 million.
As housing demand is set to outpace supply, developers are very well placed to reap considerable gains from Australia’s expanding population and demand for housing.
6. Tax Benefits
Tax benefits, such as depreciation and negative gearing, make owning new properties an attractive proposition. Tools such as real estate development or property valuation software can simplify the entire tax planning process and forecast these tax benefits.
7. Leverage a Passion for Property
Many real estate developers find the challenge of undertaking a development project to be the reward in itself. Property development makes use of skills such as innovation and creativity as well as technical skills such as time management, communication, and knowledge of the industry.