Small property developments present many benefits when investors get educated, understand the numbers and evolve their strategy, says Drew Evans.
Investing in small developments is an effective method to accelerate a property investment strategy. However, success comes down largely to an investor’s knowledge, expertise and risk tolerance.
Drew Evans, an active property investor with a portfolio valued at $25 million, joined KnowHow’s Bushy Martin on Property Hub’s Get Invested podcast to discuss key investment tips for small property developments.
Small property developments tip 1: Understand the benefits
Investing in small developments presents a prime opportunity to gain instant equity and continue generating wealth, especially in circumstances where investors feel capped out with their borrowing capacity and property purchase power.
“It’s about finding opportunities that are under market value, and you then add value to the property, whether that’s renovating or subdividing or developing. For me, it’s by doing small developments. So at the end of the project, you have a significant equity advantage. And it’s this equity that gives you options,” Drew said.
“It’s either your borrowing capacity or it’s your buying power that will prevent you from moving forward and building up the portfolio of your dreams. So for me, I love the ability to develop big chunks of equity on completion of any project. And this gives you two options. Option A – do you use the proceeds that you’ve made to then pay down any non-deductible debt, that in turn frees up your borrowing capacity, which allows you to keep moving forward. Or option B – do you use the equity that you’ve generated to then roll into your next project? Because I can tell you now, when you first get started, that is the hardest part, because you have to slave your way to build up your deposit. And the perks of living in this beautiful country is it’s not easy to save. You have a huge amount of tax and you’ve got a huge amount of living costs.
“So getting into your first one or two acquisitions is the most important. It’s all important, but it’s the most important to get your money to work for you by finding opportunities that can speed up results.”
Small property developments tip 2: Find the right mentors
Education and guidance is crucial to any investing journey, but especially when getting involved in small developments.
“I think the initial step is to get educated. Now I don’t mean get educated by going to overpriced seminars and boot camps and coming out thinking that you’re Donald Trump. But learn from people, right? Learn from people that have done what you want to do. Again, you don’t have to jump headfirst into a project. You can come to companies like mine where you do your first project with us, or a second project with us, knowing that you want to get educated to then go and do it on your own accord,” Drew explained.
“What would I do differently in my journey? I would find someone that has a proven track record that’s done what I want to do. I’d find that person, and I would do anything I could to get mentored or get coached by them, to show me how to fast track the results. Because what I’ve kind of learnt is, don’t make all your own mistakes when you can learn from somebody else. So get educated, plan for the worst, and hope for the best.”
Small property developments tip 3: Understand the numbers
Investors need to understand the numbers involved and whether it suits their goals and tolerance.
“You always need to protect the downside, right? It’s not all about the upside. It’s all about the numbers. And let the numbers be factual. Don’t let them be massaged based on your ego or what you want them to look like. Always understand, is this first acquisition is going to set me up, or is it going to set me back? That is key. We all have challenges with finance and we need to plan for that accordingly,” Drew said.
Small property developments tip 4: Review and adapt your strategy when necessary
Drew and Bushy encouraged investors to be flexible with their long-term strategy and allow for adaptations to maximise wealth generation.
“You need to be smart enough to adapt and evolve your strategy over time to make sure you’re buying the right type of property in the right entity, given the circumstances at that point. So it needs to change and evolve to optimise your situation as you go down that track,” Bushy said.
“I’d say a lot of investors come in with a very fixed mindset on their strategy. And they’re really missing the opportunity because it’s that mix of the right property combination, the right financing structure that needs to support it alongside, and being very clever around the industry entity and tax treatment of those properties, to then truly look at what is the the bottom line in this exercise, rather than look at each of these bits in isolation, which is a big issue.”
Listen to the full interview here.
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