Buying property for development has for many years been seen as one of the most attractive ways to become your own boss and leave the 9-5 rat race behind. In light of the recent European debt crisis, the market has changed but it is still possible to become a successful property developer.
The most important knowledge that needs to be acquired when starting out in property development is how to choose the right property; how to develop the property and how to finance the property development.
In fact many new property developers choose to increase their odds of success by starting a property franchise business, where guidance from seasoned property developers is offered for those most important first projects.
How to choose the right property
The first step is to set the geographical limits of your property search and for most this means restricting the search to locations that are no more than 1 hour away from where you live. This will make it practical to manage the project and you will probably have at least some insight into local markets.
Properties that will generate the most return will be close to local points of importance, such as schools, transportation hubs and supermarkets. It is also prudent to find properties in towns and cities where at least 20k people of working age live in the immediate vicinity.
How to develop the property
It is always important to develop a property for its intended purchasing demographic and not to personal tastes. The first decision to make is whether the property is being developed for the rental market or if it is a buy to sell development.
If it is for the rental market then it can be developed as a single let or converted into a House in Multiple Occupation (HMO). HMOs can be more lucrative as rental income is generated from multiple occupants and it is less likely that all rooms will become vacant.
If the property is to be sold or rented to a family, then create a neutral decor that will give the family a blank canvass to put their mark on. Student lets work best with good communal rooms for social interaction, while professionals prefer a clean and modern decor.
It is also worth paying attention to other homes in the immediate area to see if they have loft conversions or extensions, which can add value in the right locations.
How to finance property development
There are three main routes of financing that property developers use.
- Buy to sell mortgages – These are direct from high street lenders but less options are available following the financial crisis. A large deposit is usually required along with a good credit history.
- Bridging loans – These short-term loans can be used to raise funds quickly and with a smaller deposit. The bridging loan can also be underwritten on collateral, such as the property, as opposed to the financial status of the borrower.
- Joint venture investors – Investors and mentors can be found through companies such as Glenn Armstrong Property and these investors can provide financing to a property franchise business under a profit share arrangement.
Following these simple rules will help novices find the most effective ways to profit from property development.