Australia’s Billion Dollar Property Developer, Bob Andersen, talks about construction management is it applies to property development.
Hi, Bob Andersen back again. Today, I’d like to take you through a little bit of property development. What we’re talking about here is project management or construction management. It’s while the builder is building the project.
SOMETHING TO BE AWARE OF ABOUT BUILDING CONTRACTS
First, a little bit about building contracts.
There’s all different types of building contracts out there but most builders probably use Master Builders or an HIA contract—pretty standard stuff off the shelf.
In terms of building contracts – if you want to get one, the better; that’s probably not a bad idea before you sign a contract – a good commercial lawyer who’s familiar with building contracts or a quantity surveyor.
Quantity surveyors work with building contracts as well. So there’s a couple of experts just to get a good opinion on your contract before you sign it—always a good way to go.
HOW MUCH TIME SHOULD YOU SPEND DURING THE CONSTRUCTION PHASE AS A PROPERTY DEVELOPER?
The construction phase is the time during construction where actually as a developer, you don’t have to do much at all. In fact, you’re probably working about maybe 1 to 1.5 hours a week on average during that construction phase.
Mind you, the builders are working a lot and all the subcontractors are working a lot. So there’s lots of activity, lots of man hours happening, but they’re not yours. There’s the builder and all the subcontractors, they’re the people doing the work, they’re putting in the hours.
It’s a little bit of coordination, a few meetings organizing the finance once a month as it turns out. Typically during that construction management phase, we would meet with the builder on site maybe once a week. Certainly not more than once a week, sometimes every once a fortnight, depending on how fast the project’s going and how well it’s going.
WHEN CAN YOU MEET WITH THE BUILDER?
The meeting probably goes for about half an hour. If you got a day job – which a lot of my students do; they often have a day job when they’re starting to do a project or two, that’s fine – go before work. Builders start early, have a meeting between 6:30 AM and 7:00 AM, plenty of time to go on and then go to work, builders like to meet early.
DISCUSS THE TIMING WITH BUILDERS
What sort of things might you cover? Well, you can look at things like timing. How’s the timing going? Are we ahead of time? Or are we a little bit behind time? If we’re a bit behind time, what are you going to do to catch up? If there’s any wet weather happening? Because contracts might get extended a little bit if there’s rain, it’s not the fault of the builder. It might have been a couple of days under the building contract—that’s fine. Any wet weather needs to be discussed.
DISCUSS PARTICULAR SELECTIONS WITH BUILDERS
Things like particular selections, what the builder might say is, “Look, we need to finalize the tiles. I need to order the tiles in the next 2 weeks. Can you finalize what tiles you want?” or whatever. Various things like that. When it comes to selecting all those things incidentally, things like colours, bricks, and carpet, and tiles.
I don’t get involved in that at all. I actually pay an interior designer to do all that stuff for me. A lot of my lady developers of course do, but men generally don’t. I simply pay somebody to do that for me and choose all those selections.
With that said, timing is important as well. Often a builder has what we call RFIs: Requests for Further Information. The builder might contact you during the week. He might not be able to wait ‘til the weekly meeting, and he might want to know certain things from you, it won’t be technical. If he wants to know something about the design, he’d go to the architect. It’s more something like, “Have you chosen which tiles you want? Last time you were talking about this one, or that one. I need to know pretty soon so I can order.” That sort of thing.
A PROJECT MANAGEMENT CASE STUDY FROM BOB ANDERSEN
In a particular project we were talking about—the case study, the 4-townhouse project—we do it once a fortnight. It’s going so smoothly, it’s going well, the builder’s so much in control of the site. We don’t need to go there once a week, we just go there once a fortnight. What actually happens is—it’s the age of technology—a lot of builders now have software programs where every day they can update. In fact, that’s what happens. The reason we only have to go to the builder once a fortnight—in fact I could probably not go there at all, not necessarily—every day they do an update.
It didn’t take them so long to upload the photos for the day, and they’ll say we are there today, and each week we’ll get a report. “So this is what happened this week, this is what happened. This is what going to happen next week.” So we can see that. There’s a lot of software programs now out there, our builders have some of those for reporting, it’s very easy for them.
What I do is I go straight into the builder’s website, put my log in, and I can see exactly what’s happening. What’s happened today, what’s due to happen tomorrow, and that’s great. That takes back the necessity to even have meetings necessarily, but we like to go.
In this particular project, the 4-townhouse project, we go in there at the moment when it’s being built, we go in there let’s say in any construction in fact. We go there and we have been going there about once a fortnight, that’s really all we need to do.
WHY AND HOW TO PAY YOUR BUILDERS ON TIME
The other thing you need to do while things are being built is get the builder paid. I can tell you, there’s no happier person than a builder that’s getting paid on time. Happy builder, happy life, I tell you. Once a month, the builder gets paid.
If you’re doing a little project, maybe a duplex, maybe even a 3-pack, you might pay the builder at different stages like you would with the house: slab down, frame up, roof on, lock-up, final. But once to start getting sort of 3 or more townhouses, they tend to get paid monthly. Each month, the builder would put in an invoice that needs to be checked, and the banker pay the builder. If we’re using commercial financing, you actually have a quantity surveyor that will check that. Once a month, the builder puts in an invoice, give a copy to you, a copy to the quantity surveyor. The quantity surveyor makes an appointment with the builder, goes out there, have a look.
Make sure that the builder’s done what he said he’s done, so that he can get paid. Then the quantity surveyor would do a report, you get a copy, the bank gets a copy, the bank pays the builder. That’s it, you just need to be a little bit of a mild coordinator in the middle just to make sure that happens—make sure the builder gets paid on time. We normally get the builder to put his invoices in on the middle of the month, and on average he’d have his money by the 23rd of the month. We allow a little bit of a time lag, but we always want the builder to get their money by the end of the month so they can pay their accounts, and that’s good.
WHAT SHOULD YOU DO AT THE END OF CONSTRUCTION?
At the end of construction, when the builder’s finished, we normally get a final inspection, we need to check the builder’s work. Once again, I don’t want to do that, I get an expert in. These experts can go and look at new projects, new townhouses, they’ll go right through it and pick any faults—runs in the paint, all these sorts of things. I just get the experts in, it’s easy. I’ll go through shortly, in a coming video, of that last process, that time at the end of construction onto “banking the money.” During construction, it’s not a big thing, it doesn’t consume much of your time. You could be out there looking for your next deal. Put your time to good use. Looking forward to seeing you again shortly.
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