Developing a property brings with it a certain satisfaction, as you revive a neglected building back to life. Done right, it can also bring financial rewards in both the short or long term...
Choose your route
First things first. You need to decide on the sort of property developer you want to be. You don’t have to stick with your decision forever, but it’s useful to know what you want to get out of your first project.
- Will the final property be sold for a profit or rented out?
- Do you plan on renovating a run-down property, totally transforming an empty building or starting afresh and building from scratch?
Create a business plan
Once you’re on the right path, it’s time to think about your business plan. Even if you’re developing a property on the side of your regular job, you still need to look at this as any other new business.
Your plan should include your basic aims and goals, specific breakdowns of finances, costs and potential income. It should reflect your knowledge of the industry and your research into the sector.
You can download a number of free business plan templates.
There are a number of funding options open to property developers, from mortgages to bridging loans. Which one you choose will depend on your circumstances and the type of property you buy. Often if a property is run down and has little value, you might find it harder to get a mortgage that would cover the renovation costs. A bridging loan could help you in this situation.
Other options include angel investors, family and friends, or re-mortgaging your current home. Most of these funding options do come with risks and if payments are not kept up properties could be seized.
Know your market
Some areas are prime for property developers. For example, some places benefit from cheap homes and land, but actually enjoy a thriving rental market thanks to the locality of a nearby institution like a hospital or university.
When on the hunt, it’s also worth brushing up on local planning rules. One of the big costs often forgotten about when redeveloping a property is a project being shut down when an application is rejected. Find out what the local rules are, if there are any Conservation Zones or if the building is listed.
Buy at the right price
Once you know the market, you should be able to estimate what most properties in the area are worth, what the rent would be on them, and whether you can add value. A good tip is to never buy the most expensive house on the street as you’ll struggle to add value.
For good deals, try property auctions. Bridging loans can help you in these situations. Or, approach property owners directly. This works well if someone has a large estate with disused buildings that could be transformed. They might not have the money to do the work, so you could get the buildings at a cut price.
Knowing when the right time is to buy and sell can also add thousands to your bottom line. And there’s no need to rush into it. It might be that you’ve found the right property but don’t have the finance in place, or you were ready to sell and buy the next one but the chain collapsed. Using a bridging loan in these circumstances can give you the breathing room and flexibility you need.
Value is key. This means finding the right property to develop. Look for things like un-used loft spaces that could be bedrooms, large gardens that can be sold off, empty outbuildings, or whether the building could be split into flats.
Then make sure you get the right people to do the right job. There are many things you can do yourself but don’t think that just because someone on Grand Designs built their own home you can easily do the same. Plus, with electrical, plumbing and gas installations having a certified installer is key.
And with many property developments, time is of the issue; get professionals to do a good job fast. Ask around for recommendations for reliable builders and don’t pay off the books. It might be cheaper in the short term, but it’ll be costlier in the long run.
Don’t get personal
Remember, this is not your home, it’s a property. That should be your mantra as a property developer – it’s not your home. Develop a property that is right for the market, not to your own tastes.