How to Get Into UK Property Development
If you’re planning on diving into property development for the first time, it would be very unwise to skip over the necessary homework. With tremendous luck there’s a chance that you could defy the odds, wing your way through and somehow land on your feet – but that kind of reckless audacity would be misplaced here.
Given how the exciting, lucrative business of property development inherently carries high levels of uncertainty, it’s therefore best for beginners to look before they jump. So, with that in mind, let’s break down some essential tips for ensuring that your buy-to-renovate venture stays afloat throughout the process.
Get Number Crunching
Property development can be fun, exciting – even exhilarating. But it can also potentially leave you completely penniless and in serious debt. This is a vital reason to work out your sums before you do anything else. Take your eye off your prospective property and turn your attention to others similar in the area. Then ask yourself:
How much do they sell for? How much is the stamp duty? How much will the survey cost? How much will the renovation cost (taking into account tradesmen, materials, room for surprises, etc)? Can you handle the project yourself? And (because time is money) how long will it take to complete?
Anything that will or could deplete your project fund must be noted down. Next, you need to work out who your target seller for the property will be, when you need to sell by, and how much you will realistically sell for. Finally, be honest about the juice versus the squeeze (is the profit margin worth your efforts?). Being hopeful in heart is great when it comes to your local sports team – but being realistic in the head is the only way to approach property!
Keep an Eye on the Market
In a nutshell, don’t become complacent. Try to periodically keep a close eye on the current housing market. Maintain a growing, evolving knowledge when it comes to the landscape, absorbing which factors are influencing and manipulating people’s decision making (such as Inflation, Employment, Interest Rates and Supply & Demand).
Is Location Really Everything?
Yes, but to a point (depending on various circumstances). The point is this: you shouldn’t be gunning for the best spot in town ‘just because’. Sure, a property in an attractive road that’s bang central – to a great school and park, and is within walking distance to a high street, train station and motorway, etc – sounds like the dream, right? If you can afford it, that’s great. If there’s room in your budget to fix it up, that’s great, too.
But to win in property developing, you often have to think beyond the obvious moves – in other words, it’s not all about prized-postcode hunting! So keep in mind that the ‘location, location, location’ cliché is nuanced and not to be taken too literally all the time. Know this: buying a property that’s situated on the fringes of a nice area (fairly close to all those attractive aforementioned location benefits) is a perfectly fine way to make an investment.
Lastly, remember that an undesirable road (perhaps considered the ugly duckling of a nice area) could hold the potential to later become a lot more desirable. This is because development is happening all the time with both domestic and commercial property. Obviously there’s a chance that a surrounding development could also potentially impact your property in a detrimental way, so it’s best to keep your eyes and ears open.
Don’t Get Too Attached
Just because you’ve found a property with potential, it doesn’t mean that you should stop shopping around. Fresh market listings – including those being auctioned – are always popping up. And if that’s true, it means that while driving along at the weekend – bam! – you could suddenly spot something with even greater potential.
And so, since you’ve not yet committed to anything, why not look further into this newly spotted property? If it’s not being represented by an estate agent, that doesn’t mean the game’s over either; you could simply knock on the door and have a polite chat with the owner to see if they’d be interested in selling. Private sales forgo certain fees and are often more convenient, so talk some numbers and see where it goes.
Get to Know Your Seller
Finding a property with good potential is important, but have you considered how important it might be to know who you’re buying from? With your eyes fixed on a property, now comes the issue of negotiating a price that won’t cut too deeply into your renovation budget and forecasted profit margin. It’s simple: the less motivated someone is to sell, the less bargaining power you have as a buyer.
So, in that case, the ideal scenario would be to find someone who is highly motivated or even desperate to sell (this may stem from events such as recent unemployment or a divorce). Obviously not every situation will be like this, but so long as you aren’t desperate to buy yourself, you’ll theoretically have the upper hand. You could either ask the estate agent for some background information on the seller, or try to approach them directly.
Make Money Before You Sell
Many people think that you make money when you sell a property. But when you really think about it, your strategy for securing a healthy profit margin should have been in action a whole lot earlier than that. If you can, always aim to put serious emphasis on making your money when you buy – not just when you sell.
With this in mind, the cheaper you can buy a property for (below market price), the better your immediate outlook becomes. Understand where you are on the negotiation seesaw (by finding out how strong the seller’s motivation to sell is – either from the estate agent or by contacting them directly), and do what you can to get the asking price down as low as possible. This is where the real gold lies.
Make Breaking Even an Option
For beginners, knowing how hard to push can be difficult to gauge. So what steps can you take to ensure that your offer won’t lead to financial strain or serious debt? If you had the choice between debt and breaking even, the latter would sound far more appealing, right? In that case, then, it would make great sense to avoid any serious risk investments early in your career.
When it comes to risks, some stare you right in the face, while others are harder to spot. But you must always take into consideration any structurally-related issues and hazardous materials (like asbestos), not forgetting other issues like troublesome neighbours, crime, traffic and noise pollution. Calculating the risks gives you a greater chance of at least breaking even – and, since breaking even means you can come back, it’s an acceptable win.
Drop by an Auction House
Auctions have always been fantastic places to net yourself a bargain. A property usually ends up there because it didn’t fit an estate agent’s remit, the renovation works required were too extensive, or simply because the seller wanted a quick, no-fuss sale – but often all three. While you will have to pay stamp duty (if applicable) along with an auction fee (be sure to check rates prior to bidding), you will benefit from bypassing traditional estate agent fees and a market chain.
Just don’t allow your emotions to overwhelm your better judgement; being in an auction house can be an exhilarating feeling, and it’s not the time to lose concentration and start making mistakes. Try to maintain calm during the bid, never deviate from your agreed limit, and try not to appear overly keen and anxious to buy (even though you may feel that way!).
Never forget that winning means entering into a legally-binding contract that is virtually impossible to wriggle out of. There’s nothing wrong with enjoying the process – just make sure you respect it enough to avoid risking financial ruin! If you don’t win the bid, there’ll be plenty more chances, so don’t worry. And if a property doesn’t reach its reserve, don’t worry either – you can always approach the seller afterwards to try and negotiate a deal.
You’re Not Renovating for Yourself
It may sound like an absolute given, but if you don’t keep your personal tastes and pride in check, there’s a chance that you may wind up deviating from your original plans. Have you ever gone shopping to buy a pair of shorts only to arrive back home with a bunch of stuff you didn’t need (and couldn’t really afford)? Well, this is kind of the same thing.
If your plan was to complete a budget touch-up job with cheap-and-cheerful paint, then don’t fall into the trap of expanding on that purposeful, considered decision. If you do, it’ll eat away at no one’s profits but your own. Conversely, if you’re planning to sell to a couple, a professional, a family, or a mixture of all three, you will need to cater to their expectations accordingly. Just ask yourself: What will tickle my buyer’s fancy the most?
Go All In (Take It Seriously!)
Getting involved in the property development business can be a rewarding, fruitful, confidence-building venture. But never forget that the risks are real, and that your project isn’t guaranteed to have a happy ending just because you’re really optimistic (and have seen loads of people do it on TV!).
Property development requires hard work, determination and sacrifice, and even the smallest of projects can wind up turning into a second job. So find out as much as you possibly can about the business; be fully aware of the risks and the extent of any works to be undertaken. By doing this, your chances of success can only increase, right?
Finally, since fortune favours the bold, be sure to congratulate yourself when you eventually do take on your first project. Good luck!