The most common first time property developer mistakes: Team selection
Carrying on from our last column, this week we'll look at what can be an area of contention for a property developer - team Selection.
Each week I receive phone calls from people who have started a property development and then fallen into trouble. I can't help taking these SOS calls from fellow developers but I've noticed a pattern... there seems to be three different areas in which the issues fall:
- Site selection
- Team selection
- Not understanding the development process
Not selecting the right development team is the next most common cause of grief to developers.
Who do I need on my Development Team?
- Property specialist accountant and solicitor - don't scrimp on important advice.
- Finance broker or personal banker - to get the best finance deal possible.
- Surveyor - for your identification and contour surveys and to manage subdivisions.
- Architect/draftsperson - look for a cost effective construction design.
- Builder and other tradesmen; plumber, electrician, carpenter.
- Consultants such as an engineer and private certifier.
- Quantity surveyor for your depreciation schedules and cost reports.
- Development project manager – to guide you through the process, share their experience and bring savings to the project.
A lovely lady called Lily phoned me recently to tell me all about her incredibly bad experience with a builder she'd used on a large renovation project.
I was absolutely astounded by some of the things she told me. She'd reached the stage where the renovation was finished but there were so many ongoing issues that she decide to take the builder to court which was an expensive process. All the points she raised were very valid, however she did not win the case as she had 'insufficient evidence' to support her case.
It is hard to know what builder to choose, and I have used a number of different builders over the years Property Bloom has been managing developments. Funnily enough, the very first builder I selected and used on our very first development project is still my builder of choice.
But over the years, I have tried a number of different builders and had numerous builders tender on our projects. The worst experience we've had was when one of the builders we used, on their fourth construction project with us, went into receivership without any warning. That was not a great situation to have to manage. In hindsight, there were warnings; slowing down on progress, disgruntled tradies and lots of vague responses to our investigative enquiries. We would turn up on site for our weekly site inspection only to find the site manger 'off sick'. When this happened twice in a row, we really started to hound the builder's head office, with most calls going to voice message.
I tracked down a carpenter I knew worked for the builder and asked if he'd seen the site manger lately or knew what was going on? He very quickly let out a stream of obscenities and I soon gathered he had not been paid for the past four weeks!
Now alarm bells were ringing in my head.
Sure enough the next week we were informed building company had collapsed. I could not get hold of the managing director who only a month before met me for coffee to see when the next project may be coming on.
It's hard to know what's going on inside a business but keep a look out for any small signals. Before you engage a builder, interview them not just about their track record in completing projects but ask about their financial position. Ask what kind of 'float' they have in the bank and would they mind passing on their bank manager's phone number for you to make enquiries. These are very direct questions and not many builder's will like it but the ones that have no issue with you making these enquiries in general should be OK to work with. Check they are an active member of the Housing Industry of Australia and check in with the Department of Fair Trading to ensure there has been no complaints lodged against them.
Also, ask the builder for a list of the current contractors or tradies and contact them to ask what the builder is like to work for? Does he pay promptly? And are they planning to continue working for this builder? If a tradie has been crossed, he will tell you all about it!
After my bad experience with the liquidated builder many years ago, I rang my 'old tried and trusted' builder and said that I needed to know if they were OK financially. The next thing I know, there's an email in my inbox from the local Commonwealth Bank Manger just letting me know that this builder is in a good financial position.
Our builder is like a business partner in a way. They offer our clients a good deal based on the volume of business we bring them and we know by working closely with them that their systems and processes are efficient. Our long standing relationship means we have open access to their entire team and we can always find an answer to a question or solution to a problem within a short time.
As project managers, our job is to manage our clients projects to bring in the best results. I know that nurturing relationships is important. By letting our team know how much we value working with them and continuing to nurture our ongoing relationship we get the best results for everyone.
