Many people in the UK aspire to start their own property development business, and it’s no real surprise. After all, aside from providing an opportunity to make a great deal of money, working in property development can be an exciting outlet for creativity and doesn’t require any specialist qualifications. You can train in evenings and on weekends, so doesn’t have to disrupt your full-time job if you don’t want it to.
Whilst the industry has been rocky since the recession, things are certainly looking up for the UK housing market, with more international investors coming in, and new planning rules making it much easier for developers to get projects started.
If you are one of the many people interested in getting into property development, then you’re probably wondered where to begin. The key to giving yourself the best chance to succeed in property development is to do plenty of research. There are a huge number of fantastic resources online, designed especially to help those looking to “do up homes”, so make sure to do lots of homework. To set you off on your path to success, we’ve put together our top five tips on getting started in this competitive market.
Make a business plan and stick to it
Certainly, the most important thing to do when making a business out of developing properties is to construct a clear and detailed business plan. This will need to include a firm target for the return on investment that you expect to achieve. It’s also important to keep in mind that the costs you will incur will go beyond the price of the property and its refurbishment, as any surveyors, estate agents or solicitors you work with will have their fees.
When it comes to planning the financing of your project, it’s wise to consult a reputable advice service – most banks provide advice specifically tailored to property development. Generally, if you’re starting a building project, you will need one loan to buy the land and a development loan to cover the building work, whereas, for a refurbishment project, you will need a development loan that covers all costs.
Location, location, location
Undoubtedly you will have heard the old adage that when it comes to property buying, the three most important factors to consider are location, location and location. Whilst this still rings true, it’s wrong to assume that the motto means that it’s best to buy a property in the most affluent neighbourhood. In fact, if you buy a property in the centre of the best area then you are certainly going to have to pay the highest price, which doesn’t leave you with much room to make a profit.
The best location to choose is one that is on the fringes of a good area, and that it likely to develop to become part of that good area. Most importantly, you need to think about what your ideal buyer would see as a good location. If you’re targeting young professionals then a central location with good transport links is likely to be a priority, whereas families will probably be looking for properties close to schools and away from busy roads.
Don’t pay more and expect to make it back in the long run
Remember that you’re making your money when you buy, not when you sell. It’s very easy to lose your head over your ideal property, paying more than you had planned, only to end up struggling to make a profit when you sell. You also never know what will happen to the market in the time it takes you to refurbish the property, so to give yourself the best possible chance of making some money you should try to buy below the market price in the first place.
They key to becoming a successful property developer is to find someone who needs to sell more than you need to buy. If you can resist getting caught up in the frenzied atmosphere, then visit property auctions as the people selling through auction are likely to be very keen to sell. Another good idea is to look out for derelict properties whenever you’re out and about. The Land Registry will help you to trace owners, and it’s likely that you’ll be able to make a good deal directly with them and avoid estate agent fees.
Keep your buyer in mind
Throughout the process of developing a property think about the needs of the person, you’re aiming to sell to and try to separate the refurbishment from your own tastes. If you’re planning to sell to a family, for example, it’s likely that they’ll have their own furniture, whereas young professionals are more likely to be looking for a furnished property.
If you’re going to be renting to students then there is no point in spending a fortune on top quality furnishings, and practicality should be your focus. Through tailoring your property to your ideal seller, you’ll be making it more likely that they will want to buy or rent from you.
Watch the market
‘Buy low, sell high’ is the obvious answer to the question of how to do well in property development, but you’ll need a much deeper understanding of the market in order to truly succeed. Over the last few years, the market has been pretty good and particularly in London – where the Olympic Games and tourism have boosted interest – property values look set to remain buoyant. But the capital can be extremely expensive, and it’s not the only area in the UK worth investing in.
When looking for properties it is important to do as much research as possible on the future of an area, for example, if there are plans to develop retail areas and transport links then it’s likely that prices in that area will see a boost. Ultimately, succeeding in the property market boils down to how much homework you’ve done – and that doesn’t just mean watching repeats of Grand Designs. Spend time researching the market from reputable sources on the internet, in newspapers and from estate agents.
If you’re getting into the real estate business, you might also want to check out our recent help article, “Setting up a subsidiary company“. Or, for more general guidance around starting a business and getting up and running, have a browse of the help centre.
Published Sunday January 20, 2013