How to find profitable developments sites in Western Australia.
Learning how to find development sites in the right areas that are actually going to make a dollar is one of the most important questions aspiring developers want answers to, and also one of the most important skill sets to obtain.
This article will discuss some fundamental topics around finding good sites. Where you need to be looking, how you do your research, where you do your research, and who you use to find your sites.
This is really important to grasp because if you know how and where to look for good sites, and can do a feasibility study on your terms, you will be giving yourself the opportunity to beat the rest of the buyers to the best sites.
How to find developments sites is preceded by researching where is a good area to do a development. The answer is to be looking in an area that has:
- A high owner occupier rate
- One or multiple stock type scarcities
- Good amenity
Determining which areas are owner occupier dominant with good amenity and land scarcity (meaning good potential for demand) requires research. The urban fabric of Perth is constantly evolving, and is not static. As often as social and political circumstances change, so do suburb profiles. You must research suburbs yourself to determine if what and where you are considering buying is going to be suitable for development in the current market and socio-economic environment. Your investigations will be a combination of anecdotal and data driven research.
In the course of your research use sources (free and paid) such as:
As well as assisting you to source sites, the above tools and resources can also assist in researching important data to effect decision making, such as:
- Owner occupier rate in the suburb vs. how many residents are renting.
- Amount of state housing in a suburb and where it is.
- Employment rates/median incomes in the suburb.
- Existence and location of major amenity considerations: shopping centres, public transport, tertiary education facilities, restaurants/café strips, community and civic centres, parks and gardens.
- Good public and private schools within the suburb catchment (both primary and secondary school). You can check rankings of schools at the Better Education website
- Vacancy rate positions and trends in a suburb.
- Stock type and level trends in a suburb.
CoreLogic’s RP data suite in particular provides a detailed suburb profile reporting tool that is very useful for suburb analysis.
How to find development sites also means it is important to go and visit where you want to buy. Go do some “on the ground” research. Visit the local parks, gardens, shopping centres, community facilities, café strips and transport facilities. Could you see your target end user living there? Can you see yourself living there?
Finally, its important to sanity check your findings by speaking to some local real estate agents who have been selling/living in the suburb for years. There are good and bad pockets in each suburb, as well as intel on product types and features that do well in an area. Get some insider knowledge from them on this. As a suburb gentrifies or changes the agents will be able to provide a better indication of where is a good area to buy in the suburb (or not) and provide reasons why. They may even have off market property deals to present to you.
If you are happy with the social aspects of the suburb from your research, you can shortlist some sites and begin performing due diligence. Feasibility studies at this stage should be driven primarily by market and statutory compliance research to determine what the best design solutions are that will make a profit and meet market expectations (so they actually sell!).
Next steps after your suburb research
The next step is sourcing a site (or multiple sites) for detailed study. You can source sites to research and develop in two ways:
- On market (listed by a real estate agent).
- Off market (not listed on the open market – referred by friends, family, colleagues, real estate agents, research and door knocking, or by using a buyer’s agent).
Good on market sites can be difficult to acquire because you are competing in an open market with other buyers (developers or owner occupiers) who may pay above what you are willing to pay because it is an emotional purchase, or they have not done the same amount of due diligence as you and make an erroneous higher offer.
There is time pressure to get an offer on the site and ultimately there is the risk that another buyer may beat your offer. Ultimately there can be multiple reasons for loosing the deal – it doesn’t matter but, you still lost it. This can be very frustrating in an active market. Looking on market, in a hot market, is therefore not always the best method of how to find development sites.
It is therefore preferable to source off market deals that are not advertised to the public, through your own door knocking and letter box dropping. Approach a local real estate agent for opportunities, or engaging a buyers agent to source a site for you.
This will give you time and opportunity to perform due diligence, and compete with far fewer parties (sometimes with none at all). You can then negotiate a fair and reasonable price and terms of sale for both parties, perhaps even deploy an option on the site subject to favourable terms and conditions.
Using buyers agents to source development sites
You may choose to engage the services of a buyer’s agent to source and acquire a development site on your behalf. Buyers agents are licensed real-estate professionals, typically charging a professional service fee of 1.5-3% of the acquisition price, dependent on the size and type of the transaction. A competent buyer’s agent is a valuable team asset. Once provided with a brief, a buyer’s agent will begin to source and present properties for your consideration within the parameters of the brief.
Subject to the service conditions of contract, there is typically no obligation to accept a property presented by a buyers agent until one is presented that you wish to proceed with making an offer on. The agent may present several properties before you are provided one that you are happy with. Some buyer’s agents will charge up front or establishment fees, however typically most (if not all) of their fee is paid on settlement.
As with all industries there are good and bad operators in this space, it is advisable to make your own enquiries and seek references before engaging an agent. It is also important to do your own preliminary feasibility study on the sites that the agents present prior to making an offer – the agent will typically present sites that fit the parameters of development potential but do limited feasibility calculations or forecasts of their own. Agents are not typically paid to collate site-specific data on development costs and any numbers provided are generally high-level estimates.
To re-emphasise, the offer you make with the agent should be subject to due diligence. A buyers agent may know how to find development sites, but it is not their job to do your feasibility studies for you.
The best value a buyer’s agent can add is sourcing and presenting off market sites, and then helping to negotiate an acquisition price that is at or below market rate. This is particularly valuable in a hot market. If a buyer’s agent cannot source and present off market deals or negotiate some term of exclusive access prior to open market presentation, they add little real value to the development process.
This article should have you well on your way to understanding what you need to do to source a good site and secure it, hopefully off the open market, so you can negotiate terms and do feasibility studies before committing to a decision to purchase.
Lots of our customers that have sourced good sites with our help have been able to do so because we educated them and showed them how its done. You can learn all this too – everything you need to know on suburb metrics, site sourcing, market research, feasibility, options and other contract instruments is in our 225 page Infill Property Developer Guide-book and correlating Online Course.