Property development can prove to be a lucrative and varied career.
However, it is widely advised that you have substantial finances behind you before you begin. You will have to be patient; it might take years for your projects to return a profit.
Successful property developers are hard workers and often have to begin their journey whilst holding down a full-time job.
Before you begin your property development journey, you will have to decide what kind of property you want to develop and how to best secure profit on your projects.
Remaining Patient and Disciplined
The money will not come flooding into your bank account as soon as you begin developing a property, especially because the opposite is a much more likely scenario at first.
Research is key, and it is vital that you learn everything possible about developing residential properties.
You probably won’t choose the perfect project the first time, and picking the right site can be a significant learning curve.
Then even when you have made that choice, you might need to wait for the site to enter the market.
You must learn how to create a separation between yourself and your projects to avoid frustration when things go wrong. You’ll be better in business decisions then too.
Experience in Project Managing
Gaining experience in managing projects will be extremely helpful. Regardless of a project’s scale, it is valuable to understand the central principles of project management.
Gaining experience in managing a renovation or project at another job is the recommended first step before you undertake a whole development project.
Authentic Passion
Being authentic, enthusiastic and interested in the property is invaluable. You should research the property market thoroughly before embarking on your journey as a property developer.
Knowledge is money in the industry. Experienced developers will know how profitable sites will be and how valuable property is in specific areas.
It is good to observe other projects nearby. Knowing a lot about the property market is very important.
Understand Planning Regulation
You must be knowledgeable about the planning process and local residential areas.
A clever developer will know various regulations and requirements. For example, the age of property can affect planning regulations. Most government guidelines should be available to view online.
Learning How To Plan Properly
Those new to developing property must fully understand the property development process from the very beginning to the end.
Money is time critical in this context, so understanding all the stages of the process are necessary.
Not working on the project for a single day can lose you money! So, you should know where you stand beforehand.
The speed of the project can determine whether or not the project will make profit or loss.
Establishing A Property Development Company
Budding property developers will need to decide how they plan to operate.
You will need to decide whether to be a sole trader, part of a business partnership or as a limited company. Each option has unique pros and cons.
Sole Trader
The most common business structure in the United Kingdom, sole traders, are also referred to as being self-employed.
As it is popularity suggests, it is an appealing way to set-up your business.
Advantages
You get to be your boss and drive the business the way you want
After-tax, you get to keep all the profits.
Establishing a business is relatively easy this way.
Disadvantages
Higher tax rate, this business set-up is not tax-efficient
Only you can generate capital for the company.
Business Partnership
Teaming up with another on a business idea can help you put together talents and strengths to form a very powerful partnership.
Advantages
Increased capital, when initially setting up the business having multiple business partners means more money for establishing the business.
A couple (or more) heads is better than one, for sharing business responsibility and decision making.
Less formal than with a limited company and easier accounting procedures
Disadvantages
No independent legal existence set apart from its partners, and each partner is personally liable for any debts and losses.
You might run into personal differences with your partner, just one of the challenges of teamwork.
Limited Company
Put, within a limited company, the liability of company partners is limited to their investment in the company. Limitations may include shares or are by guarantee.
Advantages
Personal liability is minimised. If the business runs into difficulty, your assets will remain secure.
Lower tax rates. UK limited companies only pay 19% corporation tax, whilst sole traders pay a higher figure.
Having a limited company gives you professional status, improving company image and therefore, customer trust.
Disadvantages
Establishing yourself as a limited company can be complicated. You must register with the Companies House and pay a set-up fee.
Due to the fact this business structure is complicated, it is advised you hire an accountant to help.
Extensive Planning is a Must!
It is extremely important to make an extensive plan covering short and long-term goals, possible cost, and projected income.
Your overall plan should include all the information you have collected throughout your research about the area of property development you have chosen to work in and your chosen strategy.
Property developers should always be mindful of the risks and to be good at the job you must good at evaluating the different risks.
Finding Projects That Will Make You Money
A very simple way to make a profit when developing property is to convert some cheap property into something more substantial—especially property in upcoming areas.
Converting properties into buy to let is very common for property developers with little experience.
This involves purchasing residential property within the intention of putting it on the rental market after the property has been renovated.
More substantial properties can be converted into HMO’s, allowing you to generate more income from several rental incomes every month.
Nevertheless, at times property developers have to be imaginative to think of strategies to generate income on properties.
Luckily the possibilities are varied. Commercial properties can be transformed into residential properties, and you can buy land to build development from the ground.
Buying property at auction is a fantastic option for accessing a good property.
Frequently, auctions are a great place to find properties that are not being sold on the open market.
Auctions are where the properties with most renovation potential are sold. The quick process also empowers property developers to make a quick profit.
Nowadays, online is probably the best place to research the property market. Most estate agents will have an online database.
Financing Options
Money and development finance are essential ingredients for property development. When beginning your career, you need to consider whether or not; you have sufficient funds behind you.
Understanding how financial projects function is pertinent.
Only a very few property developers will be able to buy a property outright initially and will have to look to other options.
Please note that financial advice should be sought before buying property.
Bridging Loans
As the title suggests, these loans help bridge the financial gap for developers whilst they are waiting for other money to become available.
A bridge loan may be used to buy a new property, whilst the sale of one of your other properties is completed.
This financing option can be risky and will incur high-interest rates but is often granted on properties that traditional lenders deem as unsuitable for a mortgage.
Property Development Finance
Development finance is also a short term finance, typically between 12 months and 24 months.
They are distributed in stages, depending on the size of the project and the different stages of the project. Here to find out more on property development finance.
Residential Mortgages
If you intend to reside in the property whilst the development takes place, or intend to sell it on, a residential mortgage might be an option for you.
Buy To Let Mortgages
If your property development project aims to rent out the property once it is ready eventually, you will need to secure a buy-to-let mortgage.
Commercial Mortgages
If you want to use the property for business, as a commercial space like a shop, a commercial mortgage will probably be necessary.
Unsecured loans
Additional funds may be available from a personal loan, but you should only borrow what is necessary with this product.
Secured loans
If you require a substantial sum for your property development, one option is to secure a loan against one of your assets, such as your home.
However, it should be noted that these loans can be expensive and are extremely risky as you could potentially lose your home.
Additional Expenses
It is almost guaranteed that developing property will involve unexpected costs, so you will need to have extra cash on stand-by.
Cheaper elements such as furnishing will not add much value to a property.
Extra costs may include:
- Hiring tradesman including plumbers and builders
- Employing surveyors to complete structural surveys
- Fees charged by external agents such as a lawyer
- Structural problems such as the presence of asbestos
Diversifying Your Portfolio
It is important to establish a varied portfolio as a property developer.
When applying for finance, some lenders will want to see your portfolio, so they can learn about the projects you have been involved in previously.
Lenders are naturally less keen to pay out for types of projects you have no previous experience with.
