Interview | Key advice on how to make it as a property developer

The good, the bad and the ugly from Andrew Purdie, successful developer, entrepreneur, philanthropist and media host!

If you’ve read the first half of our interview with successful developer Andrew Purdie, then it’s fairly certain that you’re an investor with a keen interest in learning more about property development! So let’s hear more from Andrew, who’s been there and done that, about what it takes to become a property developer, and his key advice to those who’d like to pursue it as a career.

INTRODUCING ANDREW

Andrew Purdie

With a passion for property, Andrew Purdie has been at the forefront of the real estate and property development industry for many years. Managing director of Bennett Williams and co-host of Australia's Best House, Andrew’s success is founded on his innovative approach to design principles. His vision and determination, combined with his entrepreneurial flair, have resulted in the exponential growth of his property portfolio…and contributed to his ability to succeed and achieve longevity in the challenging development space.

WHAT’S THE DIFFERENCE BETWEEN AN INVESTOR AND A DEVELOPER?

On face value, this seems like a super simple question…

Investing

I would say an investor is a more passive position, where you're looking to invest to increase your wealth, and to put money that you might have into a secure position.

“And you can take a passive position – because, albeit the Australian property market is cyclical, it's safe. We've had peaks, we've had troughs, we've had highs and we’ve had lows. However, it's always continued to move forward in an upward cycle – or an upward trajectory – over time.”

I also think that for people just getting into investing, property is ­– not necessarily easier ­– but I think entry level investing in the property market is easier than entry level investing into the stock market. And Aussie's like property! I mean, the Australian dream is to own your home and pay it off. So property resonates with people, and I think people enjoy investing in real estate.

So across the board, a property investor is looking at things like property trends and areas where there's potential future growth. They want capital growth. They want increased value of their asset. And they're looking for yields. They're looking at things like occupancy rates and vacancy rates, and at times those two directly oppose each other. So in areas where you have high capital growth, you might have low yields.

Investors are also looking for tax breaks and benefits through negative gearing, or they're strategising for additional income by trying to find cashflow positive properties.

“You might have your first investment property, your second investment property, you've built up equity in your property – you then might look to invest in a property where you can build a townhouse in the backyard, you can build two townhouses in the backyard. And that's where I guess an “investor” crosses the line into starting to dabble in development.”

Developing

For me, in terms of what my vision is and how I run my business, rather than looking for an area with future capital growth, I'm looking for an area of current market stability. So that when I'm buying, I'm aiming to buy, develop and sell in the same market conditions. And that allows me to keep my figures as accurate as possible.

I work on things like an internal rate of return – how much money I'm making on the money that I'm putting into the project. And things like return on gross realisation value – the total sale of assets in the stock in your development, how much you've sold them for and what percentage of that was your profit.

And the way to arrive at these figures most accurately is to buy and sell in the same market conditions. We're looking for security of market conditions.

And then we're looking for areas where there's buyer demand, which might not necessarily look like an area where there's high occupancy rates for investors. We might be looking for areas where there are employment opportunities, where there are first and second home buyers entering the marketplace. We're watching market trends.

We're also looking for a value uplift, through things like subdividing land, buying land and building on it, things like that. We’re seeking immediate to short term improvement to land, to extract value.

“So as a developer I'm looking for different things than investors are looking for. With what I invest today, I'm not necessarily looking at what that’s going to like in ten years. I'm looking at what I can do today, and what that's going to look like in twelve months, or two years, when I finish my project.”

WHY DO YOU THINK PEOPLE WANT TO BECOME DEVELOPERS?

I think a lot of people get into property development because they have a preconceived idea of what being a developer is.

As an investor, nine times out of ten, you've probably got another stream of income. That is, you're usually employed doing something, and you're investing as a side gig. And if you take an investment to the bank, you know what your LVR is. You know what your mortgage is going to be. And if you've got your deposit, you've got your stamp duty, you've got your rent coming in, you set and forget.

I think as your sphere of influence grows and your network grows, the more opportunities are thrown across your desk. Especially where I'm at in my career right now. It's pretty easy to get excited and want to do everything. I try not to take too many risks, but if a good deal comes in and it's in my wheelhouse, and I know I can do it, I'll do it.

And like most things in life, until you get into something, you actually don't know what it's about. And if you go into something thinking you know everything, and you stuff it up, you lose the time.

“Sometimes it's recognising what you don't know that protects you from risk.”

MITIGATING RISK

I've taken risks that have worked out, and I've taken risks that haven't.

But I've tried to always make sure that when I'm going into something, if it doesn't work out, it's not going to sink me. That’s why I've always been relatively conservative. I've got a corporately aggressive nature in regards to pushing myself and pushing my business and learning more. But in terms of actually taking on risk, I'm relatively conservative, so I haven't ever really faced massive adversity in doing it.

I'm very wary of my obligation to my staff and my family. So I try not to be irresponsible, and when I go into development, I do a risk analysis of each project. Because it is risky.

It’s an ever changing beast. You're up against councils that are forever changing policy, and at particular times it's often political. The bank's change their positions, depending on how the risk profile of the development looks to them. So you've never really got absolute certainty what your outcome is.

With that, at times comes wins. With that at times comes losses.

As a developer, for a long time there property development was my only source of income. And it's super lumpy. So if you're doing one or two projects a year, when those developments settle, that's really the only time that you've got money coming in. And if things go wrong with development, quite often, you're talking large amounts of money.

“With property when it goes wrong, often you're talking millions of dollars. And the risk profile against an investment property, compared to developing a property…being a developer is riskier, because you're exposed to potentially much greater losses if you don't do it properly. But like with every industry, knowledge is key. Knowledge is king.”

WHAT DOES IT TAKE TO BE A DEVELOPER?

I have a passion for it. I love doing it. And it definitely takes quite a strong work ethic as well.

For me personally, it's a fire. It's not an ego thing. And I know for sure it's not a financial thing. I think not doing my best, or not pushing myself as hard as I could possibly push myself, doesn't sit well with me.

Am I a good developer? Maybe, maybe not.

Is the team that I put around me good at doing development? Absolutely.

And by doing that you also mitigate risk.

It takes a team

I get the right consultants on board. I build a team around me of people that can do it. I've got an incredible team. I've got great consulting engineers. I've got great town planners. I've got great surveyors. I've got great accountants. And some of those I use externally, others I bring into my business. But I've certainly got a great team and people around me.

“When I've wanted to deliver, I've put people around me that are able to do that.”

Knowledge is key

It would be remiss of me to say I haven't made a heap of mistakes. Absolutely I have. But I would say that I've done my best and I've had a good career. I've been very fortunate.

I also recognise what I don't know.

“You don't need to know everything, but do as much research as you possibly can. Because knowledge will mitigate risk.”

If you go into something and think you know everything, you're a fool.

Being held to account

There's a gentleman up in Queensland I've had as a mentor for many years. I ring him all the time. I fly up and spend time when I can. He's conservative. When I think that I'm better than I am, or I need pulling back into line, he pretty quickly reminds me. I'll ring him up and pitch a deal to me, and he tells me I'm dreaming. And he does it really quickly!

ONE KEY PIECE OF ADVICE

Unless you're super, super, super passionate about development, make it happen organically.

If you're in a job, and you're making good money; start small, start slow, start organically.

And if you're at school, study hard and get a job that pays well. Because if you've got good income, you can do property. If you don't have income...property development without a job that has decent income these days is very, very, very difficult.

So stick at your job, have good income, because income outside of development is the key to successfully getting into the development space.

“I don't want this to sound really gimmicky…but what I will also say is, The Property Mentors and Luke have been part of my journey for a long, long time now. So if you're looking at getting into investing, reach out to those guys, have a chat with them. They're the ones that are going to help you on how to get into the investing space.”


If you’d like to start your property investment journey, or learn more about what it takes to become a developer, then book in a free one on one strategy call with one of our property mentors and get started today!

If you’d like to learn more about how Andrew Purdie got to where he is today, and where he’s going, read the first half of our interview here.

And if you’d like to hear our podcast interviews with Andrew, head over to Investor Intelligence, where every week we discuss all things investment and put them into bite-size episodes to help investors of all levels along their journey.

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