Property has long been an attraction for many eager amateur investors; a way to slowly grow wealth over time, or easily plan for the future. If you’re thinking of becoming a property developer, though, it’s important that you know what to expect and what you need to do in order to be successful.
Step 1: Build a comprehensive business plan
An effective and well reasoned business plan is crucial if you’re going to be successful. Not only does it give you a blueprint to work from when making decisions about your business, but it also makes it easier for you to secure funding – showing potential investors or lenders exactly how you intend to make money with your venture.
While you don’t need to go into the specifics for each project you intend to take on, it’s good practice to cover all the basics such as how many properties you expect to be working on at a time, whether you’re carrying out work yourself or hiring contractors, and whether you’re going to sell the refurbished properties or let them out.
Think of a business plan as a walk-through for interested parties on your core business model.
Step 2: Identify profitable projects
Although done on a larger scale, property development isn’t much different to buying and selling smaller products like antiques, collectables or regular merchandise. As the developer, it’s up to you to spot which projects have the potential to make you money and which you should steer clear of.
Finding properties for sale can be as simple as browsing real estate or auction websites, but the real skill comes in assessing each prospect to determine whether it’s viable. To do that, you’ll need to get familiar with local building regulations, planning permissions and conservation areas, as well as looking at property-specific information such as building surveys and environmental reports.
Price is naturally another important consideration – you need to be sure you’re not buying at a high price in an area that isn’t likely to sell for much higher, or buying for a low price in an area that is naturally unpopular to buyers.
Step 3: Secure funding
Property developers need to be agile in order to take advantage of a good buy when they see one, so you’ll need to make sure your finances are in order ahead of time. You may choose to use private investors or have a pool of funds waiting to be used at the right time.
Alternatively, you might find a bridging loan is the best option. These loans allow you to borrow a large amount at relatively short notice – perfect for snapping up a bargain at auction. For the best chances of approval and the most favourable terms, work with a broker who knows your finances and background and can adapt to your requirements quickly, putting the deal in place in days.
If you intend to let out the property after renovations, then a combination ‘bridge to let’ loan may be the best option. This combines a bridging loan with a buy-to-let mortgage from a single lender.
Step 4: Know your team
If you’re not doing all the work on your own – which can be challenging, especially if you’re not experienced in building work – then you’ll need to work with a team of trusted contractors who can get the job done. It’s vital that your expert contractors can be relied upon to deliver work on time and to budget so you can avoid profit-eating delays.
Step 5: Stick to your scope
Whether you’re buying to let or buying to sell, remember that you’re not looking for your ideal property; you’re looking for, or trying to create, a property people in that area want to buy or rent. Avoid aiming for your dream property and instead polish the property to a standard that makes it desirable and yet generic enough that buyers or tenants can put their own stamp on it without having to undo all your personal preferences first.
It’s also important to ensure that your project scope is appropriate for the property you’re working on. Don’t try to fit in more bedrooms than the space reasonably allows just to trick buyers into thinking the property is larger than it is. Consider other properties on the market that are selling for your target asking price, and evaluate which features buyers find desirable that you can include within your own property.
Step 6: Market your new property
Property development isn’t just about carrying out the renovation works – it also involves marketing and selling/letting out the property at the end of the job. After all, if nobody buys or rents your property, you won’t make any profit at all.
Part of marketing your property is about finding the best places to advertise its availability, and that means both online and offline. Directories and real estate sites such as Rightmove and Zoopla can be good places to start.
You also need to make sure you’re asking the right price. Setting too high a price could mean your property languishes unsold for months, whereas an overly low price risks missing out on profits. Conduct market research on properties in your area to find out the ideal price to ask for.
Property development can be tricky, and the most important thing is to have all your plans in order before you get started. This helps you to avoid setbacks, delays and losses, giving you a better chance of making a success of it.
Disclaimer: Your property may be repossessed if you do not keep up repayments on your mortgage or bridging loan.
