Real Estate Development – Ways to Avoid Costly Mistakes During Property Development Construction!

Once the building contractor is on site and the project is underway – it really is an amazing feeling when you start to see your real estate development project start coming up out of the ground.

Where a developer is planning to sell some or all of the units, marketing activity starts the moment finance is secured. The construction phase is usually the most expensive, therefore we carefully manage the project during this stage.

We schedule regular site meetings with our Building Contractor, typically every week or two, to discuss any queries or potential problems and we make sure our Building Contractor has fulfilled their Occupational Health and Safety (OHS) obligations fully.

Remember that it’s the Building Contractor (not the Owner or the Architect) who represent themselves as the expert on erecting buildings. Therefore it’s never a good idea to tell the Building Contractor how to build the building instead we instruct the builder as to the desired result to be achieved, not how to achieve it.

We pay our Building Contractor progressively, either monthly or at the completion of each scheduled construction stage, using draw-downs from the construction loan.

It is not unusual for the Building Contractor’s claim for completed works to vary from their schedule so it is important to make payments only to the value of the completed work.

Some real estate developers appoint an independent building inspector to review the quality and amount of work at each progress payment stage as this sends a message to the Building Contractor to be on the ball. This could be your Architect or you can find a good Building Inspector from the Master Builders Association in your area.

We try not to make changes after construction has started, as they usually end up being costly, and delay the completion date. If changes are necessary to the original contract scope of works or finishes, we request the Building Contractor advise us in writing what the variation to the original contract sum and the delay time will be so we can approve it BEFORE he makes any changes.

Before the handover at final completion, we have a joint inspection of the project with our Building Contractor (we also recommend with the architect and/or building inspector present). A list is made of all the defects and problems that need to be fixed by the builder before the building is officially handed over.

Simply, the developer’s aim under the contract with the building contractor, is to produce the designed building on time, within budget and at the quality standard that has been specified.

Therefore, during the construction stage, it is essential that a savvy developer (or their appointed project manager) monitor the progress and cost of the construction work to ensure that the project is delivered on-schedule and on-budget.

Any time extension from the plan/schedule or variation in cost will potentially affect the profitability of the property development project.

The building contract generally will detail the developers/owners responsibilities. Depending on the contract chosen, these responsibilities will typically include:

* to ensure adequate access to the building site

* to pay progress payments promptly

* to insure the completed project, after practical completion


These are many reasons why delays occur during the construction stage, causing the late completion of the project. Many of these reasons are outside of the contractors control and some of the most common of these include:

* bad weather

* a delay in receiving necessary information from the developer or the consultants

* technical problems

* industrial disputes

Most standard building contracts will allow the builder to clain an “Extension of Time”, for delays caused by factors outside of their control. The practical effect of these extensions is to adjust the Completion Date that was agreed in the contract.

However, where the building contractor is responsible for the delays, either through a lack of programming or for any other reason, the building contract will frequently include for the payment of Liquidated Damages to the developer.

In these circumstances, where the project is delayed beyond the Completion Date noted in the contract, allowing for any extensions of time, the final payments to the contractor will be adjusted for liquidated damages, in the amounts stated in the contract, for each day the completion is delayed.


As the construction phase is usually the most expensive stage of the entire property development process, and the period that a developer will typically have the greatest negative cash-flow, we continue to carefully manage the project during this stage.

The construction stage can have the greatest potential effect on the final construction cost and the timing of the project. As even short delays or relatively small changes in the cost of the construction can have a detrimental effect on the profitability of the project we recognise this stage as a time of potentially significant risk to the development project.

The risks, during the construction stage, that we are particularly conscious of include:

* the contractor is unable to complete the project

* the completion of the construction is delayed

* the costs of the construction increases significantly

* unacceptable standard of building work

Real Estate Development – Why You Shouldn’t Search For Great Property Development Sites

We have seen so many beginning property developers go badly wrong at the very first step.

Before scouring the real estate listings to find large blocks of land for sale, there is a crucial first step. If you jump into buying a site without taking this crucial first step, you are taking a huge risk.

You see, there is no way that you can be an expert in every part of your city or state. Yet, to be truly successful as a real estate developer, you must become an expert in the area in which you develop.

Each local council is different. Each area has different public transport provision, traffic bottlenecks, noise pollution issues, local resident action groups, and any one of a dozen other differences – and all these differences are vital factors in your development site viability calculation.

We advise that you don’t begin by searching for sites – but rather begin by selecting one or two area’s in which you will specialize.

When we’re looking for an area, we’re after “a desirable location with consistently good growth”. In other words, we’re after an area that historically has had a minimum annual average growth of at least 10%.

The growth of an area is normally associated with supply and demand more commonly known as the “scarcity” factor. But that’s by no means the end of the story. We have identified over 30 ‘Factors That Can Influence Real Estate Capital Growth’ – here are just some that we consider:

– consistent median house price increases

– positive population growth

– high socio-economic suburbs

– high percentage of homeowners

– low unemployment

– good transport links

Once we’ve identified an area we undertake a detailed market analysis of the neighbourhood using our ‘RED Local Market Feasibility Checklist’. Here are just some of the things we assess:

– demographics: Who is our market and what do they want?

– facilities: Are there schools, transport, shopping centres, hospitals, etc?

– gentrification: Is the suburb in transition, are people moving into the area, are people renovating, is there a café society, is it a beach suburb etc?

– infrastructure: Are there plans for new infrastructure like bypasses, new roads, new bridges, shopping centers or is council undertaking beautification?

Finally, we identify what the town planning regulations allow. Possibly even speaking to the local council planners directly – in our experience most council staff are very willing to help.

Never overlook the importance of proper research because it helps you to determine what type of dwelling is in high demand in a particular area, for example if you should be concentrating on townhouses or boutique apartment developments.

Once you have selected two or three locations which look good on paper, get familiar with the areas by driving around the suburbs, checking out what other developers are building, and then talking to a few Real Estate Agents and Property Managers. If possible, you should also attend property auctions. You want to get a feeling for what’s possible, and the demand in the area.

Only when you are completely satisfied that an area stacks up, in the statistics, the ease of doing business, and in the general atmosphere, should you start the process of looking at individual development sites to purchase.

Don’t get distracted by the “Bright Shiny Object” – the apparently brilliant bargain buy in an area you haven’t researched. You have no idea what problems you may be buying into! Stick with the area you know, and know well, and you will have a lower-risk real estate development experience.

How to Be a Real Estate Developer – Investing in Real Estate

Want to know how to be a real estate developer? Take all the required courses in real estate and get your license to work in this field, and there you go. But what if you want to be more than just a developer? What if you want to learn how to be a very, very successful real estate developer? Well, it seems that that can only come with time, trial and error learning, and years of experience in the industry. But does it really have to be this way? Is there no other way to short-cut through all those years of experience?

There is one obvious way, and that is to learn how to be successful as a real estate developer through finding a mentor, or personal trainer in this same field of expertise. The only problem is that whenever we approach a veteran of the real estate world, we don’t get much in the line of answers. Those who have traveled the long and windy road to success, gaining inside knowledge and the wisdom that comes with experience aren’t all ready to spill their guts about their secrets to those who would simply become their toughest competition.

But here really are those out there who do wish to teach the inside know-how on how to be a successful, well learned real estate developer, and they do so without fear of competition. How do they do this, and where do we find them? The answer to both is through the internet. This kind of distance learning is a perfect way to learn from those who have acquired this wisdom, and for those learned ones to speak freely in educating us in these matters. Finding a personal trainer in this field is worth a gold mine, and with what you learn, you will find many other gold mines to be had in your real estate career.