From Concretor To Development
Real Estate Development Blog On A Concretor
From the desk of Colm Dillon ...
Author of "Residential Development Made Easy"
I've been doing foundations and all the concrete for developments for years now.
I start before the roads are in and I'm the last to finish with walks and drives (I see it all).
I am working on a deal of xx acres with beautiful landscaping etc. I actually dislike doing the concretor work myself, but I enjoy being involved with developments.
Why wouldn't I want to do one on my own???
Investment loans are so expensive.
Higher interest rate, payments based on 20 years max ect. But of course I see building going on all around me, so I know people are doing it.
Can you give me any advice to ease my tensions on the money thing?
Well might you say, as an experienced concretor, "why don’t I get into development?" … good grief, what a head start you have over everybody else.
Carl, remember you know a lot more that just concrete & stuff; contacts, other subcontractors, getting the right price etc etc.
That is not to say that you don’t have some new stuff to learn; But Carl, with your concretor experience, you heard the ‘starter's gun’ go off before a lot of people.
So as an experienced concretor, stack up your advantages, OK?
The cost of finance is the same as a concretor's cost. It is just another commodity that goes into creating a development.
If I need my water works done, I call a plumber. He reads my plans and gives me a price.
If I need bricks laid ... you got it, I call a bricklayer, show him my plans and he gives me his price.
If I need money I go to the place that "sells money" and ask them what's their price. The only differnece is that they wear suits and you don't.
Their price consists of two elements.(Concretor's price consists of two elements as well - labor & materials)
1. The interest rate quoted.2. The terms they offer with the proposed loan.
If either of these two things are not acceptable, go to another "Money Shop."
The interest rate is what we all concentrate on ... Why?
Because we all think we understand it ... most of us never get past the 'simple interest' calculation; anyway that's another story.
The Terms They Offer are of secondary concern to us. 'Give Me The Money" is our prime thought, yet the terms of the loan have a financial impact as well.
So remember money is a product – just like a concretor - it has a price and it’s part of the make up of a total development, just the same as your concrete price is a component.
In establishing the financial feasibility of a project, or the final cost for that matter, you add up all the cost items and subtract them from all the sales income.
If your estimate shows an acceptable profit, you’re proceed with the development.
It is our nature to concentrate on the (concretor)area of expertise we specialize in.
So a carpenter, turned developer, would have the best price and quality of carpentry work in his development.
In your development, do you agree that your concretor work would be perfect. It's natural Carl.
And the reason it would be perfect is because you don't need to 'work' at gaining concretor knowledge. You already have concretor knowledge - right.
Now, how much work would you have to put into buying, say, carpentry or plumbing or money?
OK, so here's the lesson. Before you buy anything, you investigate ... in this case it's the money lending business, particularily as it applies to development.
So this is what you do.
1. Before you start this work, you must have some idea of the size of development deal your current financial status will allow to do.
Sometimes it is just a feeling, like, "oh, my first one will be not bigger than $700,000 ... whatever. I feel comfortable with that."
2. OK, you've set a total cost (it can change later).
3. Now you reckon that it will take about 15 months to start and complete the development (it can change later).
4. You don't want all the money in one lump sum, you want the bank to lend it to you in progress payments spread over the 15 months.(Don't know where you get this 20 years business from - that's mortgage money, not developement money)
Can you see how we have just created a "Money Shopping List?"
Now you are in a position to go to several banks - most people get all mixed up with the emotion - "my bank manager knows me - he'll look after me" and so only go to one bank to shop for money - incredible!!
The bank manager "SELLS MONEY" that's all - what he know about development can be written on the back of a match box.
Every bank knows you- the most important bit anyway; your currentfinancial standing, so forget the 'personal relationship' you have with your current bank manager. (By The Way I Know Most People Will Ignore This Advice - Can't Help Yourselves)
You can write to each bank or phone them up with your Shopping List:
"Good morning, I'm (Carl x,) and I'm planning a new property development ofapproximately $xxx,xxx. Do you handle development financing?
You do - good.
Can you please send me a proposal for funding a $xxx,xxx development,with a time period of 15 months and progress payments over that period.
Can you include the Terms and Conditions under which I can borrow as wellas the interest rate."
Can you see how much better it is to Shop This Way - you are in charge for a start.
You are not under pressure, because you have not even bought the land yet. Allyou are doing is planning part of your future actions.
Hope this helps,
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