7 Principles of Property Development
Principles are valuable for property developers or any business for that matter because they provide a consistent foundation for making decisions, especially when situations are uncertain or complex. Rather than deciding each issue from scratch, principles help you act consistently over time. In other words, principles that govern your philosophy can act as a guiding light when navigating the risky world of property development
The valuable lessons that I am going to share within this article with you, are principles that I have discovered from working in the architectural industry over a decade, moreover they are also lessons gathered from countless books, tutorials as well as my BuildUp membership on property development. Whether you are just starting out in property development, or an experienced professional in need of a reminder, these timeless core principles should help you make the best decision for property investment.
1. Beware of the Grey Area
Dan Brown, author of the Da Vinci Code once said “I love the grey between black and white”. Well this may be all well and good for the world of fiction, in reality, especially in construction, grey areas are dangerous terrain and potentially catastrophic. Over a decade working previously as an architectural designer has made me all too aware of this fact, as grey areas can lead to hidden costs, revisions and headaches that can actually cause a build to become unviable if you are not careful. Luckily the numbers do not lie, and with a bit of due diligence, investment and resourcefulness, we can find an antidote to this chaos.
2. Put the Owner first
Understanding the landowner’s objectives before proposing a solution I believe is one of the best habits a new property developer can develop to provide value. Often when it comes to land, there is not just monetary value, but sentimental value attached. We have all had that one home or place where we have built lasting memories with our loved ones, or perhaps it was owned by a close relative, so sometimes it’s always just about money.
Learning what outcomes the landowner is trying to achieve, what are their goals, their ambitions and the vision they have for the future, is a crucial step that most new developers forget to consider. Without this, it’s impossible to gauge what motivates them, and therefore makes it very difficult to provide a solution that works for everyone.
3. Perform Business Yoga
Staying flexible isn’t just an important lifestyle health promotion, but ensuring that a property developer is flexible in their solutions by having a deep understanding of the various exit strategies and deal structures, allows you to find the best fit for the owner once you understand what motivates them.
For example they might not even want to sell, but are open to the option of developing land, so you could propose to joint venture on the project together, or perhaps you as the developer may feel that this project would be best to have more experienced developer take it on, and you could add value by match making another developer where you can form a brokerage agreement and add value there. The important thing is to have multiple options so you can make the most of each site where time has already been invested.
4. Package the little things
Creating a memorable brand is not about flashy grand gestures, it’s about the consistent small individual gestures that compound over time and attention to detail that goes into these gestures that separate you from all the other businesses out there. Sometimes it can be the silly things, for instance, I buy my contact lens from a specific brand because they include a Haribo in their packaging. Sounds silly, but when I order my lenses I have a little feeling of excitement and anticipation wondering if this time they will give me this treat. It’s so small and seemingly irrational, and yet it’s a small gesture that keeps them in the forefront of my mind next time I make a purchase.
5. The numbers don’t lie
It’s all too easy to allow our emotions to guide our choices subconsciously, however this is precisely where the worst financial decisions are made. We have all been there, whether it’s a musical instrument you thought you would use, or a new investment opportunity that didn’t fruition because you only learnt about it from your friends - these are all fast thinking choices that would have probably been best avoided if you slowed down. To remedy this behaviour, we must do an appraisal, coupled with a thorough investigation of the open market as the first step to removing emotion from any deal. Adopting an analytical approach, rather than trying to make the site work just because you fell in love with it, or desperate in need of closing a deal. It’s not worth it, let the data do the driving!
6. Diagnose like a Doctor
If you sat down with your local GP and he started handing you medication without asking a single question, would you take them? I’d certainly walk straight out and get another opinion. Contrast that with a doctor that took the time to understand what the issue was, and conducted a series of tests to ensure that they could provide the proper solution. This philosophy can be applied to property development as being able to produce the right solution for the land owner or seller comes from the rapport built before, identifying the needs of the owner. Only when we have this information and fully assess the risks and hidden opportunities are we able to propose a solution and propose a deal structure.
7. Set it in stone
With all this flexibility and solutions based thinking there is something that must not be forgotten, and that is the contract. Gone are the days when it was normal for people to make deals on a simple handshake, and for good reason! This is another grey area that needs to be clarified. Otherwise, we have started asking questions about why this person we are dealing with does not want to set things in stone. This should ring alarm bells and it’s fine to politely establish this boundary, and move on entirely.
Our Philosophy
These principles of property development are not simply tactics or one trick ponies for narrow application, but rather part of a broader philosophy that can be used throughout the entire property development process. Being aware of the grey area emphasises the need for clarity as a vehicle for risk reduction. Putting the owner first reminds us that there is often sentimental value tied to land, not just financial value. Additionally, diagnosing like a doctor is the best approach to understanding how to provide a solution after asking the right questions and being analytical through due diligence.
Ultimately the numbers don’t lie, and it’s only when we sit down and produce a fully costed appraisal with detail to fully put emotions aside and let the data do the driving. Moreover we shouldn’t be like robots and be too rigid, that performing business yoga is about staying flexible with our deal structures and exit strategies to facilitate these solutions. But ultimately we have to set it in stone, and secure our efforts and time invested into contractual agreements because gone are the days when a simple handshake is enough to secure a deal. And finally, package the small things is about providing value throughout the entire process as your reputation is reflected through the compound interest of small gestures and decisions built up over time.
I hope you have found this journal entry valuable, as I believe whether you are a new to property developer or a seasoned professional, that these 7 core principles of property development are essential to the success within this game whilst investing time, money and effort into each site. If you are interested in working with us and investing in us, please feel free to get in touch!
