Successful developers invest time, effort and money to understand the fundamentals of the business; Processes, People, Product and (Market)Place. These fundamentals form a solid foundation in which to build a low risk, high reward property development business that can have a positive impact to many.
In last month’s article we went through what most consider to be the most exciting part of the process, the construction phase. This month we move onto the final piece of the puzzle the exit process and turning all the hard work into profit and/or property assets.
An understanding of your exit – what you are ultimately looking to achieve – will impact how you go about the preceding process, so it’s imperative to get clarity prior to acquiring sites. The ideal scenario is to have multiple exit routes available for deals that pass through your pipeline.
The four exit strategies are:
1. Deal packaging
2. Planning uplift
3. Build to sell
4. Build to rent
“Begin with the end in mind.” – Stephen Covey, The 7 Habits of Highly Effective People
Sourcing projects and selling them on to other developers is a great way of bringing cash into a capital-intensive business. Once you have a steady flow of leads into your pipeline and a process set up to filter the wheat from the chaff, you will need to assess your capacity in terms of the number of projects you have the resource to work on effectively yourself.
Let’s say your capacity is three projects a year. If you’ve got a well-oiled sourcing operation running, there’s every chance you’ll be able to secure more than you can handle personally. Deal packaging is also a great activity to focus on if you are new to the game and looking to build up a cash pot to embark on your own developments as you become more experienced. By sticking to the appraisal process and securing deals under assignable contracts, you’ll be able to successfully sell sites on to other developers and realise some cash.