July 15th, 2014.
How to find the best property to develop?
Developing property is a fantastic way to be your own boss and bring in a very nice income, however you need to make sure that you are developing the right type of property. If you don’t research the area and find out what type of property is in the most demand, then you could end up holding onto a property that simply won’t sell.
Here are a few tips to ensure that you invest in the best types of property:
Profit Margins and Turnover Rate
This is what you really need to think about, how much money can you make from each development and how quickly will they sell? Finding a balance between these two factors is essential to property development. If you have small margins and long turnovers then you will be losing money hand over fist, but finding a property that sells quickly with a high profit margin will see you raking in the cash. Using development finance brokers can ensure that you get the best rates on your finance, therefore helping you to maximise your profit.
How you balance these factors will differ greatly from project to project depending on things such as:
• External pressures i.e. loan deadlines, other projects, buyers
• Cost of the development
• Time the development takes
• How many properties are being developed
Without proper research you may find yourself in a bit of trouble when it comes to selling or renting out the property. Certain areas will benefit more from certain types of development, for example urban areas will typically be a good place to develop flats and 1 or 2 bed homes. Before striking ground, make sure you do your research on the area beforehand finding out what type of property sells and the average price attached to it.
In a recent survey carried out by the Home Sale Network, it was found that over 80% of home buyers believe that two and three bedroom houses are in the most demand. By filling this gap in the market you increase the chances of selling your developments and turning a profit, however deciding to build in the city or suburbs can make a huge difference.
Where’s the Profit?
Finding the most profitable development is difficult and depends strongly on the area you are planning on developing. When building in town or city centres, you will generally be able to charge higher prices per unit but it is likely to cost more during the development process. On the other side of this, the cost per unit of suburb homes may be slightly lower than in cities but you may see larger profit margins per unit giving you a larger profit overall.
Generally speaking, you will see a much greater profit from flats as you can fit more units onto the same amount of ground. Therefore, instead of sticking four three bed homes in one area and selling them for £150k each, you can fit ten two bed flats in this space and sell them for £80k increasing your sales profit by £200k. This is something extremely beneficial in areas where land is at a premium.