Developing
property can be a hugely rewarding and challenging career with the potential to
make serious amounts of money. However without the necessary research and know
how it could be a very risky investment that could leave you in a whole lot of
trouble.
Taking on
a property to develop is a serious personal and financial commitment because it
involves the initial outlay of buying the property, getting the work done and
hopefully selling it for a profit. There is no guarantee you can achieve this
and the worst case scenario is being left with a property you can’t sell and on
the verge of it being taken over by the finance company.
The guide
below highlights the key factors that would turn a development into a good
little earner. They are not in order of importance because property development
requires a combination of factors to achieve success.
Key points to consider for a Property Developer
Location!
Location!! Location!!!
A key
element in property purchases is the location. Look for areas that may be up
and coming or on the fringes of good areas, instead of buying in the best
areas. You will find that the best areas will attract a premium and thus, not
leaving any room for a decent profit. This does not mean you shouldn’t look in
these areas as you may sometimes be able to find a hidden gem that has been
missed by some others.
Areas near
schools, transport links and open spaces are good places to buy as they will be
easier to sell. Bear this in mind that you need to do your research to figure out
what is a good location and what could be more troubled than what it’s worth.
Buying in
near locations where the big developers are concentrating their projects is
usually a giveaway sign that the area is up and coming. Other possible signs of
up and coming areas are improved transport links, rejuvenated areas and even
proposed new shopping centres.
Buy at
the right price
It is
essential to buy the property at the right price. This is probably the most
important factor that will decide if you are going to make a decent profit or
not. If you pay top money for a proposed development, however good it may be,
the chances are that this will eat into your profits as the margins may be so
slim. Buying at a right price also gives you a cushion in the event of
unexpected costs.
The best
method of calculating the right price is to work backwards. Firstly, calculate
what you think the property is worth and then take away your costs leaving you
with a figure at what you should be buying at. If the price is too high try and
negotiate, if it fails then walk away. Never feel pressured by the sales talk
of agents trying to paint a pretty picture of the potential profits. Work out
the resale value and costs, if you are not happy with the profits don’t give a
second thought.
Do your
homework
Research
all the avenues properly because property development is a risky business from
which you could make a fortune or lose everything.
Your
research must include property prices, location, associated costs, what work is
needed including any major issues with the property. Work out who will buy this
property, how much you will realise and whether the profit margin is
sufficient.
Do not be
afraid to learn about the job as well because knowing the basics of the trade order
and processes in the development stage keeps you ahead of the game.
Plan your
development from the start to the finish with timelines and finished dates.
This will keep you in check and motivate you during each step of the
development stage.
Remember
you can never do enough research but everything you learn is not wasted
information. All the researches you made are tools that can be used for other
future developments.
Work out
your figures
Calculating
the figures for costs and possible sales values needs to be looked at in depth.
Although quick calculations on the back on an envelope can give you a rough
idea you need to go through the sums with a fine tooth comb.
You will
need to have a detailed cost plan in place, Including all costs such as
purchase, renovation, planning, architecture, interest and selling cost. Do not
forget to include a contingency fund for those unexpected costs that may arise.
Your
projected sales figures are calculated after you must have looked into the
current market position by searching through the websites to see what properties
similar to yours are in the market for sale. Search through the cost prices and
never be afraid to ask the agents in the area as most of them would be willing
to offer free advice knowing fully well that they may have a chance to instruct
the sale of your property. In a rising market, never calculate your sales
figures on what they may be in the future but you have to value your property base
on the current price scale and if it goes up, then more profit for you.
While
calculating your figures expect a worst case scenario and be happy with it just
in case your development goes pear shaped.
Finding
Properties
Always be on the lookout for
potential developments just by driving around and keeping an eye out for sites
could help to find that ideal property.
Keep good
links with agents, once they know you can act quickly they will be keen to give
you first hand information on any available property.
Auction
houses are a great opportunity to buy cheap properties but do your research and
do not get carried away in the frenzy of a buzzing auction room.
Talk and
connect with people in and out of the industry about what you do. You never
knew what deals may come your way. Our latest project came about after a casual
chat with my neighbour.
Do not be
in a rush to buy a property. If you lose
a deal, so what, there will always be another one around the corner so keep
looking.
Developments
can include anything from a simple reformation to a more complex new building.
Take on project(s) that you know you are capable to financially, technically
and strategically handle.
Have a
good team
Your team
should be more of core importance. This includes all of your trade personnel,
office staff and even your financiers.
Can you
get the services of an electrician, carpenter and plasterer in a few phone calls?
If not you could find yourself in a delayed project.
Are you
able to raise funds quickly without any complications? Finding finances after
the credit crunch has got progressively difficult, so having a finance company
in place gives you the ability and confidence to act on deals that may arise.
Keep the
buyers in mind
Always bear in mind the end users of your property. If it is aimed at
students, it is not prudent spending a fortune on high quality fittings, but a
high end apartment for a professional person would expect more. Design your
budget on the type of properties and the buyers alike. If it’s a family home,
good decor and an attractive garden may win that sale.
Never try to imprint your tastes on the property; it is about what would
appeal to the potential buyers.
Motivate
yourself
During
any development, you will stage where the project sees drastic changes and
other times where it seems like nothing has been done. It is essential to keep
yourself motivated having clear vision and passion to see this through to the
end.
Give
yourself plans and timeframes to achieve certain stages in the development
which will keep you motivated through the build.
You
should start the project with a clear vision of what the property would look
like at the end and keep this in mind at all times.
The Market
Keep an
eye on the market. Track the movement of home prices, interest rates, inflations,
supplies and demands.
All these
factors will affect house prices and ultimately your profit figures. If the
housing market shows signs of slowing down then take this into consideration. If
you are looking at your next development you should take note of these when
calculating your figures.
If in the event of a downturn in the market you
find that you are unable to sell your development, keep your options open. The
rental market at the time may be buoyant but if you could possibly refinance
your development you could get yourself out of the tricky situation.