A Guide to Building Developments
There’s huge profit to be made from building and selling a property development. However, in order to maximise gains, it’s vital to understand the process first.
If you’re considering becoming a property developer, here’s a guide, outlining all the basics that you need to know before getting started.
Why build and sell a property development?
There are numerous advantages to becoming a property developer. These include:
- No specialist skills are required. You’ll need a good level of understanding and know-how, but you certainly won’t require any qualifications or specialisms. In short, anyone can develop a property, as long as they take the time to plan the project properly.
- The profit potential is impressive. Once you’ve successfully sold your first property development, you’ll have the funds to develop more properties, which in turn, means increasing profits over time.
- You’ve got options in the future. If you develop an extensive portfolio of properties, you’ll have the option to rent some of them out, which will generate a rental income.
Before you commit…
Before you make the decision to develop a property, ask yourself the following:
- Can you dedicate the time and energy required?
- Do you have access to the necessary funds?
- Have you spoken to other property developers about their experiences?
- Do you have a realistic idea of what’s involved?
- Do you have additional funds to cover any ‘worst case’ scenarios?
- Do you have good knowledge of the local property market?
- When it comes to potential buyers, who will you be trying to appeal to?
- How will you market the finished property?
- What profit margin do you anticipate generating?
Financing your property development
Property development can be lucrative, but be aware that it requires a substantial amount of funding, right from the start. Don’t worry if you don’t have these funds to hand – indeed, most developers don’t. There are various financial options available to you, which include:
- A standard (residential) mortgage. If you’re planning to live in the property for a while after it’s completed, or sell it on straight away, you can apply for a residential mortgage.
- A buy-to-let or commercial mortgage. Be aware, if you want to rent the property out after it’s been built, you’ll need a specialist buy-to-let mortgage instead of a standard one. The same applies if you’re planning to use the property as a commercial premise – in this instance, you’ll need a commercial mortgage instead.
- An unsecured loan. A personal loan is another way to generate funds, but is regarded as a riskier option. Only ever borrow what you need, and ensure that you’ll be able to pay it back afterwards.
- A secured loan.If you want to borrow a larger sum of money, you can secure a loan against your home. However, this is more expensive, and as with an unsecured loan, can be risky.
- A bridging loan. A bridging loan may be a suitable choice if you’re selling another property and you’re waiting for the money to come through.
What are the costs involved?
If you want to develop a property, you’ll need to set aside funds for the following:
- Purchasing the property or the land
- Hiring contractors; builders, plumbers, electricians etc.
- Arranging surveys and legal work
- Dealing with unforeseen issues, such as structural problems, asbestos removal etc.
- Paying fees (e.g. for estate agents, solicitors etc.)
- Decorating / dressing the property to appeal to buyers
Research the market
If you want to successfully develop a property, knowledge of the local market is a real ‘must-have’. You should identify the following:
- What demographic you’re targeting
- How much they’re willing to pay in that area
- What they expect from a property
- What the desirable or upcoming areas are
- How long houses spend on the market before being sold
- Whether there are any regeneration plans in the pipeline (for example, improvements to the local transport links, or redevelopment of the town centre)
- How successful other developers have been in the area
What sort of development project?
When it comes to developing a property, you have a range of options.
Buying land to develop
One option is to purchase land, then build a property on it. Land offers a huge amount of development potential, with even a small area being able to accommodate a sizeable apartment block. It’s preferable to purchase land that already has planning permission, as planning applications can take a long time to come through. Bear in mind, this is regarded as a very ambitious project, and is perhaps better suited to experienced developers. Alternatively, work with a project manager, who can handle the project on your behalf.
Renovating an existing property
Dated, run-down properties can usually be purchased cheaply, improved, then sold on at a profit. However, with projects of this nature, it’s vital to work out your profit margin first. Factor in all costs involved to ensure that you’ll generate enough profit to make the project worth your while. Also, be realistic about what you’ll sell it on for. Research the market and ask local estate agents for their expert opinion. If the renovated property sells for less than you thought it would, you’ll make less money from the sale. With renovation projects, it’s a good idea to be smart with your decisions. For example, it’s cheap to knock through the living room and dining room to create an open-plan living space, and this might add on as much money as building a costly extension at the back.
Converting a commercial property to residential
The recent changes to the law have made it even easier to convert some types of commercial property into residential homes. That means that developers are able to incorporate several residential properties into one sizeable commercial premise, without facing obstacles in the form of planning permissions. As with a standard renovation project, it’s wise to research the market thoroughly, and check that there’s a market for this style of housing.
Buying land to develop
One option is to purchase land, then build a property on it. Land offers a huge amount of development potential, with even a small area being able to accommodate a sizeable apartment block. It’s preferable to purchase land that already has planning permission, as planning applications can take a long time to come through. Bear in mind, this is regarded as a very ambitious project, and is perhaps better suited to experienced developers. Alternatively, work with a project manager, who can handle the project on your behalf.
Renovating an existing property
Dated, run-down properties can usually be purchased cheaply, improved, then sold on at a profit. However, with projects of this nature, it’s vital to work out your profit margin first. Factor in all costs involved to ensure that you’ll generate enough profit to make the project worth your while. Also, be realistic about what you’ll sell it on for. Research the market and ask local estate agents for their expert opinion. If the renovated property sells for less than you thought it would, you’ll make less money from the sale. With renovation projects, it’s a good idea to be smart with your decisions. For example, it’s cheap to knock through the living room and dining room to create an open-plan living space, and this might add on as much money as building a costly extension at the back.
Converting a commercial property to residential
The recent changes to the law have made it even easier to convert some types of commercial property into residential homes. That means that developers are able to incorporate several residential properties into one sizeable commercial premise, without facing obstacles in the form of planning permissions. As with a standard renovation project, it’s wise to research the market thoroughly, and check that there’s a market for this style of housing.
Working with a local estate agent
Remember that a local estate agent can come in very useful throughout the process. They’ll be happy to share their expert knowledge of the local area and offer advice about where to search for development opportunities. They’ll also be on hand to get the property sold quickly, once the work is complete.