With increasing demand in both the housing and rental markets, now is a great time to become a property developer.
However, taking on a property is a big commitment in terms of both time and money, and your project must be painstakingly planned if it is to bring a return.
This may be daunting, but don’t let it put you off – our guide will help you get your first development successfully off the ground.
Preparing for development
Before you even think about looking at properties, it’s vital that you do your homework. The first step is to get to know the market inside out. Sites such as Rightmove and Zoopla can help you to research average prices, inflation, demographics and more. This information will be vital in the next stage – making your business plan.
Use your business plan to get key decisions made early, leaving you free to concentrate on running the project. You need to address several big questions:
What is your budget? Set a figure for buying the property, and another for the development work – and stick to them.
What is the goal of your project? Renting your property will generate a steady income, whereas selling it will give you a lump sum fast. It’s important to think about what level of return is required to make it worth the investment. Don’t set your expectations unrealistically high though - it will cost you in the long run.
What is your target market? This will dictate the sort of property you go for, and your approach when adding value to it.
If you’re aiming at students, you will need a large property close to a university, whereas families will want plenty of bedrooms and a garden, and first-time buyers will be looking for economical properties in up and coming areas.
What is your timescale? The biggest mistake first-time developers make is underestimating how long the work will take, leading to stress, financial worries and a bad relationship with the contractors. Be realistic, and ask an expert if you’re unsure.
Finding the right property
Finally, you’re ready for the fun bit! Taking into account your budget, goals and target market, identify an area to search in. Up and coming areas are often the best source of profit. Look for new developments such as estates, shops and schools, and for signs of renovation in existing buildings.
We think that you should choose somewhere fairly close to home – that way you can make the most of your local knowledge, and easily view as many properties as you like. Further down the line, it will also enable to you take a hands-on approach with the project and build strong relationships with your contractors.
Once you start viewing properties, take your time and make the most of the estate agent’s services. In particular, ask them about a seller – if the property is on the market because of relocation, divorce or bereavement, they’ll want a quick sale and may consider an offer below the asking price.
It may be tempting to take on the challenge of a derelict property, but major work is best left to experienced developers.
Avoid anything with structural issues or subsidence, and instead look for homes in need of modernisation. A good solid structure crying out for a new bathroom, kitchen and decor refresh is perfect.
Appearances can be deceptive, so save yourself a world of trouble and get a surveyor to check over the property. And if you are planning on doing any major building work, make sure you’re clear on planning permissions and building regulations. For auction sales there will also be a legal pack to check over.
When you’re making an offer, it’s essential that you stick to your budget, as it’s not easy to recoup any overspend when you come to sell or let. Remember that every penny you save on the asking price is pure profit in your pocket, so don’t be afraid to go in low, and use your surveyor’s report as leverage to negotiate discounts for any remedial work they’ve flagged.
Managing your development
Congratulations – you’ve just purchased your first development property. The next stage is to arrange your contractors and get started on the transformation.
If you have the right skills, you can save money by doing some of the job yourself, but if you’re also working full time, be aware of the family, social and leisure time you’ll have to sacrifice. In a worst case scenario you could end up resenting the project and running months behind schedule. If in doubt, stay on the safe side and get the experts in.
It’s vital to work with builders you can trust. If you can get a recommendation, great – otherwise, look for companies with Federation of Master Builders (FMB) accreditation, building warranties and public liability insurance. FMB’s Find a Builder Service, and sites such as Rated People can help, but always ask to see examples of their previous work before signing a contract.
Go for a fixed price contract if you can, as this protects you from excessive fees if the project drags on. Ideally, the agreement should be formalised with a standard contract from the Joint Contracts Tribunal, and if a different format is used, make sure you check the small print carefully.
You’ll have to negotiate your level of involvement with the contractors. If you’re feeling confident, you can project manage the whole thing yourself, or many will offer to supply their own manager. The key is to get the balance right - you need input - and regular site visits will help you build a rapport with your team, but you don’t want to be fielding constant phone calls.
Use a digital spreadsheet or project board to keep track of who needs to do what and when. Trello and Google Sheets are free, easy to use options, and allow you to share with your onsite team and family members so that everyone is up to speed. You can even check progress from your phone.
Once the project is underway, make the effort with the contractors. You want them to share your enthusiasm and vision, so visit the site regularly, compliment them on good work, and always maintain communication. There will be highs and lows in the development process, but be careful not to unnecessarily take out your stresses on your tradesmen, as this will only lower morale.
Selling or letting your property
It can be a relief to get the building work out of the way, but you can’t take your foot off the pedal just yet.
Decoration is the icing on the cake, and can heavily influence viewers’ perceptions. Go for tasteful neutrals, and don’t be tempted by the cheapest options – poor quality flooring and ugly bathroom fittings will immediately lower the value of your property.
You want it to feel like a home, not an empty shell, and this can be achieved with some simple staging. Hang a soft towel in the bathroom, lay the dining room table and put a few pictures on the mantelpiece. You’ll be amazed what a difference a couple of pounds’ worth of accessories can make.
Your property is now ready for the market. The next step is to instruct an estate agent and begin viewings. If you have the time and the sales skills you could consider showing people around yourself, although in most cases it’s easier to leave it to the estate agent.
If you’re going into rentals, you will also have to decide whether you want to manage the property yourself. This gives you greater control, will save you money, and gives you the opportunity to get to know your tenants, but may be too much work if you have a full-time job.
Once you’ve found your tenant or buyer, maintain your professionalism throughout the legal process and the signing of any documents. Be prompt, accurate and polite – this is a great opportunity to make a good impression and build your reputation as a developer.
Congratulations – you’ve just completed your first development!
Starting your very first development can be nerve-wracking, but get it right and you’ll have the satisfaction of reaping the rewards of a project well done. There’s an awful lot to think about, but finance need not be a worry.
Whether you need full funding, a quick cash injection, or someone to turn to when the bank has let you down, Affirmative’s short term development finance is here to help you realise your business dreams. Contact us or make a quick enquiry to find out how we can support your project.
Attributed to Gary Lederberg, Director of Affirmative Finance