November 24th, 2016.
The Pure Commercial Finance Guide to How to Become a Property Developer
Despite the recent short-term disruption of the Brexit vote, property developing in the UK has grown from strength-to-strength over recent years and many people are now looking to dip their toe into the market.
If you’re one of these people who is considering buying and selling houses for profit, but don’t know where to start, check out our guide:
Why Do People Get into Property Developing?
Whether you decide to buy-to-let or develop and sell on, purchase commercial or residential property, investing in bricks and mortar can be a simple way to make money when done properly.
Many people are attracted to property development due to the relative security compared to other investment avenues – in most instances property will only increase with value over time – despite its long-term nature and sometimes expensive associated costs e.g. agents’ fees and maintenance.
How to Become a Property Developer?
You don’t need any formal qualifications to become a property developer; you simply need the finance, time and people management skills to project manage the build. However, trusted tradesmen, an experienced architect and a reliable financial broker are all essential to the success of any development.
Things to Consider Before Buying
There is so much to think about when considering becoming a property developer. From finance to location, read on to take a look at a few points we feel are key:
Will You Build from Ground up or Refurbish an Existing Property?
Whether you want to become the next big property magnate or simply want a handful of properties for some added income, before viewing any properties you need to decide on the level of refurbishment you are willing to complete.
Do you have the time, skills and cash to secure land finance and build a property from scratch? Would you completely gut a property and change its use? Or do you simply want to paint a few walls, lay some carpet and get it advertised asap?
Stop and think about your abilities and preferences before you make any steps towards securing finance and viewing land or property.
Will You Buy-to-Let or Sell On?
Once you know what level or short term commitment you are prepared to put in, the next step is to decide whether you’re looking to build a property portfolio of rented properties or you want to sell in order to free up equity for your next project.
There are a number of factors that may influence your decision, and finances should always be considered. What are potential rental yields like and what would a property likely sell for once completed? Refer back to your research to see which would make most financial sense for you.
If you intend on buying to let, take a look at our complementary post: The Pure Commercial Finance Guide to Buy-to-Let Investment
If you decide to sell, target the ideal buyer in everything you do. For example, a three or four bedroom detached property in the suburbs will mostly attract families and therefore will become more saleable if it has a lawned garden or a play room for children. Whereas a modern flat in the city will most likely sell to a single professional or a couple and therefore more modern, slick fittings may be more appealing.
How Are You Going to Finance the Development?
If you don’t have a few hundred thousand pound safely stored in your back pocket, then it is highly likely that you are going to need funding. This is where a trained financial broker will come in.
Whether you require a commercial or buy-to-let mortgage for the purchase of the property, a bridging loan while you wait for the funds from another project to come through or you need a little help from development finance, a financial broker (like ours at Pure Commercial Finance) will help you to find the best possible deal.
This initial funding package is extremely important as you make your money when you buy property, not when you sell. Paying the right price for a property at a level that is affordable to you is essential for any property development scheme.
You want to maximise your profits by ensuring your margins are as large as possible. That way, if an unexpected cost appears, you have a contingency buffer to cover it.
To do this, you need to conduct a lot of research concentrating on the area you are likely to purchase in. Look at how much properties are selling for and in what condition, what property yields can be expected and the likely cost of a refurbishment before handing over any cash.
Always take an experienced builder and/or architect with you to view the property before signing on the dotted line as they’ll be able to give you an estimate for the works to be done.
There’s a lot more to property development than at a first glance. You have to do your research and your sums.
Where Are You Going to Buy?
Although you may assume the best place to buy is where property prices have soared in recent years, you will most likely be mistaken. If property prices have increased greatly in an area, they will likely plateau soon.
Instead, refer to your market research and speak to experienced developers or estate agents to see where the next big up-and-coming area is. Getting in early in an area could mean by the time you complete the purchase and the development project, demand and subsequently property values will have increased tenfold. It’s then up to you whether you hold onto your investment and rent it out with the hope of further growth, or cash in quick and move on.
Nearby schools, public transport and outside green spaces are all factors buyers/renters look for and will all help when coming to sell a property. But, in high-demand areas, land or refurbishment properties may be few and far between. In this case, you may wish to consider building a property on brownfield or green belt land.