Starting your first project but scared of hidden pitfalls? Here’s 5 tips from an experienced property developer

Starting your first project but scared of hidden pitfalls? Here’s 5 tips from an experienced property developer

Managing Director, Stephen Scutt of Castlerock Capital is an experienced property developer, with dozens of projects under his belt. Property is in his blood, his passion stems from being exposed to property transactions from a young age through his father, a property lawyer.

Starting with small townhouses and subdivisions, he has completed developments in residential and industrial and small office blocks. Today, Stephen’s focus is on developments in the $20 to $30 million range, particularly student accommodation. Stephen recently worked with Development Finance Partners (DFP) to refinance his Castle Student Accommodation project, just after the pandemic hit. 

At a time when the major banks were being more conservative, Stephen turned to DFP to secure refinancing on terms that were far more favourable than those being offered by the major banks. DFP secured funding of $10.15 million with one of its preferred banks for refinance from the existing construction facility loan at an LVR of 61.50% of the current completed asset value. The 36-month loan term had a variable interest rate, which was 2.45% per annum at the time of writing. 

Stephen knows that it can be tough for budding developers to get their foot in the door, and he shares his top five tips for up-and-coming property developers.

  1. Build your knowledge

The main reason Stephen sees budding property developers get caught out is due to a lack of knowledge. To make it in developing, you need to have a well-rounded understanding of all the key areas of planning, financing and building.

“I thought I knew a lot by the age of 40 but it’s only into my 50s now that I probably know a little bit more and I’m still learning every day,” he says.

From there, you need to work with great consultants and good people who can maximise your time and money. Stephen said this is one of the reasons he works with DFP.

“They’re experts in their field, I’m not, and so I’m happy to let them do that side of it,” he says. “We know what we do best, and we will continue to do that and let people like DFP do the finance for us.”

  1. Get experience

“You’ve got to get some experience,” Stephen says.

In particular, he recommends spending time working with financers, consultants, builders or other developers to really hone your knowledge and build your skills.

“Don’t come out of the university gates with your parent’s bank balance and think you’re going to make millions and drive a Ferrari. It doesn’t work like that.”

Having a solid base of experience will help you to foresee potential costly issues, such as land contamination, and will help you to team up with the right people who can deliver on their promises. This is particularly important when it comes to financing your project.

“It’s very hard for a small person like me to go and talk to every financier in town, every bank, every third party lender, because each one requires a relationship,” he says. “You’re best off using someone like DFP to do that ,who know them all and can hunt around.”

  1. Start small

Every development will have its issues and starting small will ensure you are ready to tackle them head-on.

“Don’t try and bite off too much to start with, start small,” he says. “You run into problems on all developments and anyone who tells you differently has never done a development. You’ve got to be ready for those things and have money to back you up.”

This ties in with finding the right financier – it is critical to build contingencies into your financing, so you can tackle issues as and when they arise.  

  1. Hold on to what you can afford

It can be tempting to flip a project for a quick buck, but the real money is made long-term.

“I probably would have held onto more of the things I’d owned over the years,” he said. “I didn’t realise, probably like most people, that land and residential real estate was going to appreciate like it has.

“Do what a lot of older gentlemen that I buy property from these days have done, and buy it and hold it – if you can afford to. Forego the Mercedes and a few other things and hold onto property, because they’re making no more land, especially inner-city land,” Stephen says.

  1. Look for a property with a view

It’s the old real estate adage – location, location, location!

“We always tried to buy stuff that had a view, as in a water view,” Stephen explained. “It’s hard to price a view. It’s easy to price a block of dirt in Schofields, but it’s not that easy to price a house or a view in Tamarama. It’s all about the position.”

Development Finance Partners are experts in property development and construction finance, providing complete end-to-end tailored solutions. To find out more about our finance solutions, talk to us today.

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