So how do you get started as a property developer?
1. Do you have access to the finances to invest?
Arguably the most important requirement for a property developer is finance. Without finance, there can be no development.
Moreover, the finance required for the development will be tied up until the first property sells or begins to generate rental income. This means that whilst the capital is locked up in the development, there will not be scope to expand or grow.
It’s essential for property developers to have - or raise - the necessary finance for the development, which traditionally would be made up of bank finance.
However, the trend is such that property crowdfunding is seeing a new level of popularity, allowing investors to co-invest into a development in exchange for asset backed shares and what can potentially be significant growth on investment.
2. How confident are you that you can pick the right product(s)?
A product must always be suitable for its target audience, and property is no different.
When considering what type of residential or commercial property to develop on a site, the developer must consider the number of occupants, the specific requirements they have, and their desires.
If we look at a site in an affluent, semi-rural location as an example, the typical buyer will likely expect 4 to 5 bedrooms, a double driveway and garage, a large garden and plenty of family entertaining space.
On the other hand, if we look at a high-end apartment block in a sophisticated city centre, the buyer is likely to want the latest tech, cutting edge finishes, underground parking and close transport links, but only one or two bedrooms
Understanding your audience is key. You can invest all the money in the world into a property development opportunity, but if the product isn't right for the audience, the end result for you as the developer isn't going to be an enviable one.
3. Is the location of the property(/ies) right for your audience?
The location of a site is key to the success of the development. The product and price could be perfect for the target audience, but if the site isn’t in a suitable location in terms of transport links, school catchment areas and accessibility to amenities, for instance, it's unlikely the homes will be appealing to the buyer.
Whilst considering these factors, a property developer must not only be able to see the potential in current popular locations, but identifying up and coming areas will enable a lower purchase price with the greatest chance of making a larger profit.
Looking at areas where a high quantity of planning applications have been made and approved, alongside areas where funding is to be distributed - such as expanding industrial estates - will indicate potential areas of high growth.
4. If you need to move quickly on an opportunity, can you?
Land brokers and agents will often encourage a quick sale on a property or piece of land. However, a buyer and potential property developer should ensure they know the market, area and opportunity thoroughly before committing to the purchase.
With that said, once the purchase is agreed and made, it’s crucial to complete the development as quickly as possible to release the capital and make a return on the investment, allowing the next development to be embarked upon.
5. Is the price right for you as the property developer, as well as your end buyer?
Part of the market and area research alluded to above is the research of pricing, both in terms of buying the property/land and the sales or rental price to be expected at the end of the development.
Purchasing development plots below the market rate will allow better scope for profit and return on investment at the other end of the deal.
Moreover, the sale or rental price of the property, whether it be commercial or residential, needs to be considered carefully to ensure the margin and potential reduction to encourage sales will still allow for profit and a positive ROI.
And if the downside scenario still leaves potential for the site, this will be a good indicator of the development fluidity.
6. Have you got a detailed business plan?
The success behind any business opportunity, whether that's property or otherwise, is a solid development and business plan.
The plan needs to include goals, desired achievements, outlines of how the objectives are going to be achieved and timescales to demonstrate the target timeline for the development.
This plan should also include the resources required to fulfil the plan, any outsourced requirements and how the quality is going to be maintained throughout all key parties and sources.
Essentially, it should outline the full scope of the development in a way that any applicable parties - think financiers and implementation teams - can understand the ins and outs of every step.
7. What is your exit strategy?
Every plan must have an exit. For commercial property, this is more likely to be rental, and for residential it's often the sale of the plots/houses.
Some developers will have a set plan and exit strategy for each site they develop. However, other property developers may look to have a portfolio plan which will include several developments, and the overall sale of these in the long-term as a portfolio of completed sites will be attractive to an investor looking for a long-term yield investment.
The exit plan will be determined by several factors, but two of the key ones are a developer's access to capital, as a long-term exit means capital is locked down, and also the risk appetite of the developer, as a more long-term strategy may be more risky and open to market volatility - but importantly, could potentially provide more ROI and income along the way.
8. What returns are you realistically looking to achieve?
Tied into the exit plan for a developer, we also have the return strategy, which is based on whether a developer wishes to rent out the completed units or sell them on.
Rental yields (from both a commercial and residential perspective) are less affected by volatile property markets than selling completed properties on the open market.
However, selling the homes or commercial properties unlocks all of the capital tied up in them, which gives a quicker return than rental income.
Moreover, a developer must appreciate that a change in the market could leave them with property and potentially development opportunities that they cannot sell at the price they wish to achieve. If this happens, a decision then needs to be made - either ride it out until the market turns, or sell at a discounted price, both of which should be taken into account in the initial business plan.
What is overage?
Overage is the mechanism often used in property documents to protect a seller's position in the event of a buyer achieving an uplift in the value of the land, or sales revenue above a certain agreed amount.
Overage is in essence an additional payment over and above the specified sale price payable at the point of completion of a land transfer, which in the event a certain specified event occurs within an agreed period of time after completion of the land transfer, will become due from the buyer to the seller.
The Property is sold with the benefit of a planning permission for 40 houses and the buyer secures a planning permission for 50 houses. Overage could be:
- a certain agreed figure per additional house authorised
- a proportion based on the additional square footage of authorised development
- a proportion of the actual uplift in sales proceeds.
It is important to consider the 'trigger' for the payment to fall due - the seller may want the earliest possible timing, for example on the grant (or at least implementation) of an enhanced planning permission, but the buyer will say that it has not yet received any value to pay out overage from, so it might well prefer to pay out on completion of the sale of the final unit.
What is a builder’s contract and do you need one?
A Builder’s Contract, or Construction Contract, is the contract between the person who wants the work done and the builder. A simple contract at least sets out what the works are, how much they will cost, and how long they will take. There are a variety of standard contracts that can be bought off the shelf, the right one depending on the size and nature of the project. Some contracts can be self-administered, and other will need a professional to administer them for you. However friendly you are with the builder, having a contract is essential for both of you. It sets out the basis of your agreement and, in the event of a dispute, is vital protection.
What is the best plot finding tool?
You can always do the leg-work yourself but having a good plot finding tool can take away a lot of that hard work, and wasted time. There are several online tools on the market with the market-leader probably being LandInsight, produced by LandTech. A good plot finding tool will let you input specific search criteria, save your potential sites, and give you invaluable information on aspects such as local planning permissions, local sales prices, planning policy constraints and land ownership.
What is party wall legislation?
Can I build my own home extension?
Even if you are a competent DIYer, it’s always wise to seek help where you need it. It’s perfectly possible to build your own extension but, although you should use your skills wherever you can, make sure you use professional help where necessary. Build Build Build will help you understand who you need on your project, and when, and will give you the knowledge and confidence to manage the whole process.
How can I build my own home?
There are several ways you can build your own home. You may live in a house that doesn’t meet your needs and you want to create a home that fits with your lifestyle. The simplest way to achieve this may be to extend, or even re-build your current home, making it larger and bespoke to you and your family. You may have land, even your own garden, that is suitable to sub-divide; using some of it to build your dream home. Or, you may want to buy some land and build your new home on that. Whichever way is right for you, it is important to get the right advice from the right people at the right time. With trusted advice, good foresight, and a knowledge of how to plan a build project you can make the process streamlined and enjoyable.
Do I need planning permission for my house extension or conversion?
It all depends on the size, nature and location of your project. Many houses have Permitted Development rights, which are rights to extend or alter your house without the need for planning permission. The work you are doing has to meet specific guidance to obtain these rights, which includes it’s size and the materials you can use. There are certain cases, though, where a house does not have complete permitted development rights, such as listed buildings and houses in conservation areas for example. There are simple guides to permitted development rights available on the government’s Planning Portal. You’ll often find that you can get more from your development by using your permitted development rights than by going through a planning application process.
Do I need specialist insurance whilst carrying out a home extension or conversion?
If you are carrying out a home extension or conversion you should at least notify your current buildings insurer. They will tell you if they require you to take out any additional insurance. You should also make sure that your builder has insurance, for the duration of your project. The builder’s insurances must at least cover damage to your own building, damage to neighbours’ buildings, injury to the public, and injury to site staff. If the builder is designing a part of the project, such as the electrics for example, they should have professional indemnity insurance. There are other specialist insurances and, if in any doubt, you should contact an insurance broker.
Can I design my own kitchen extension?
You can certainly design your own kitchen extension but, depending on how much knowledge and experience you have, you are likely to need people to help. An architect or surveyor can help you with designing and project managing your extension, and an engineer will certainly be needed to produce structural calculations needed for the Building Inspector’s approval.
How do I notify building control on my home extension plans?
To notify Building Control of your home extension plans you can either contact the Local Authority or an Approved Inspector. The process is relatively simple with a Building Notice needing to be submitted, subject to certain provisos. Often your builder will take responsibility for contacting the Building Inspector.
Is there a checklist for extending my home?
There are many important things to remember to do when extending your home and what those things are depends on the nature of the project. You can instruct an architect or surveyor to manage your project or, if you purchase our Build Build Build program, you will have access to checklists for every stage of your project.