01 | Write a property development business plan.
02 | Always think about what you will earn from the rental and return on investment.
03 | Ensure you have suitable property development finance in place.
04 | Take your time and research diligently.
05 | Think about the location.
06 | Develop your property with an exact purpose in mind.
07 | Are you going to buy to sell or buy to rent?
08 | Keep your buyers or renters in mind at all times during every stage of development.
With the current news about Brexit and now we have a new prime minister. Also, with the pound falling even further it’s understandable the UK still has no idea what is going to happen. Also, how will all the uncertainty affect the property market? Everyone is holding on with bated breath, not knowing which way the market will move.
The Bank of England has said that the housing market prices could drop by 30% if there is not a deal on Brexit.
However, there is some light on the horizon. In the 2018 Autumn budget, the Chancellor said the government would extend the Help to Buy shared equity scheme. This scheme lets the government lend first-time buyers up to 40% of the value of their property, is now planned to stay until 2023.
Also, other good news is that areas of regeneration in London and around the country are still growing. The housing market has managed to stay stable, and under all uncertainty, it remains strong and the right area for investment.
Write a property development business plan.
It doesn’t matter if you are going to be working part-time as a way to supplement your primary income. Alternatively, if you are full-time developing properties, it is crucial that you have set out a well-defined business plan. Please take a look at our property development business plan template for some more information.
Also, consider what resources you will need. Will you require staff or a marketing agency? Are you going to need a website or any other resources for promoting your property? Consider all extra costs that are not involved in the property development build.
Always think about what you will earn from the rental and the return on investment.
Depending on if you plan to use a Buy to Let strategy, the monthly rental yield is necessary to consider. However, if you are planning on selling, you have to be prepared for what the market will give you when you are ready to sell. So check if it looks like the market will go up or down for when your project is projected to finish.
The rental amount can be calculated by estimating the annual rental income for the property value. 10% is considered a healthy income amount. But you could increase the amount dramatically when converting the property to an MDU (multi-dwelling property). If you are planning to sell, then aiming for around a 30% return on your capital is a good target.
Ensure you have suitable property development finance in place
Starting as a property developer isn’t cheap. Your money will be tied up in your investments until you either sell or rent out the property. Make sure you have enough capital to work with until your development has been completed.
It’s essential to ensure you can raise the necessary capital. There are several options for this, such as bridging loans. You could also use your current residence as collateral. Speak to a dedicated property finance expert who can advise you on available and suitable funding options.
Bridging loans are a great option as short-term finance is secured against property assets. We have more information about bridging loans explained here.
Another option that can help mitigate the risks of expensive property development is to find a partner and enter a joint venture. A business partnership involves both parties agreeing to combine their resources and share the risk.
Take your time and research diligently.
It’s essential that as a property developer you do not rush into anything. It can be so easy to get swept away by opportunities and remember if it looks too good to be true, it probably is. Take your time to get familiar with the local market and learn what location works best for the type of investment you are planning on undertaking. Not every property will be suitable for your particular style of development. So know what works best for you first and don’t let anyone convince you that you are missing out on the opportunity of a lifetime. You can always start small on your first investment as the quicker you finish, the quicker you can move on to the next investment.
Market research is essential this way you will know what is the correct market asking price. Like any financial investment, it’s vital to get a good value on the amount you buy and sell. In property development, you can make more money by purchasing at a reasonable price than selling at the market asking price. So make sure you have negotiated well when it comes to the asking price. There are some great websites such as Zoopla and Rightmove that can both help you compare prices and learn what is the correct market asking price. If a property is well below that price, then do everything you can to question why. Could there be some other factor such as structural issues, or an unsavoury area that could be affecting the price?
Think about location
This can be overlooked as a property developer can have a predefined preference to where they want to buy. Remember the phrase location, location, location. As is so important that you find an area that is on the rise and where can you make the best profit, not an area you know.
Develop your property with an exact purpose in mind.
Whether you’re buying to sell or rent, it’s essential to ensure it is fit for purpose.
Make sure you have complied with all the property safety standards and security regulations and that the property is in good condition.
Security and safety are some of the most critical aspects, and you need to make sure the property is fit for its purpose, such as:
Home security systems such as intruder alarms or CCTV systems. Make sure the property has proper good fitting locks on all the doors and windows. If you are planning on renting, you can get a system that will dial through to your mobile in case of an emergency. Alternatively, you could use an alarm company; other options include a fire alarm system; this may be the law to include one. You also have the added advantage that a security system will reduce your insurance premiums as well.
Home boilers are also important such as including central heating and water heating for baths and shower units and cooking. If you are developing, check the pipework and make sure it is in good condition. It can be costly to replace later down the line after the redevelopment work is complete.
Are you going to buy to sell or buy to rent?
Check with the HMRC regulations as properties sold can incur capital gains tax. Which is currently between 18% and 28% this amount depends on the income and has an annual exemption of £12,000 as of 2019-2020.
A good property developer always has a planned exit strategy as per your business plan.
Buying and selling can offer a better short-term option. But you can be more dependent on the market conditions so make sure you have checked that you can get in and out at the prices you want to achieve.
Buying to let is a longer-term option. You can keep building on your property portfolio; this could be an option if you would like to replace your current salary or use it as a pension later on. However, do remember that a rental property is classed as a salary, and it is subject to income tax.
Keep your buyers or renters in mind at all times during every stage of development.
It’s vital to tailor-make your development to the needs of your potential clients. Do not get carried away and find the fittings and furniture you would like the most. If you’re planning on renting to students or if your audience is families, make sure you have them in mind as you plan your build. Keep a tight grasp on your finances at all times and think about who will be moving into the property as soon as it is complete.
We can help you to secure the right finance for your HMO property development. Just complete our quick enquiry form here and we will contact you shortly.
DISCLAIMER: These articles are for information only and should not be construed as advice. You should always seek advice prior to taking any action.