6 steps to become a micro developer
By Darren Francis
South Africa is experiencing a housing crisis and experts are predicting that the population will grow by 75 000 people a year over the next 20 years.
Which leads to the question: where will all the people live?
Unfortunately, it is unlikely that the national government and the private sector will be able to meet the demand, based on future projections.
But in Cape Town, things are a bit different and as a property investor/micro-developer, things are geared to making it better and mechanisms are being put in place by the City of Cape Town to deal with the growth.
As a micro-developer, I believe the aim should be to ensure we contribute meaningfully to ease the housing crisis.
One could argue that it is more expensive to develop land in Cape Town than elsewhere in the country. This might be true to a certain extent, but authorities have been putting measures in place to assist micro-developers like myself.
Recently, I completed a three-house development in Mitchells Plain and, if you use current building rates, such a development would cost in the region of R3 million. The costs are often a stumbling block but there are subsidies to assist micro-developers, especially in highly dense areas.
Here are a few useful tips to consider if you are considering becoming a micro-developer:
Step 1: Education
This is the most critical step. Mistakes could be extremely costly and lead to catastrophic consequences. You have to conduct thorough research into the area, land acquisition and investment strategies. Books on property and the development process, such as my book, Failing to my Success, where authors detail their journey and experiences, can be a great source.
Step 2: Developing/creating a business plan or investment proposal
This is essential for any property development venture. It is critical that you outline why, what, where, when and, most importantly, how.
Give detailed information on what motivates you and provide potential investors with your goals, target market, budget and timeline. Include detailed financial projections, such as potential costs and expected returns. Your business plan should also cover risk-associated factors and what is needed to obtain the necessary permits and approvals.
Step 3: Securing finance
In the South African context, financing vacant land is often difficult and, more often than not, banks approve loans of up to 60% of the deal. And given the cost of building and so on, this is often a big stumbling block for many wishing to venture into the sector. Ensure you explore various funding options, such as personal savings, bank loans and private investors. Present your business plan to potential lenders or investors to demonstrate the viability of your project.
Step 4: Finding the right property
By now you have heard the saying: location, location, location. This might be true but there are many factors that determine the behaviour of the consumer and finances often play a large role in the behaviour. Make sure you identify a suitable property, as this could be a key factor in the success of the micro property development. Consider factors such as location, market demand and zoning regulations. Use online real estate platforms, real estate agents and networking events to find opportunities.
Step 5: Assembling the team
As an award-winning property investor, I have made this mistake, especially when starting out. You will have to face a lot of challenges and interview a lot of people to find the right team to suit your goals, budget and vision. Your project requires a team of skilled professionals. These will include, but are not limited to, an architect, contractor, real estate agent, lawyer and accountant. Each member plays a crucial role in the project, from design and construction to legal compliance and financial management. Collaborating with experienced professionals can help you avoid common pitfalls and ensure the project runs smoothly.
Step 6: Pulling the trigger (execute and let the games begin)
Now that you have gone through months, if not years, of preparation and you have found the team, approvals and finances, it’s time to execute your plan of action. Hold fast because the
road ahead is filled with challenges, potholes and unforeseen challenges.
Oversee the construction or renovation process or employ a foreman or project manager. This will help you stay on schedule and within budget. Regularly communicate with your team to address any issues promptly. Communication is vital to the success of your project.
If you are reaching all your milestones and nearing practical completion, make sure you know what you are going to do with your development – selling or renting. You need to know what you are working towards to ensure you maximise your returns.
* Darren Francis is an award-winning micro developer and author of “Failing to my Success”.