- 11th November 2019
- Posted by: DMM
- Category: Property Development
There is little doubt that the British people have somewhat of an obsession with home ownership and how to become a property developer can be part of that desire.
The truth is, of course, very different and when considering how to become a property developer, one should consider the pressure and risks involved.
At the time of writing this blog, Brexit remains uncertain and is being blamed for a slowdown in the UK property market. House prices have been largely static during 2019, with a few regional exceptions, and many potential buyers and sellers holding off from commitment.
Nevertheless, there are still many reasons to be positive about the current property market. Despite all the current challenges and predictions of a steep recession, people are still buying. Many first-time buyers are taking advantage of the government’s Help to Buy Scheme which is running until 2023.
Consequently, when considering how to become a property developer, it is important to understand the risks as well as the rewards and balance these sensibly. Our top 10 tips on how to be a property developer:
The perception of property developers is often of wealthy, Range Rover driving entrepreneurs whom just buy a bit of land, or ruthlessly knocking down old properties, do some building work and let an estate agent quickly sell the property. Oh, if only it were that simple!
Our top ten tips on how to be a property developer
1. Have a Business plan
It probably sounds rather obvious but having a plan, as with starting any new business, is essential. Spell out and think through all the elements of how you are going to run your business including your objectives, the people you need to work with or recruit, keys to success, what type of development to target, your cost projections, SWOT analysis and methodology.
2. What type of property development will you target?
Naturally, the key element to consider when looking at how to be a property developer is what are you going to develop! There are many different types of property development and may include residential homes (including refurbishments, conversions or new builds); commercial projects (such as shops or offices); creating HMO’s (Houses of Multiple Occupancy) or permitted development (e.g. converting offices into residential apartments). Many new developers will come from a property related industry such as construction, architecture or estate agency. So, choosing a development type will probably be closely related to previous experience.
3. How are you going to fund your project?
Perhaps the key determining factor in how to become a property developer is how you are going to find the money to build your project. For most of us raising property development finance through a bank is a fact of life. There are, of course, a wide range of banks and lending products available and understanding the difference between development, stretch, bridge and mezzanine finance will be essential. Support is always available for those new to property development finance and developers can search here for an online comparison of such loan products. Most property development funders will expect you to be putting in at least 10% cash of your own but sometimes other security or planning gain may be considered.
4. Get the right team around you
Depending upon the professional background of a new property developer will determine the people you will need supporting your project. But it is usual that we cannot be great at everything and so whilst you may be a brilliant builder, you might want a great financial broker to help find a bank loan; an experienced architect to make sure your project design is maximised or planning consultant to look at potential planning gain. All of these people can be crucial to success and they will come at a cost.
5. Construction strategy
When you have acquired your new project, be it a piece of land, an existing building, etc, you obviously need to get it built on time and on budget. If you are thinking of how to be a property developer, then chances are you will have good contacts in this industry. You may wish to self-manage the construction yourself with your own team together with selected sub-trades. The alternative is to bring in a third-party construction firm which may even extend to a complete design and build contract. This strategy will be of keen interest to lenders and should be considered when finding property development finance.
6. Location – where are you going to build?
For most people considering how to be a property developer the natural choice will be to stick with your local patch when trying to find a project. The natural advantage of keeping it local will be that you know local property prices, the good areas and the less good, as well as the types of people that tend to live in those areas. However, looking further afield can widen options and proper research can provide the information needed. Make good use of property portals such as Rightmove, Zoopla or OntheMarket and data service providers such as Plumplot.
7. Buy at the right price!
There is an old basis of property development that determines 1/3 being spent on the land, 1/3 on the construction and 1/3 will be profit. Naturally, it is not that simple, and you will find land prices will vary widely depending upon the location. Likewise build costs will vary nationally and the eventual GDV will be influenced by local market demand. Always look for a means to add value; not every planning consent will have necessarily fully exploited a site and there may be a way to improve your GDV.
8. Exit strategy
How are you going to get your money back? An exit strategy needs to be considered right at the outset and this may be to sell your new property(ies) on the open market, build-to-let (exit development finance and retain the properties for rental) or perhaps pre-sales (have a buyer lined up in advance such as a housing association).
9. Get your budget right!
It should go without saying but ensure that your proposed project fulfils the needs and expectations of your likely market. In other words, buyers for an executive home will expect a good level of specification with well fitted kitchens, etc. Whereas a studio flat proposed for rental to students does not necessarily have such a demanding occupant.
10. Marketing – getting your project sold!
You have found a great value site, got the perfect construction plan and the buyers will be falling over each other to buy it, right? Well… probably not. Instead, you need to have a well thought through marketing plan that will include pre-launch, off-plan and post build strategy. A building site is not a naturally easy place for most people to understand their future home or work environment. Explaining your vision means creating information to inspire desire in your future purchasers or tenants. This may require high quality CGI’s (Computer Generated Images), a professionally produced and written brochure and perhaps a properly furnished show home. Getting this element done well may be the difference between success and failure but can often be overlooked or simply delegated to an estate agent. Professional advice on marketing is available and when planning your strategy on how to be a property developer then look at this closely.
Like most things in life, good planning and hard work can lead to a great career as a property developer. Undestand the risks, get good advice and then you may reap the rewards and legacy of your own property development business!