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Monday, November 8, 2021

9 Benefits of Growing Your Capital Through Residential Property Development Projects

Are you wondering how residential property developers grow their capital? It’s worth investigating, as there is serious money to be made through this avenue.

In years gone by, the easiest way to generate capital was by investing in an existing property. This is because many mum and dad investors set themselves up for retirement by accumulating a property portfolio. And while this is still an excellent way to increase your capital, development projects trump this method.

There are several benefits to growing your capital through property development. In this article, we’re going to explore X of them.

So, if you’re ready to learn, read on!

The Capital Gains Can Be Exponential 

Did you know that you can generate exponential capital gains through property development?

It’s pretty simple. For instance, a dual occupancy development project can see you pocket some serious profit. That’s because you’re turning the value of one property into two. For example, by building two units or townhomes on a large block, you can then sell both of them. As a result, you will get more profit than if you sold the single titled lot. 

But how does this profit turn exponential, you ask. It’s simple. You then use the capital generated by the development to bankroll your subsequent development. The high-profit margin should ensure you have enough working capital to prepare for the process. A lender can then provide the rest.

You then complete the second project, pocket the profit, and rinse and repeat. But, on the other hand, you could turn the development process into a full-time cash cow. 

By rolling each project into the next one, you can continue to profit and see exponential growth in your capital

By Retaining Some of the Properties

Another way you can grow your capital via residential real estate development is by keeping some of the properties. You can then put them on the rental market and continue to reap the rental yield. 

And, if you pick the right suburbs to develop in, these properties should appreciate. So, you rent them out for a few years. Then, when the value has risen, you could pocket hundreds of thousands in profit.

If you keep developing, you could have the best of both worlds. You can profit off the sales while retaining investment properties that increase in value as time goes by.

Let’s keep talking about those rental yields.

Higher Rental Returns

Any tenants you get into your properties will have to pay the going market rate for rent. 

If you’ve played your cards right, the development cost is lower than if you bought an existing unit. 

This means that your rental yields are higher than those who buy an existing property. 

You are growing your capital quicker via a developed property than a standard rental property. This is a huge benefit and will see you get wealthy quicker.

Real Estate is a Mostly Stable Investment

Although property development can be a high-risk, high-reward game, the rewards are high. 

But if you mitigate the risks adequately, you’re left with the rewards. 

And once your properties are built, they are a stable investment

Look at the stock market – if it crashes, your investment crashes too. People can lose millions overnight.

Real estate is a literal brick-and-mortar investment. Therefore, it will always retain a relatively high value, despite dips in the market.

Speaking of market forces.

Developers Can Profit in Any Market

Here’s another benefit of growing capital through residential property development. 

Some naysayers will say to avoid property development in a market dip. 

That’s absolute malarkey. A savvy developer can make a profit in any market. It’s a numbers game. If you have enough projects in the works, the money is there to be made.

So, while others shy away from a market in decline, you can use it as an opportunity to continue growing your capital. 

Shorter Investment Times

Other investment types are the long game. Stocks, shares, bonds, and the like can take years to generate a net profit return. Even investing in existing property can take a while to see capital growth. For instance, you buy a property, and then ten years later, its value has skyrocketed.

Real estate development offers a much quicker return. 

You could subdivide and build two or more homes on a single block within nine months to a year.

Then you sell them, and settle, and see your profit quickly.

Now, let’s assume you bankroll your next development project off the back of the first, as we discussed above. 

It will take another year or so, but you will profit sooner. 

Within the ten years, it would take an existing property to appreciate; you could have made ten times as much from development projects.

You’ll Develop a Strong Network

As the saying goes, if you’re not networking, you’re not working.

By developing real estate, you will develop a strong network. 

You’ll make connections with sales agents, town planners, conveyancers, lawyers, architects, and more professionals. 

These people can unlock opportunities for you. For instance, they can connect you with opportunities you might not have otherwise found. Additionally, sales agents are worth their weight in gold.

Why? They can offer you ripe properties before they hit the market. This gives you an advantage and can help boost your capital. This is because you don’t have to outbid anyone at auction, spending more than you wanted. 

A strong network will only help you to grow your capital.

Tax Concessions and Benefits

Owning brand new properties gives you some substantial tax benefits, including depreciation schedule allowances. This can mean a bigger refund at tax time.

Also, if you do retain some homes as rental properties, negative gearing allows excellent tax benefits. 

You’ll Gain Project Management Experience

Managing a development project is no small feat. It takes some serious project management skills. You need to spin multiple plates, all at once, and keep them from crashing down

From the pre-planning to the build, sales and marketing, and more – there’s a tremendous amount of work.

By doing this yourself, you are gaining valuable experience.

This could set you up for future career moves.

For instance, if you did a few projects for yourself but then wanted to return to a “normal” job, you could list the experience on your CV.

Businesses are always looking for strong project managers, and the skills are generally transferable across sectors. 

It is A Path to Financial Security

By generating serious capital via residential real estate development, you are setting yourself up in life.

Being wealthy means being financially secure. This means you have the money ready if life throws you a curveball.

By growing your capital this way, you are prepared if you get sick or a family member does. In addition, you will have a financial buffer to get through some challenging moments. 

Compare this to if you were living payday to payday, with minimal savings. How well would you go without income for a few months?

Also, by generating capital via development, you could retire earlier in life and enjoy years more of leisure time than if you stayed working until retirement.

Conclusion

In this article, we’ve explained nine benefits of growing your capital through residential property development projects. By now, you should be confident in the knowledge of how property development can generate capital gains.
 

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Peter Kelly
Peter is a co-founder at Little Fish Property Developments, where he the senior development project manager. Peter Kelly is enthusiastic about real estate with 10+ year’s experience as a residential property developer in Melbourne, Australia.

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