Here’s a discussion about property development in a simple, easy-to-understand language by Mr. Billion Dollar Property Developer, Bob Andersen.

WHAT IS PROPERTY DEVELOPMENT?

For me, “property development is simply improving the value of land and profiting from it.”

So what do I mean by improving the value of land?

We’re giving it a higher use and thereby increasing its value. Let’s look at a very easy-to-understand example:

Let’s say we have a parcel of land that can be subdivided into two lots. And once it is subdivided into two lots we’re going to build a house on each lot.

3-STAGE PROCESS IN SUB-DIVISION WITH ADDING VALUE TO THE LAND    

This involves a three stage process. Firstly, we need to get a development permit to allow us to subdivide the land. Then we need to actually subdivide the land into two lots with two separate titles. And finally we need to build a house on each lot.

Each time we go through one of the three steps we’re actually adding value to the land. When we get a development permit to subdivide the land we increase the value of that property. When we actually subdivide into two lots each with its own individual title, we increase the value even further. The value of the two lots will be greater than the value of the one lot plus the costs to subdivide.

WHY MULTIPLICATION DIVISION AND BUILDING HOUSES ADD VALUE?

That’s the basis of property development and in fact it is the basis of many other businesses. I call this “multiplication division”. Now I know that sounds crazy but look at it this way. When I go to a coffee shop and am feeling like I want a slice of carrot cake I’ll happily pay $5 or $6 for the slice of carrot cake. But there are probably 20 slices that make up a full cake. So that values the finished product at over $100. But they are probably buying the cake for $20. So they’ve made the profit by subdividing a whole into smaller pieces and then selling each piece at a profit.

Finally, we add further value by building two houses. So in effect we have added value to our single parcel of land each time we went through one of the three processes. But we make most profit by going all the way.

HOLD OR SELL THE NEW PROPERTIES BEING DEVELOPED?

Let’s say we have now completed our two houses. What options are open to us? Although there’s only two houses, we actually have three options. We can sell both, we can keep both as investments, or we could keep one and sell one. That’s another great thing about property development – what I call flexibility. The flexibility to keep or to sell.

The results of keeping or selling are quite different. With the ones we sell, we receive a cash profit. It is this cash that we use for our living and lifestyle. Food, mortgage, schooling, holidays, toys, helping others, to name but a few. The ones we keep as investments are the ones we use to build our long-term wealth. So if we need more cash in our life we simply sell more and if we don’t need more cash we keep our properties for long-term wealth building and retirement.

So as you can see there are many ways to improve the value of land and different ways of profiting from it.

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