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What are the basics involved with developing commercial property?

Where to start with the development of commercial property.

Entrepreneur

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How to develop vacant land

Brokers have the experienced and skills to help you achieve your goal. Before you consult with a broker or a developer there a few issues you need to check before you go ahead.

Zoning

Make sure that the property is zoned for the type of project you’re considering. Zoning is the grading of properties in terms of what it can be used for and what can be built on that property. Zoning schemes are imposed by Provincial Legislation and administered by Municipalities.

South Africa’s laws require that the property must be zoned correctly (the property may only be zoned to develop a hotel. If the property is zoned incorrectly, you have to apply for rezoning. Each local authority has different parameters in order to rezone property.

Title Deeds

In addition to the zoning regulations, development is also controlled by conditions of title. These conditions are set out in the Title Deed of each property, and can restrict the way in which a property may be developed. Any development of land that ignores this legislation and its regulations can result in prosecution in terms of the applicable legislation.

The zoning regulations as well as the property description, and details of the size, orientation and other details can be obtained from the local municipally office and Building Control can provide information regarding the National Building Regulations. If a proposed development needs to be rezoned the application is a formal procedure.

As it can be a complex procedure. It is best to consult a professional town planning consultant or other professional such as a land surveyor or a lawyer.

Costs

There are costs to worry about as well. These include preparing the application, i.e. professional fees, the application fee charged by the council and the cost of drawing up plans. Depending on the type of application, obtaining a decision may take as long as 12 months. After the application is submitted, it is circulated to relevant Council departments and agencies for comment.

Get professional help

“If you are not experienced in property development, get a professional to help you. For example, when building, it is likely that you may need consulting engineers on site, and an expert is required to make this kind of decision. I would recommend that you employ a professional team to run the project.

“This way all you are left to worry about is the finance,” says Edward van der Linde, chief consultant, Linprop Property Consultants in Johannesburg

Looking at a Shopping Mall?

Demographics, including the area’s income level, are crucial in developing commercial centre. Foot-traffic is the key to the success of any shopping centre or business centre. So, as a developer, before you do anything, you have to complete thorough research.

Find out more about what people (your future tenants and shoppers) want in the centre, i.e. do they need a supermarket, laundry or pharmacy? Go to any centres nearby and talk to shop owners and find out what they think, how much rent they pay and what they feel is missing from the centre their business is located in. Once you have completed this research and feel that the project is worthwhile, it’s time to take the next step.

Entrepreneur Magazine is South Africa's top read business publication with the highest readership per month according to AMPS. The title has won seven major publishing excellence awards since it's launch in 2006. Entrepreneur Magazine is the "how-to" handbook for growing companies. Find us on Google+ here.

Start-up Industry Specific

Want To Start A Property Business That Buys Property And Rents It Out?

Information on starting a property renting business.

Shawn Theunissen

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Start your property rental business using this guide

I would like to start a property business where I purchase the properties and I rent it out, I already have a paid up property that I am renting out but my taxes are too high on the rental income so I am considering starting up a business. Could you advise me on where I can get more information on the requirements to start this and provide some guidance on whether it would be wise to pursue this business?

Before starting any business, it’s important that you’re absolutely clear about why you’re doing it – and that it’s going to be something that excites you, drives you and challenges you in the long-term.

If you’re only considering starting a property investment and management company to try and reduce your taxable income, then I don’t believe this is an appropriate – or a sustainable – solution.

Related: How The Property Brothers Built Up A Real-Estate And Entertainment Empire One Brick At A Time

You should rather consult a reputable financial adviser about other investment options that would better suit your personal needs.

If owning and managing properties is, however, an opportunity you would like to pursue, I would then recommend that you start off by equipping yourself with a proper understanding of what it actually means to be a landlord.

This will help you to make an informed decision about whether or not you want to start this (ad)venture as an entrepreneur. At a very basic level, here are some of the things you might want to consider to determine if this is the right business for you:

Initial cost

initial-cost-and-property

This is what you need to consider, cost wise, when you start up your business

You need to consider the initial cost that you will be incurring when setting up the business, especially since you have a property in your personal capacity.

You will need to transfer the property from your personal capacity into your business and pay transfer fees and transfer costs.

These costs will be calculated based on the current value of the property.

The work and planning

No matter whether you’re a residential or commercial landlord, property management requires a great deal of work and planning. Remember you will be responsible for all aspects of the property: From purchasing it to maintaining it on a day-to-day basis.

Related: Real Estate Business Plan Sample

This involves everything from transfer to managing the monthly utility bills, all the way through to replacing the geyser when it bursts and ensuring your tenants behave appropriately in the building. You would also need to source your tenants and ensure that they pay you on time.

All by yourself

business-owner-development

Starting your business alone? You need to know this

From a start-up perspective, you would probably need to do all of this yourself in the beginning. As such, you would need to work to build up your own database of reputable suppliers: Plumbers, electricians and handymen.

It’s important that you find experienced, qualified suppliers that you can trust, and who will be able to deliver on time and cost-effectively.

Related: Handyman Joshua Cox Of Trade-Mark On Thinking Like A Tech Start-Up

This can be a very time consuming process. Also consider that you would need to be on hand to facilitate all of this work: Arranging the call-out with the supplier and the tenant; overseeing the work delivered; paying the supplier etc.

Business owner development

Above and beyond that, you’re then going to need to develop yourself as a business owner. You will need to equip yourself with the skills and knowledge required to lead and manage this business in order to make it both sustainable and profitable.

This will require a significant investment from you: Time, effort and money. The more you commit to this journey of personal and professional development, the better your chances of success.

If you can picture yourself doing – and enjoying – all of the above, it’s then equally important to consider if this is a viable opportunity.

The greatest barrier to entry in this sector for you as an entrepreneur is probably going to be finance.

You need to be conscious of this from the outset.

  • Do you already have access to the funds you need to purchase the properties you are going to rent out?
  • If not, what are your plans to secure this funding? And what are the returns you are expecting?
  • Also consider the funding of the business itself. How will you finance this, especially during the first year?

My recommendation here is to take the time to do your homework – and the maths. While this could be a business opportunity, it might not be something that will be possible for you to do on your own.

Related: What You Need To Know To Become the Next Property Entrepreneur

If you have a feasible plan regarding the above, you then need to start working on developing a model for this business – as well as a strategy and plan. All of these will require research on your behalf: From reading Entrepreneur to accessing websites, possibly visiting walk-in centres etc.

This will include unpacking the actual opportunity itself – and determining if there really is a demand for your service offering.

Please note that the above are thinking or “trigger-points” – listed simply to give you an idea of some of the things you need to consider, as well as the mindset you will potentially need to adopt as an entrepreneur. Your response to them should give you a good sense of if this is the path you wish to walk.

Related: 9 Quotes Every Entrepreneur Should Live By

Remember that entrepreneurship is a journey – and every day on this road is a learning opportunity. If it is for you, embrace it whole-heartedly, don’t be afraid of failure and be sure to seek out the assistance available to you.

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Start-up Industry Specific

How To Start A Farming Business

Keep these nine points in mind when launching your new farming business.

Entrepreneur

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Contents in this guide

  1. Business Planning
  2. Location
  3. Equipment and livestock
  4. Training
  5. Market Positioning
  6. Funding
  7. Types of Farming
  8. Planning Stages
  9. Organisations

1. Business Planning

It would be wise to create a business plan for any new venture. There are a few points to keep in mind when planning the business.

Resource: Free Business Plan Template Download

2. Location

farming-location

Choose the right location to farm in business

The location of your farm will have to suit the type of product you wish to produce. The choice is usually determined by space limitations, and the type of farming you wish to undertake.

Related: How do I choose a location for my business?

For example, if you are going to sell Free Range poultry you would have to have enough space for the chickens to roam freely.

On the other hand chickens that are kept indoors are typically housed in rows of cages, called batteries, and this system requires a great deal of equipment and capital outlay.

If you are planning to produce maize you will have to consider the requirements for that product such as location and climate.

3. Equipment and live stock

tractor-equipment

How to pick your farming Equipment and livestock

Capital is required to buy livestock, equipment and land. Funds have to be budgeted for to cover buying or leasing of land on which to house the farm in a suitable area. The Department of Agriculture’s Mafisa scheme has been launched to fund smaller emerging farmers.

4. Training

farm-training

Look at doing some courses before you start

Sustainable Rural Livelihoods (Livestock) Programme is a research, training and small business programme that addresses the basic issues underlying emerging farming systems and SMME Development in product processing and marketing.


This 13 Year Old Chicken Farmer Is Getting Right What Most Adult Entrepreneurs Aren’t

Jarrod’s forever hustling. He made his first sale when he was six years old. He sold his skateboard for more than we had bought it for. But, he’s a wise spender, even from a young age. He turns over his coins several times before buying anything.


They provide guidance in areas such as milk products for small-scale farmers, fruit and vegetable industry by-products as feed; goat leather production; feasibility studies and business plans for rural entrepreneurs.

5. Market Positioning

Market Positioning

Have you thought about your target market

Market positioning is very important and you must consider carefully if:

  • The idea practical, and will it fill a need?
  • What is the competition?
  • What is your business’s advantage over existing poultry farmers?
  • Will you deliver a better quality service?
  • Can you create a demand for your product?

6. Funding

crop-funding

Farm funding options

Getting Finance

You need to have financial strength to support your routine production cycle. There are different ways to go about it. The Land Bank supports resource-poor farmers to become active participants in mainstream commercial agriculture through Agricultural entrepreneurship.

The Bank offers unsecured loans of up to R25 000. These are usually offered to small-scale farmers.

However, it is imperative for the loans must be used for agricultural purposes only.

Related: How to Write a Funding Proposal

The Land Bank offers short, medium and long term loans as well as Instalment Sale Finance which is a type of medium-term loan where the goods that you buy act as the main security for the loan: the goods belong to the Bank until the loan is paid in full. It enables all farmers, especially those with limited assets to grow their businesses.

Typical uses:

  • Farming equipment
  • Implements
  • Vehicles
  • Livestock

This finance package is available for periods between 3 and 10 years, depending on the expected length of life of the asset. Payments can be made on a monthly, quarterly, six-monthly or annual basis. An individual farmer or a group or any legal entity may access this type of loan.

Funding for farms outside South Africa’s borders

Approach Alliance for a Green Revolution for Africa (AGRA). If they cannot help, they may well be able to guide you to an organisation that can.

AGRA’s programmes and partnerships work to make changes across various agricultural systems. Integrated programs in seeds, soils, market access, policy and partnerships, and innovative finance help to transform various subsistence agri-businesses into sustainable, viable commercial activities.

One example is found in the Southern Highlands of Tanzania, where 700 000 smallholder farmers produced a record maize harvest in 2009, helping to feed drought-stricken regions of the country.

7. Types of Farms

Types of Farms

Which farming style would you choose

Small Scale Farming

What kinds of farming are suitable for a 21-hectare plot? Should I farm with cows or grow crops? Small-scale farming can provide a good living

Related: The 8 Lessons Entrepreneurs Could Learn From Farmers

Smaller farms are easier to manage. You need a genuine interest in farming if you want to be successful. A farmer is a businessman first and a farmer second. You should have an entrepreneurial flair, be quality-conscious and self-motivated.

A. Dairy farming

To be a successful dairy farmer one has to have a love of cattle and experience in this field.

A person who wants to become a dairy farmer should spend time working on a dairy farm before striking out on their own. It is important to have an understanding of animal anatomy, cattle health, and milk production.

If you have no experience, take classes in livestock production and business management to help develop the skills needed to run a successful dairy farm. These include:

  • Animal handling
  • Practical skills such as the ability to do fencing and use mechanical tools
  • Mathematical and business skills
  • Communication and organisational skills

Dairy farming is a lifestyle

You have to work long hours every day of the year, and rise early to milk and feed the cows. You have to be detail orientated. Farmers must keep careful records on each cow so they can measure the cost of keeping it against the income produced.

To run a small community farm with 10 head of dairy cows where crops are also grown and sold, you need skills in both disciplines. These include being able to work independently, understand soils, crops and dairy production as well as the ability to observe herd health and behaviour

These are a few of the responsibilities you have to think about:

  • Manage pasture, stock and stock breeding programmes
  • Hire, organise and supervise farm staff
  • Buy feed, machinery and other farm materials
  • Attend stock sales to buy and sell stock
  • Dip cattle to ensure good health and remove parasites
  • Wean calves
  • Manage and prepare stock for slaughter
  • Control pests and weeds
  • Maintain farm buildings, yards and fences

You can make money by selling products produced at the farm to big dairy companies, or sell your own products if you can afford the processing equipment.

B. Crops

In South Africa, only about 12% of the country can be used for crop production. High-potential arable land comprises only 22% of total arable land.

Related: Liz Hurley: From Fembot to Organic Farmer

Therefore you need to find out what crops would be suitable for the farm you have. This depends on soil type, water supply and a host of other considerations. Contact the Department of Agriculture, Forestry and Fisheries for more information.

Legislation

Before you go ahead and start farming check details of any legislation and regulations governing the industry, product and production processes.

Consult with the local municipal authorities to ensure that the land is zoned for farming and that there are no by laws that could affect the farm negatively.

Register the business with SARS so that you are compliant with tax and labour legislation.

8. Planning Stages

farm-irrigation

Farm planning

Business plan

To start any business, whether it is a farm or a factory, you must prepare a business plan. Information in each section of the business plan should be concise and include an evaluation of the strengths, weaknesses, opportunities and threats that may apply.


Agriculture Business Plan Sample

Use this Agriculture Business Plan Sample to start your farming business off on the right footing. The right information and formatting in a business plan can also help with funding, use this sample business plan and get it right.


Production plan

Every farm is unique, in terms of location, soil quality, labour requirements and so on. The business plan must therefore include a “production plan”. This encompasses all the details explaining how your farm operates and what products it will produce for market.

The production plan includes such things as land, buildings, equipment, supplies and processes, as well as laws and regulations that influence the business. Production is the core income-producer for a farm, so this section must be very detailed.

You will need to do extensive research into the capabilities of your land, the type of farming you choose, market requirements and the buyers in your area.

Equipment

Within the business plan, you must include the cost of equipment and storage facilities. These are needed for storing feed and the plants that are produced. For example, cow manure is a good fertiliser for crops but needs to be stored.

Related: How To Finance The Equipment That Will Build Your Business

If you run a dairy farm, you can milk the cows by hand. However, having automated milking equipment can cut the time required to produce milk.

Finance

Commercial banks offer a wide range of finance, investment and risk management solutions across a diverse range of agribusiness products and services for the agricultural value chain.

The Land Bank of South Africa is an agricultural development finance institution that supports economic growth through the provision of retail, wholesale, project and micro-financial services to agriculture and related rural services.

It offers long, medium and short-term loans. Alternatively, click here to find out more about the various financing options available to you.

Training

For training in agriculture ARC (Agricultural Research Council) offers a number of courses which include: Pig production, beef cattle management, small stock management, poultry production and meat processing.

Other courses offered by other institutions of ARC are:

  • Grain Crops Institute – Maize and dry beans
  • Plant Protection Institute – Bee keeping.
  • Vegetable and Ornamental Plants -Vegetable hydroponics.
  • Fruit, Vine and Wine Institute – Preserving of fruit

Other sources to contact:

9. Organisations

Department of Agriculture, Forestry and Fisheries

  • Postal: Private Bag x250, Pretoria, 0001
  • Tel: +27 12 319 6000

SA Poultry Association

Poultry Reference Laboratory

  • University of Pretoria, Private Bag X04, Onderstepoort 0110
  • Tel: +27 12 529 8224
  • E-mail: ademeil@op.upp.ac.za

KwaZulu-Natal Poultry Institute

Irene Animal Improvement Institute, Advisory Services

Agricultural sites

These websites can help regarding agriculture:

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Start-up Industry Specific

How To Start A Property Development Business

The first thing you must have is a good business plan.

Entrepreneur

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Content in this guide

  1. Business plan
  2. Zoning
  3. Title Deeds
  4. Find out who owns the land
  5. Financial support
  6. Building regulations
  7. Join the NHBRC
  8. Grading levels

1. Business plan

Business plan

Business plan advice

In the business plan you also have to discuss how you intend to cope with the proposed electricity tariff increases and allow for possible interest rates hikes which would affect the profitability of the project.

Another important issue which must feature in your business plan is the cost of managing, maintaining and securing the residence.

Any organisation that is providing millions of Rand to develop such a project will need to be sure that the residence will at all times be properly maintained and is secure.

Without a sound business plan, you’ll be unable to find funding. It’s important to remember that a business plan is more than a means to money; it’s also the blueprint of the business and the best way to test whether or not the business is feasible.

You must show clearly in the business plan that you have researched the market thoroughly and are able to show that the students (who are always short of money) will and can afford to rent the accommodation as they are the key to the success of the project.

2. Zoning

property-zoning

Zone your business using these tips

Make sure that the property is zoned for this type of accommodation. Zoning is the grading of properties in terms of what it can be used for and what can be built on that property. Zoning schemes are imposed by Provincial Legislation and administered by Municipalities.

Zoning is the grading of properties in terms of what it can be used for and what can be built on that property. Zoning schemes are imposed by Provincial Legislation and administered by Municipalities.

South Africa’s laws require that in order to develop townhouses in a residential area the property must be zoned correctly (the property may only be zoned to develop one dwelling and not a number of different units).

Related: Zoning and permits

If the property is zoned incorrectly, you have to apply for rezoning. Each local authority has different parameters in order to rezone property.

3. Title Deeds

Title Deeds

You will need the Title Deeds

In addition to the zoning regulations, development is also controlled by conditions of title. These conditions are set out in the Title Deed of each property, and can restrict the way in which a property may be developed.

Related: How do I re-zone a property for commercial use?

Any development of land that ignores this legislation and its regulations can result in prosecution in terms of the applicable legislation.

The zoning regulations as well as the property description, and the size, orientation and other details can be obtained from the local municipally office and this department can also provide information regarding the National Building Regulations.

If a proposed townhouse development needs to re rezoned the application is a formal procedure. As it is a very complex procedure, it is best to consult a professional town planning consultant or other professional such as a land surveyor or a lawyer.

There are other costs to worry about as well. These include preparing the application, i.e. professional fees, the application fee charged by the council and the cost of drawing up plans.

Depending on the type of application, obtaining a decision may take as long as 12 months.

After the application is submitted it is circulated to relevant Council departments and agencies for comment.

Find out who owns the land

You will also have to find out who owns the land. Every property in South Africa has to be registered with the Deeds Registries Office in South Africa.

Related: How to query details of ownership of commercial property?

The deed constitutes proof of who owns the property. The deeds office keeps a record of all property transactions. If a title deed is destroyed or lost, application can be made to the deeds office for a duplicate original of the deed.

4. Financial support

business-funding

Do you need to fund this business?

As this is an education project, contact the Small Enterprise Development Agency, who provide free mentorship and guidance that will help will all the important steps in starting a successful business.

They will point you in the right direction in order to find funding and may also be able to help you get funding through the Department of Education.

However, although they do not fund projects, they will certainly be able to refer you to the right institutions. Other funders include:

NEF Imbewu Entrepreneurship Finance

They provide risk capital to new businesses in the property development arena. Visit their website for more information.

IDC – Healthcare and Education Fund

This fund supports education. Applications for financial assistance are evaluated primarily for economic merit (viability), while collateral is a secondary issue.  The policy is to have interest rates between 2 below- and 5% above prime overdraft rate. Download the pdf here.

Umsobomvu Youth Fund

Enterprise Finance aims to promote entrepreneurship among young people, so it provides funding to the youth (18-35 years old) to help them start a new business or grow an existing one. However you will have to demonstrate commitment to the venture and that it will be economically viable. Visit the website .

5. Building regulations

building-regulations

Do you know about South Africa’s building regulations

It is widely known that the regulations for the building industry in this country are far less stringent than those of other countries.

A good reputation is so important

A reputable developer will never cut corners when building. By law certain standards have to be met throughout the building process. Architectural plans must adhere to council regulations and be passed by the local municipality.

Approval

Foundations must be approved by a building inspector before concrete is cast; the structure undergoes a damp proof test, the roof structure has to be passed and when the building is complete it must pass a final inspection.

Building inspectors can make or break a development

No loan for the construction of townhouses will be authorised by a bank without a building inspector approved by the National Home Builders Registration Council (NHBRC) passing the structure. If you plan to sell townhouses and have cut corners, buyers will be unable to obtain funding to buy a town house.

The Builders Manual

Before you start building contact the NHBRC and arrange to get a copy of their guide, “The Builders Manual”. It is a complete guide to building and explains costing of materials, planning and just about everything you need to know.

Download ‘A Guide to the Home Building’ manual here.

There is no such thing as a free ride

There is software on the market which is designed to assist owner builders to effectively cost all aspects of construction including labour, materials and equipment. However, it’s unlikely that you will find free software that you can use effectively. Contact the NHBRC for advice.

6. Join the NHBRC

NHBRC-logo

NHBRC

“Avoiding the professional services of a Quality Surveyor could be a foolish decision”, says Zweli Mtetwa, Public Relations Manager for the NHBRC.

“We can help. We look at plans and can advise the best route to take, discuss the right materials and check quotes to ensure that castings’ are correct and that the owner-builder is not being over charged. The only requirement is that the builder has to join the NHBRC. Registration with the NHBRC will also give builders credibility” advises Mtetwa.

Any enterprise that wants to tender work from the public sector in the construction industry, must register with the CIDB.

Before you can register with the Construction Industry Development Board (CIDB) you must have established your business and have a history of various construction projects under your belt.

For registration and membership fees – download the NHBRC registration form here.

The CIDB registration qualifies you for projects in the Public Sector

Any enterprise that wants to tender work from the public sector in the construction industry, must register with the CIDB. To register with CIDB your enterprise must be a registered business entity with the Companies and Intellectual Property Commission (CIPC).

Register the work you have completed

You must register any construction work you have done. These include contracts for the combination of goods and services, extension construction, installations, repairs, maintenance, renewals, renovations, alterations, dismantling or demolition of buildings and engineering infrastructure.

These projects must be above R200 000 for public sector and R300 000 for private sector. This creates a track record for your business which you require to register with CIDB.

Finance is not the only criteria

Your company’s ability to finance a particular construction project does not automatically mean you will qualify for a project; you need to have solid experience behind you. Nor does a grading designation actually determine which project you will be able to do.

7. Grading levels

Grading levels

Nine Grading levels in South Africa

There are nine grading levels

The different grades show the size of contracts a contractor is capable of doing. This is based on financial and works criteria. The financial criterion comprises best annual turnover, track record, and available capital.

Works capability assesses a contractor’s track record and the number of qualified professionals in certain specialist categories (e.g. electrical).

Financial capability

This is evaluated in terms of the contractor’s best annual turnover during the past two years, the largest contract the contractor has performed in the past five years, and the value of the available capital that a contractor is able to secure in order to perform a construction contract.

Works capability

This area is evaluated in terms of the largest contract the contractor has performed in the class of works applied for, as well as compliance with statutory requirements (e.g. registration with the Electrical Contractors’ Board of SA).

The contractor must also have the required number of qualified professionals in their employ for the grade applied for. These can be either full-time employees or full-time equivalent.

There are various levels of CIDB Grading. Always apply for the level you are capable of:

CIDB Grading Level

When the contractor grading is granted it will consists of a combination of alphanumeric characters that represents the capability of the contractor in a particular class of works. E.g., 5GB represents a contractor that is capable of performing a contract to the value of R6.5m in a General Building class of work.

A contractor can also apply for recognition as a “potentially emerging contractor”. Potentially Emerging status indicates that the contractor has significant development potential, but has impediments that must be overcome.

Related: I would like to get started in the property sector. What should I know before starting a real estate or property related business?

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