The Revolution Brokers team often hears from prospective new property developers - and we've all seen the shows where developers make tremendous profits from fast renovations!
However, like every industry, there are right and wrong ways to get started. This guide runs through the most important things to know before you invest in your first development property to make sure you get started on the right foot.
If you're looking for competitive development finance lending as a new developer, or need support with understanding which lenders are right for you, give us a ring on 0330 304 3040 or drop an email to email@example.com.
What Sort of Financing is Available for New Property Developers?
The first thing to understand is what sort of financing is out there, and what kind of lending is best suited to the type of property you'd like to develop.
Here are the four primary types of property development, to illustrate the diversity within the sector:
- Conversions: this means buying a property and converting it, perhaps from a house into apartments, or from commercial office space into residential homes. Conversions can be extremely high profit, and in some cases, you can avoid planning permission if the work falls under the Permitted Development criteria.
- Refurbishments: some investors will purchase a run-down property, refurbish it, and sell it at a profit. This is a faster form of development, less risky, and easier to manage.
- Flipping properties: the phrase means buying low-cost property and selling it on very quickly. This type of development can be successful if you can purchase properties at low prices but usually means needing extensive experience in the market.
- Group up developments: the final type of development means building a brand new property from scratch. The larger development firms with significant construction experience usually carry out this type of work.
What Sort of Project Should I Start With in Property Development?
Our advice would always be to start with smaller-scale refurbishments and expand into more complex and challenging projects as your experience grows.
There are often delays and unexpected costs in developing properties, and so you are much better able to deal with them if you have been there before in lower-risk scenarios.
How Can I Find the Right Property to Develop?
It is critical to invest in the right property to guarantee that your development will be profitable. There are lots of ways you can research the market, such as consulting:
- Property sales websites
- Local agents
- Visiting auctions
- Talking to property sourcing agents
The best way to explore the sort of development opportunities available is to get to know experienced developers or agents in the industry.
When deciding what property to invest in, consider:
- What sort of scope there is to build or convert the property
- Your budget, and the maximum you can invest
- How much the building work is going to cost
- What the market is like, and whether similar properties have sold for a reasonable price
- Who you would expect to sell the finished development to
- The stability and any critical issues with the existing structure
- Whether groundworks are required, and therefore if there are drains or cables on the property
- If there are any other developments in the area that you'd be competing with
How Can I Make Sure I Buy a Development Property at the Right Price?
Bidding wars are common - agents might have a property that they know is prime for development, and send the details to all local developers to start a bidding war.
It is never wise to enter such a bidding contest, as you can quickly pay far more than your budget, and reduce the potential profit.
You must be sure that you can sell the finished property for more than it cost to buy, develop and finance.
Work through detailed budgets, build in a contingency, and spend time researching the local market to make sure your figures stack up.
How Can I Research the Local Property Market as a New Developer?
To get a good idea of what you could sell your property for, it's essential to know how the local property market is performing.
You can look at what properties have recently sold for of a similar size and quality, and whether other developments are underway - or have submitted planning applications - that might impact the sale value of demand for your development.
Consider areas in high demand, such as prestigious postcodes, regions with outstanding schools, and how quickly a typical property stays on the market for before selling.
How Do I Choose the Right Contractors to Work With?
Your team is vital, and as a new developer, it is critical to use professionals who have the right experience, credentials, and reputation to ensure your development goes smoothly.
Make sure that all quotes are in writing, and you've gone through the plans in great detail before agreeing to any work beginning.
Check the accreditations of your team members, and seek out reviews of their previous work to ensure they have the right experience and have produced positive results for other developers.
As the developer, the responsibility is yours, so keeping a diligent oversight of every aspect of the project is vital.