All About Property Development…
A Ten Point Guide
1. Overview (the bigger picture)
I’ve made a lot of money developing properties. In many ways it is the ideal calling for a builder. No customers! No deadlines set by customers! No quibbling about prices (both parties)! No hassles!
But I’ve seen plenty of punters come unstuck trying to bite off more than they can chew.
However – and it’s quite a big however – done correctly, and to a plan, you can be the one making those £20,000, £50,000 or £100,000 profits.
And the key is: HAVE A PLAN AND STICK TO IT.
This includes which fixtures and fittings you will use, where your labour will come from and how much it will cost, what rate is your bank loan at and is it in place? And what the maximum property purchase price you will accept as well as a “turn around time” for the entire project.
2. Work out your budget and stick to it.
This is probably the most important of the lot. Have a check on your finances and ask yourself some very pertinent and probing questions:
What is the property worth?
How much will it be worth when it is done up?
How much will it cost to do up?
How much can I realistically sell it for?
What are similar properties in the same area selling for?
If it doesn’t sell for a while can I cover the mortgage costs?
Why did I have that extra pint and end up in that club last night?
That sort of thing.
3. Get to know an estate agent. Heck, why not learn how to talk like one?
Everybody’s pet hate this one. Nineteen year olds with too much gel in their hair, dressing like Michael Douglas in “Wall Street”, talking about original features and “good use of space.” And don’t even get me started on the colour co-ordinated Mini Coopers and the glass fronted offices with more computer hardware than P.C. World’s stockroom. And you have the privilege of paying 2% for this!
But there is another type of agent-the career estate agent who has been in the job for more than six weeks and isn’t called Lee. Or Darren.
The career estate agent will know a bit about the property in your area. These are the people you need to be talking to. I remember when I was embarking on my first development project. I decided to trawl through all the agents in my vicinity. I sat down with each and every one and explained my objectives. Of course they had heard it all before, yet the lure of my 1.5 or 2% forced them to listen. Tell them how much money you have to spend, that you want to spend it soon and with someone who will look after them.
Get on their mailing lists and plan to start viewings immediately.
Tip. Write the agents’ names down, which agency they are from (you’ll lose their cards) in a dedicated book – I still have mine, names have been tippexed over (one for the teenagers) but I have know some agents for twenty years.
4. Supply and demand.
Pretty simple this one. You need to understand what type of property will be in demand in your area. There’s no point creating a property that nobody wants. This is about as much use as a chocolate fireguard – and not a period one at that.
Again you will need to talk to a proper estate agent, not Darren. But use your common sense, work out which properties will be in most demand and base your development around that. Location, location, location, really is advice worth taking.
Research property in your area.
If this is your first venture it is wise to develop locally. Not only will you have a greater knowledge of your area, but also you will be able to go in and annoy the builders more frequently.
There are certain ‘must-haves’ which will apply to your own situation.
Decent sized loft if you want to do a loft conversion
Room for an extension, if you want to extend.
Proximity to train/tube links for flats in the commuter belts
Parking/CPZ (controlled parking zones) for larger properties
Garden to house size ratio – big house, tiny garden is a no-no.
Is there gas in the apartment block – a lot of people will not buy a place with no gas.
However, for a first time developer I would keep it simple. A two bedroom flat that needs a general renovation, a kitchen and a bathroom, a sort of ‘back, sack and crack’ of the building world, is all you should undertake when learning the ropes.
If you are a little more adventurous and you are on good terms with builders and perhaps have had an extension done at your own home, I would suggest a three bedroom house with the potential
for a single storey extension. For pricing of an extension why not check out my Pricing An Extension article.
Tip. Steer clear of loft conversions – they are notoriously tricky to price as there are so many variables. Besides, unless the property already has a spacious downstairs an open-plan kitchen/diner extension will add more ‘wow!’ factor than a potential guest room.
The timing of how soon you find a property is, for the most part, luck. You could see potential in the first property you see, or the fiftieth if you are unlucky. But remember, passing on the ones without potential is saving you more money and hassle than you can imagine.
5. Understand Building Regulations and Planning Permission.
You really need to sort this as soon as possible if you are serious about becoming the next Lawrence Kevin-McCloud. You may have all the architectural vision in the world but if you can’t get the Planning Permission, forget about working your magic.
Make sure you can get Planning Permission before the project is started or even better, try and purchase a property that already has the permission in place. Easier said than done, I know.
6. Add uniqueness, add value.
There are many different ways to add value to your development. Try and think a bit laterally on this one as I assume that you are wise to all the usual tactics that are employed. What you need to do is make the property as attractive to as many people as possible. (We will get to personalising in a moment).
Don’t try and cram too much into too small a space. Three tiny bedrooms can often be less attractive than two decent size ones. Don’t waste all of your money on state of the art features and gadgetry that punters know will be removed as soon as the property is sold. Try and spend it on quality fixtures and fittings. If you buy cheap stuff, it will show, and the potential purchaser may well be put off.
7. Don’t over-personalise everything! Or even anything!
You think you have got good taste. I know I have. Just look at my shirt – it’s fabulous and everything. You very well may have good taste, but just in case you aren’t as debonair and perceptive as I would like to be, try and choose fixtures, fittings and colour schemes that will appeal to everyone.
Hopefully, this will make the property sell more quickly, which means a fast turnaround for you. Which means more money for you, which means you can get on with your next development, which means you make even more money, which means you will be rich, which means you will drink Champagne or a fizzy derivative every single night. Fantastic! As long as you still remember to develop properties in the morning.
Seriously though, don’t try and design everything to your own taste as the chances are, it will probably cost more and won’t appeal to everyone. Thus, you are reducing your market. Try and keep everything clean and neutral. And never paint anything purple and grey. That’s very bad indeed unless you are selling to batman.
8. Employ the right people to do the job.
The chances are that you will be trying to do this property up and hold down a steady job at the same time. Not always easy, especially where timetables need to be adhered to. Inevitably you will end up employing builders. Picking the right ones is all important.
Check his previous work, get recommendations from friends and family and organise a stage payment structure between the two of you that is agreeable to both parties. And never pay large sums up front. I’ll repeat, NEVER PAY LARGE SUMS UP FRONT.
9. Can the budget afford a project manager?
Depending on the limitations of your budget, it may be hugely beneficial to you to employ someone to take the load from your already sagging shoulders. This will be a Project Manager.
He or she will be present to oversee the entire build, make sure that the work is carried out to an acceptable standard, chase up deliveries and generally keep an eye on the builders. He/she will have a green wax jacket, a clipboard, a mobile phone permanently pressed to his/her ear and will be answerable to you (and only you) in all aspects.
If you can’t be on site as often as you would like due to other commitments, and if the budget allows, perhaps this might be an avenue you might like to explore.
10. Don’t bite off more than you can chew and other clichés.
As in most things in life, try and start of small and gradually build up from there.
If you try and run before you can walk by undertaking a huge project, the chances are you are that you WILL encounter problems, both constructional and financial resulting in lack of profit.
So start small. Consider this one as your little “warm up” project.
Doing this you will quickly get to know the pros and cons of property development without risking all of your childrens’ inheritance. Any lessons learned here must be used to your advantage on the next project.
Soon, you will find an optimum formula that you can repeat ad infinitum. This will cut out those hours of deliberating: get to the stage where you will just go to that tile shop for those tiles. Your paint colours will be a given, the will be easily kitchen sorted, and the bathroom will be symphony of taste and functionality.
Best of all? Guess what. In the building trade, like any other, the more you buy from someone, the cheaper the prices are, the better your relationships with your suppliers will be, and as a consequence, they will be more inclined to keep you happy, thus making deliveries more reliable and the whole build process more efficient.
Which means more profit, which means more champagne.