Ever wondered, what it takes to become a successful property developer? We receive many enquiries from those who are eager to start in the industry.
Property development is undoubtedly an extremely lucrative industry to get into. The development market can be quite rewarding, does not require any formal credentials and can offer rapid and attractive returns. Evidently, this seems perfect, but there’s a great deal of work required in the background to make your new business feasible.
In this guide we will provide a breakdown on how to get started on a journey of success within the property development.
Finding the right property
If the wrong property is selected from the beginning, then the project will most likely lose money, no matter how well it is carried out. You will normally need to view a number of potential projects before you find the right development project The temptation may arise to attempt and make the project fit, even if it is not quite perfect.
You should use all of the resources at your disposal to locate the right project, such as brokers, estate agents, auctions, private sales sites, land & property sourcing agents.
By getting to know people within the industry, speaking to other developers and anyone else that may have inside information on property deals, you will get greater exposure and more opportunities coming your way. When you create relationships and request help, people will be more inclined to help and might even pass you on to their own network of connections.
So what Makes the property right?
The right property will depend on several key elements. You must assess the following for each project:
- How much can you afford to pay for the land/property site?
- Is there any planning permission and what can I build on the site?
- What are the estimated build costs?
- Are there any similar projects in the region and how much did they sell for, once complete. (Often referred as comparables)
- How much demand is there for your build?
- Who is your target customer(s)?
- If you will be doing ground work, where are the services and drains?
- As it currently stands, are there any issues with the property?
- Are there any similar projects locally that will hit the market soon and potentially reduce demand? If so, how do they compare in price and quality?
- Will the existing foundation be satisfactory for the intended purpose?
It is usually far better to gradually develop the project, beginning with refurbishment before making a decision whether to proceed on to conversions or even fully fledged ground up developments.
All development projects will normally encounter minor hiccups and will need modifications to the plan as more information comes to light. It is a lot easier to solve any problems that arise when the stakes are reduced and the difficulties are easier to repair.
Understanding What Funding Is Available
To be a successful property developer, you have to first know the various financing options that are available to you. Without knowing just how much finance you can raise, you will need to take a look at the entire market for property deals.
By taking the time to comprehend what finance options are accessible, you are able to restrict your property search. As you will become more targeted, you may find more appropriate investments, that match your financing profile. Additionally, it is not possible to work out likely profit margins of a project without understanding your costs.
Understanding Your Overall Cost
The only way you win in property development is quite simple. The price you sell your development for must be higher than at cost of acquisition, construction works and costs of the sale. Although this may seem quite basic, in reality it is common to find countless developers and investors who have under estimated their costs, overestimated the sale price or left no space for errors.
With no thorough breakdown on costs, a buffer for unforeseen expenses and detailed comparable sale prices, you are likely to fail. Surplus cost in one area simply will not be consumed in another area.
Development project options
There are many routes you may choose as a property developer and each has its advantages and disadvantages. Below are the more common types you may be familiar with:
- Home Refurbishment: Buy a home at a fantastic price, refurbish it, possibly even add an extension, and then sell it for a gain. This is an easy method and has ess chance of sudden surprises compared to larger development projects.
- Flipping properties: A property is bought at a low price usually under market value and sold for a profit and is instantly sold for a profit. Property flipping is a favourite, but locating a deal can prove to be difficult if you do not build a solid network of connections.
- Property Conversions: Converting a home, from a property into apartments, or an office into residential units is a powerful way of turning a profit out of a home. There is a greater possibility of gain than the aforementioned options since there is much more of a fundamental shift to your home. Conversions can frequently benefit from permitted development rights, which means no planning permission is necessary.
- Ground Up development: Developments constructed from scratch are at the heavier end of property development. The prospective gains can be quite lucrative as projects scale up, you can further benefit from economies of scale. Evidently, the bigger the development, the more space there is for mistakes or errors. Ground up development demands a whole lot of attention and will normally need complete planning permission prior to works commencing.
Be careful of a bidding war
Some estate agents can provide good value, they operate in a consultative manner and help ensure a deal that is right for all parties can be agreed. Other Estate agents will send the potential project to every developer they know in order to promote a bidding war.
This normally does not go too well because the developer will win the bidding by offering too much for the development. When further due diligence is carried out, either they or any potential lender will realise that they overpaid and there is little profit to be made. The buyer will then pull out and the property is remarketed utilizing the exact same strategy.
Where development projects are always remarketed, bidding wars are constant and prices are on the high side, it’s far better to walk away.
If you are buying a possible project that is being remarketed, make sure you discover why the previous purchaser pulled out before agreeing the buy. There can be something which you do not understand which can impact on the deal.
Understanding the Market
In order to make an accurate estimate of the sale price of your intended project, you must understand the market of the surrounding area. Knowledge of the following is key:
- How long do properties normally take to sell in the area
- The level of demand for the intended project
- Any local planning applications that could affect the value of your own project
- Any specific features in that area that could command a premium. ( for example, increased transport links)
- How much similar properties have sold for in the local area
- Local schools and their impact on prices
- Other housing stock similar to yours that may hit the market around the same time
Finding the right Project Development team
As soon as you are familiar with your property and prospects on sale, the difficult work really begins. If you are not going to do the job yourself, you have to surround yourself with a team you can trust. Organisation is essential and your team will need to assist you to provide accurate information and numbers.
Assess your team carefully before committing, make use of online review sites to get a sense of their prior jobs. This will provide you with a first idea of how they function, but it has to be followed up by discussions regarding previous jobs.
Lastly, you must believe in your own plan. Consistently changing layouts, shifting plug sockets and creating ad-hoc decisions at each step of the procedure is prone to expensive errors and increasing costs.