June 11th, 2014. Tom Rowlands
Builder to Billionaire – Making Money with Property Development
In recent years there has been a boom in the number of property developers in Britain, most of whom are already working within the trade industry. The reason for this shift is simple: there is a lot of money to be made in property development.
The property market is booming, mainly because there aren’t enough houses available currently – hence the government plans to encourage growth in this area. By getting into the game now, you stand the best chance of successfully creating a property development empire.
And, as a builder, you may already have the upper hand as you have working knowledge of how the development process works; you are already way ahead of Tom, Dick or Harry in the street.
Chances are you will also have industry contacts to help you save a small fortune during the build which is brilliant, as every penny you save is a profit from the development.
However, changing your career, and becoming a property developer is not without its risks. Not every property is going to make you a huge profit and it could take a while before you start to see a great income from your developments. There are certain things that you can do to increase the amount of profit you make with each project. Here’s a quick guide to maximising your profit margin:
Finding the Right Location
Understanding what this really means is key to profits. What you don’t want to be doing is buying a slightly run down property in the best area in town – the price will be sky high and you’ll need a miracle to turn a profit. If the building is extremely run down then it may be worth the gamble, but again it will depend strongly on the price.
Find a properly that is close to the best area, with excellent transport links and in the catchment area of good schools and you’ll be onto a winner. It may not be a desirable area when you’re developing, but it should be seen as up-and-coming area and if you’re developing several houses then this could tip the scales.
The big decision you will have to make here is how much profit you want to make. If you are willing to make a smaller profit then building in an already popular area will be a much safer strategy, whereas for the big margins you will need to take much greater risks.
Buy at the Right Price
How much profit you make depends more on the price you buy the property for than how much you sell it for. This is why it is vital that you buy for the lowest possible price. Some of the best ways to get rock bottom prices are by visiting auctions, haggling costs with the seller or finding land that already has planning permissions.
Auctions tend to be the best places to snap up a bargain, but make sure you check out the property and the area beforehand, as bidding blind could land you with a property that is hard to develop and in a highly undesirable area.
Do Some Research
Different areas will be more profitable than others and similarly people will want certain things developed in the area. Do your research on the area before you commit to anything, find out how much properties go for in the area and what type of property is in the most demand. Turning a 4 bed house into 6 single bed apartments in an area with no call for flats will be incredibly hard to sell or rent.
Finding a balance between what sells at the highest price and what gets snapped up fastest is absolutely key. Lean too far one way or the other and your profits will crumble as you either won’t make enough of each development or it could take a long while for it to sell.
High Quality Development
It sounds like common sense, and you’re probably fully aware of this as someone who has worked in the building trade, but you’d be surprised by how many corners some people try to cut when developing properties.
The more money you put into the property, the more you are likely to get back out. If you can kit it out with top quality items, like kitchen, bathrooms and wood flooring then it will add value to the home.
On the other hand, using cheap lino and basic kitchens may save you some money in the build, but it won’t add heaps of value – this is where the research will come in handy, by finding out exactly how much value high quality units can add.
If you are developing multiple properties, it is worth seeing how much discount you can get when buying in bulk – and this is where your contacts might come in handy! This will allow you to maximise on savings by purchasing high quality units at a fraction of the cost, while still adding to your property’s market value with the high end finish.
Have the Right Finance in Place
Financing is what can make or break your development; have the wrong finance and you could end up paying through the nose on rates.
By using development finance brokers you can get the best possible rates with lenders who offer you packages that are exactly what you’re looking for. Some lenders have certain projects that they prefer and other, more specialist lenders, are harder to find but can offer better rates.
So, the answer to how much profit do property developers make varies, but, to find out more about how Pure Commercial Finance can help arrange your development finance and put you in a strong financial position, give us a call on 02920 766 565.
Article By Tom Rowlands
June 11th, 2014
Tom joined Pure Property Finance in 2017 after a career as a Client Wealth Manager, where he spent just under 3 years advising on financial and tax planning. Tom specialises in bridging finance and property development funding, having completed deals ranging from a simple £30K property purchase through to £2m+ mixed-use developments.See more articles by Tom