How to get started as a property developer

The role of a property developer is appealing to many.  It can be a lucrative industry to be involved in and also very satisfying to bring a neglected property back to life or create a development to improve an area.

Like most financial rewards, there can be risks that come with property development, however, understanding what is required to make a project a success can reduce those risks.

So, if you’re thinking of getting into the world of property development, there are a few things you need to consider first…

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1. Pick a strategy

Before you get going, you need to establish what your goals are. Are you in it for the short-term or long-term benefits? What are you hoping to achieve and how will you get there?

Property development can encompass any of the following:

• Buying land and building property on it
• Renovating, extending or improving a property
• Converting property from one use to another (commercial to residential and vice versa)

Decide which strategy appeals to you most and is realistic for you to successfully complete. If it’s your first development, it may be worth starting small to get some experience before taking on a bigger project.

It’s also a good idea to create a business plan at this point. Not only will it be necessary if you require funding, but it will serve as a useful road map to guide you through the project.

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2. Understand the local market

To be a successful property developer, you need to get to grips with the property market in the area you plan on developing within. Research market prices and trends in the area, assess what’s sold or rented recently, establish the types of properties that are popular and consider the overall demand for what you want to develop.

Some areas are prime for property developers, while others are not very lucrative. Some areas will be better suited for renters while others are desirable for homeowners. Location is paramount for the success of your development so be sure to really understand the area well.

It’s also worth taking the time to understand the local planning rules as many developers are hit with unforeseen costs if a project is shut down due to planning rejection.

3. Find the right people

Aside from yourself, there are many skilled roles required in making a property development a success. From accountants, architects, a conveyancer and builders, it’s important you have a great team of people to work with to complete the project on time and within budget.

Recommendations are always the best way to find the best people so ask your friends, family and even other developers if they can refer anyone with a good reputation and experience.

Architects will often recommend a builder that they have worked with on previous developments. They may cost more, but it can help to make the process run a lot smoother and prevent any ‘cowboy builder’ experiences.

Always communicate clearly and get everything in writing so that everyone involved is on the same page. Getting a good team in place that you can trust is crucial, especially if you plan on doing more developments in the future.

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4. Understand your obligations

Being a property developer comes with its fair share of legal obligations. Depending on which route you decide to go down will determine what legal requirements you need to abide by. At the most basic level, your property needs to be fit for purpose and must meet minimum safety and security requirements.

You’ll also need to determine whether your project will require planning permission or not. You can do this by contacting the council.

Make sure you are aware of your obligations, otherwise your project could be shut down. If you’re working with a reliable builder, conveyancer and architect, they will advise on what is required within their particular area of expertise, however, you will be liable for any penalties if the basic requirements are not met.

5. Know your numbers

If the numbers aren’t right, the project won’t work. Many first-time developers jump into property without understanding the different costs that can arise. This is a sure-fire way to fail and end up in financial trouble.

The first thing you have to do is establish your total budget, what deposit you’ll need and how much of a mortgage you can sustain. Then you can calculate an estimated return on investment as well as how much finance is needed (if any).

Once you know the local market, you should be able to estimate what most properties in the area are worth, what the rent would be on them, and whether you can add value.

Buying at the right price and at the right time is crucial for your bottom line and property auctions are a common way to find the best deals. You may find that the perfect land or property appears but you’re not in a situation to proceed financially, this is where bridging loans can help.

You also need to understand how much it’s going to cost to develop the property and how much value needs to be added to make a financial gain. Always get quotes from a handful of contractors before picking the one best for your project.

If you’re developing a property for financial gain, don’t get carried away by adding things that aren’t necessary and don’t directly reflect the end goal.

Remember, this is not your home, it’s a business. Develop a property that is right for the market and not based on your personal taste.

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6. Secure finance

Once you’ve established your numbers, you might realise you need finance to get your project off the ground, especially as a first-time property developer. Even the most experienced developers turn to lenders to help them get the best results for their development.

Becoming a property developer requires money, and most of the time, lots of it! You also need to bear in mind that until you sell your first property, your money will be tied up, leaving you unable to expand your portfolio.

There are many finance solutions available to help property developers get started and grow their business, with bridging loans and property development finance being the most common choice.

Using a specialist finance broker is the best way to access a wide range of market products and ensure you’re getting the best deal.

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At Ramsay & White, we specialise in securing finance for first-time and experienced developers and investors.
UP to 75% LTGDV | Up to 100% of work costs covered | Terms from 1 month to 5 years | Market Leading Rates