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. Becoming a property developer though is a dangerous game, with plenty of risks and knowledge that needs to be acquired over a short period of time. Our pointers below should give you the best chance of succeeding!
Know what your plan is
Are you going to be buying one property or twenty? Are you buying in order to let the properties out or are you renovating to hopefully sell at a profit? Are you doing the work or are you hiring contractors? How are you going to offload the properties at the end of it all? Have you got your finances in order? Planned for tax? These are all amongst the most important questions of property development and separate successful semi-pros, from amateurs who could lose everything.
The old cliché is still true!
Location, location, location. It may seem clichéd, but this is still one of the major rules of property development. Are you buying at a high price in a popular area that won’t go any higher? Or at a low price in an area that will always be unpopular with buyers? Knowing the location you are buying in is vital so, if you don’t, find someone who does! Most experienced property developers look for undervalued areas, on the edge of popular property hubs, though this can depend on your timescales. Renovators often look for poorly-kept houses in popular areas but if this is your approach then don’t take on too much or the work involved could make it hard to turn a profit.
You are not developing your dream property
Whether you are 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. Don’t go overboard with fixtures and fittings to create a £250,000 house in a £150,000 street. You risk making the property unsellable, and upping your costs unnecessarily in the process.
Have your finances in order
If you find the right property or properties, or even spot something extra you know would add to your portfolio, you need to make sure your finances are ready to go. Whether it is a specific type of mortgage or a bridging loan to see you from one purchase to the next, make sure you’re well on the road to getting it before you find you need it, or work with a broker who knows your finances and background and can adapt to your requirements quickly, putting the best deal in place in days.
Don’t rely on the market
The housing market can fall as well as rise, slow down as well as speed up. If you’re just relying on the market to make your profit then you could end up with only a market-level return or, worse, a loss. Look for properties that will increase in value due to outside factors (area improvement, for example) or that you can improve through building or renovation.
Know who you’re working with
Just like the finance side of things, it is important to work with someone independent, whom you trust and who can deliver to timescales and deadlines. Builders, furnishers, plumbers and electricians may all be needed, and needed to deliver quickly and to budget. Make sure you know who your team will be and that you trust them all to deliver for you. One wrong move could erase a sizeable chunk of your profits.
Selling is an art
If you set your price too high, you could lose more than if you sell lower than you wanted to. If you advertise in the wrong place or dress the property up in the wrong way, you might not sell at all. Have a plan for selling or getting a tenant to rent and then move on to your next development.
And finally… more bedrooms do not equal a more expensive house!
A popular amateur developer mistake. Creating extra bedrooms in small spaces does not fool anyone and can turn buyers off when they realise they’ve lost four feet of living area! Be sensible with your developments and think about what people actually want from the house you’re creating, rather than trying to ‘cheat’ potential buyers.
Your property may be repossessed if you do not keep up repayments on your mortgage.