The Property Speculator

Creating a Property Development Contract with your Builder

Many private property developers aim to save money by carrying out some of the construction work themselves. This can often be very successful, and usually depends upon the competency and persistence of the developer. However, it also depends a lot on the developer having the time to do the work. It’s fine if the novice developer does not have to do a ‘normal’ job every weekday and can just concentrate on the construction/alteration works. Most developers, when beginning their ventures though have to juggle a day-to-day job and run their property ventures in their spare time. I can assure you from experience that having a full-time job and having to squeeze in work on another property in the evenings, weekends and holidays will test your motivation and persistence. In short, it gets quite stressful.

Apart from the obviously increased expense, it usually makes a lot of sense to get builders in to do the work for you (or at least the majority of it). The larger the project, the more benefit there is.

Where to start though? All developers will at some point come to this stage. Knowing that substantial outside help must be secured, but not quite knowing what to do first.

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The first step is to decide exactly what needs to be done to the property. On smaller projects where the work will only amount to a few thousand pounds (such as very minor alterations) the route will be different to larger projects of hundreds of thousands or even millions. On small projects it’s more likely the developer will have a good idea of what work they require the builder to carry out. It’s very important to write this down, placing it in logical steps. An example of this might be:

Lift Patio area to rear of property (state the extent of this if possible).
Re-route/prepare drains for foundations to comply with Building Regulations.
Dig and lay suitable foundations in preparation for extension.
Construct double-skin brick/block extension to full property height in accordance with planning conditions, tying bricks and blocks in with existing structure.

This list in its entirety should be concluded with important points, for example ‘all associated excess material and refuse to be removed from site upon completion’ and ‘all appropriate Building Regulations to be complied with’.

This list is often referred to as the ‘Scope of Work’ and becomes more important as the size of the project increases. The scope of work can help you out at this point by enabling you to obtain several different quotes for the work if you feel you would like to look around for the most competitive price (known as ‘going to Tender’). If the idea of compiling this list is daunting because you are not experienced enough to place the required work into steps, contact either a professional (such as a Building Surveyor, Architect or Structural Engineer) or ask a reputable builder who will not be actually doing the work (so that the scope of work is impartial) to help out.

The process of finding a suitable contractor with the use of a scope of work is called ‘Tendering’. The larger the project the more important it is to find a contractor that will provide the right work at the right price. Once the builder has been chosen to carry out the required works (it might be the one who produced the most reasonable quote, or the firm who you feel might be the best suited to the work you need carried out) the next step is to establish the terms of the builders contract.

In almost all cases (around 70% – 80%), a Joint Contracts Tribunal (JCT) contract is used to establish the terms of the agreement between client and contractor.

The contract type depends on the type and scope of work to be done. For the smallest work, such as a house extension a ‘Homeowner’ contract would be used. There is further choice within this, for cases where the homeowner is overseeing the work, and where a consultant oversees it. At the other end of the scale is a ‘Design & Build’ contract where the contractor actually designs much of the work to be done.

It must also be mentioned, that when a project is being designed by a contractor, the company MUST have the appropriate level of competence and Professional Indemnity insurance to carry out the design work. This can be achieved by outsourcing to a Structural Engineer or Architect. However it is asking for trouble if a small building contracting firm designs a structure, dwelling or substantial alteration themselves without the appropriate level of design competence. The worst case scenario is if the structure fails or becomes unsafe. As developer, it is possible you could find yourself in court under a charge of negligence for failing to ensure the project was properly designed. Always approach the planning of your project in a professional manner.

For a guide to choosing the most suitable JCT contract, visit their site at:

http://www.jctcontracts.com/contracts/choosing.jsp

Please note, this article has been considerably condensed. Buy for the full version for only £2.

Feb 15th, 2012

A Quick Guide to Planning Conditions

Receiving the appropriate planning permission to carry out the work you want to, is one of the most important aspects of property development. However the grant of full or outline planning consent will be subject to some conditions that may or may not represent a problem to you.

Whenever full Planning permission is applied for and the developer (i.e. you) is notified of the positive decision, certain rules must be complied with in order to stay within the law. This ensures (from the Local Planning Authority perspective) that the developer does not apply his/her own ‘angle’ on the decision. These conditions will be stated on the decision notice itself or attached on a separate schedule.

To use an example of a ‘sticky’ planning condition that I came up against personally, a group of small-medium sized industrial units were offered to be let. These units were high quality as they were newly built, and a sub-division of a very large worldwide company (our client) was very keen to take on a lease to one of the units. The company required occasional access during unsociable hours in order to supply European factory production line components in the event of a breakdown at short notice. As I was progressing in negotiating favourable terms, it came to my attention that one of the planning conditions was a restriction on the hours that my client’s employees would be able to access the unit. Because of its very close proximity to some houses, the Local Planning Authority had applied a condition that ensured that occupants of the industrial units could not subject nearby residents to excessive noise during the weekend or outside normal working hours. There was not really any way round this, and as a result I had to find alternative premises for my client. The point of this is that although you might be celebrating the grant of planning permission on a plot or a property, the conditions that accompany it are equally important.

Planning Conditions can be related to almost anything affecting the property or land. If a newbuild property is planned, then it’s likely that some conditions will be connected to required materials, dimensions, access to the property and landscaping. Clearly you must be familiar with these before you start to build. If you intend to renovate and/or convert an existing property that has listed status, expect much more in the way of conditions. Sometimes the conditions involve something to be agreed to with the local council, in this case a fee is payable to have the conditions ‘discharged’.

Materials are an important aspect of how the finished property will look and how it blends with neighbouring properties and landscape. It’s likely that bricks and roofing tiles will have to be agreed to, prior to construction commencing on a new-build property. The local authority is also certain to take an interest in how the surface and foul water drainage system is planned. Landscaping is also important to the local planning authority; imposed conditions often request that schemes are provided and implemented within a certain period of time.

Both full and outline planning permission are subject to a maximum limit of 3 years. This means that from the date of consent, if works have not begun on the planned development, the permission is considered to have lapsed and will be void. For works to begin, planning permission must again be applied for and obtained before the works can actually begin. So if you already have planning permission for proposed works that is slowly running out, you should definitely get started to avoid a lot of inconvenience later. You should note that land or property that has existing planning consent that is approaching the end of its effective life is worth less than if the consent is fairly ‘fresh’. This is because of the increased risk of not being able to start work immediately before planning permission expires.

Access to the property is also a large consideration for the planners. If the development is substantial, questions will be asked in relation to increased traffic levels. Even if the development is a single dwelling, access to the carriageway will still be important as (for example) it might be on a blind bend in the road. Parking is also considered at some length.

In urban or built-up areas, the local planners might well impose conditions attached to the permitted hours of build. This is usually normal working hours, and there will be a restriction on working weekends and bank holidays. Sometimes if you are extending an existing property as part of the development, the local planning authority might remove some permitted development rights. This is because permitted development allows a certain degree of extension to a property. If the property is extended as part of your development, this in effect ‘uses up’ the degree of extension that is allowed. It doesn’t mean that the property can never be extended at any point in the future; it does mean however that consent must be applied for and granted.

It is common on listed properties to have at least some sign of the presence of bats. A dead bat, signs of droppings or visual signs of their presence is enough to warrant a bat survey. Building work cannot begin if there are grounds to believe that bats inhabit some area of a property. To ignore this is a criminal offence because of the protected nature of bats. A condition might well be attached to consent stipulating that a bat survey must be carried out and work cannot begin until the bats have ceased to occupy.

A very common condition attached to planning consent on rural properties (especially farms) is an Agricultural Restriction (or ‘tie’). This places a control over occupancy that only allows for residents to be involved in farming and must use the property and associated land to produce their main source of income (or words to that effect). This is very strictly enforced by councils, so be very wary of it because a property with an agricultural tie is offered at a hefty discount to one that does not have one in place. There is not really any way round this condition, so keep an eye out for it unless the property will ultimately be getting marketed as an agricultural one.

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As I’ve already mentioned, having an understanding of the importance of planning conditions is very important to a property developer. However what is just as relevant is the understanding that conditions can be appealed against. Obviously there is no guarantee whatsoever that taking this route will provide you with the perfect scenario of having the planning permission that you planned in place, with minimal conditions attached. Professional developers often carry out what is known as ‘twin tracking’. This means that planning permission is applied for and while they await the ruling, identical permission is re-applied for. This is so that if one application is granted but is not what they wish for (i.e. the conditions are not considered viable) when the second permission is granted, the first can be appealed against. Unfortunately if planning consent is re-considered by the local authority, they have the power to decline the consent, meaning that permission to build anything is lost. If the developer holds a second separate certificate, then they have not lost everything and can still build, albeit with less than ideal planning conditions.

Jun 19th, 2011

Risk Management in Property Investment & Development

Let’s be clear on this, investing in or developing property represents an element of risk to a greater or lesser degree.

Most prospective property developers and investors realise this but some subsequently procrastinate over taking positive steps to progress their venture. Perceived risk can include:

Getting a property project only partially complete before running out of cash.
Experiencing a problem during build of such scale that the contingency fund does not cover it.
Finishing the build and not being able to sell or let the property in order to recoup costs.
The property build/conversion will cost so much that the developer with experience substantial financial hardship in order to get it finished.

All these concerns can be effectively managed and guarded against prior to the start of the project. This is where a particular approach is vital; these risks should not put anyone off engaging in a property development or investment project.

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Risk is the ‘price’ of the return from a venture. It’s been said that ‘the higher the risk, the greater the reward’; however this seems (to me anyway) to be a contradiction in terms. If risk is high, then there is no guarantee of reward at all. People generally have very differing views on the amount of risk they are comfortable to adopt. However, if a developer is looking to borrow in order to fund the purchase and renovation/conversion of a property, then the mortgage provider will be very keen to see the project organised as low a risk as possible. This includes the developer putting around 50% (for first-time developers) of their own money into it.

So in conclusion, it’s important to minimise risk wherever possible. And to be honest, property is one of the lower-risk methods of investment and capital building. It’s not THE lowest, but there are far riskier investments available to those with the appetite.

To address the points above in turn:

1. Running out of cash mid-project.

This element of risk is managed by careful planning of the project. Many novice developers run low on cash, but it’s almost always because the budget has not been organised properly. The principles of running a financially viable project are:

Purchasing the property at a good price. It takes time to select the right property; it must fulfil many criteria – purchase price being one of the most important. If you are purchasing at an auction and the bid goes above your maximum level, you MUST resist the temptation to continue bidding. In my experience, if one opportunity has come along, then the chances are that another is not far behind. Once in a lifetime chances are just not that common. It’s far better to purchase a property at a good price and sell at an average one, rather than buying at an average price and hoping to sell at an exceptional one.

Agreeing a fixed-price contract with the builder. This is insisted on in many cases when obtaining development finance. It should be possible to agree stages of build with the contractor, where you pay a proportion at the end of a stage before moving on to the next. The agreement is likely to specify what is not covered in a fixed-price agreement. This might be substantial ground work or structural alterations. This is all in the negotiation.

Sourcing materials shrewdly. This might fall into the principle above, but if you intend to do it yourself, approach it as a business and not a personal ‘statement’. Buying the property and approaching the building work with your head, not your heart helps so much in this. Keep in your mind that the aim is to get the property let or sold and move on to the next.

2. Blowing the contingency fund on an unforeseen problem.

A contingency fund is an excellent idea. This is usually around 10% of the whole project budget. A fund of this amount will actually be a condition of borrowing with many companies (you’ll have to produce proof of the amount in a bank account).

So if a whole project budget is £240,000 for example, a contingency of £24,000 should be available in addition.

If the principles above are followed, there really should not be any reason for unforeseen problems to require more than 10% of the budget to rectify. Ground, structural and roof problems are usually the most expensive to sort out, but almost all of these can be taken into consideration if a good survey is carried out prior to purchase. Excessive build/conversion costs are another one of the criteria that should be considered before purchasing the property.

In some cases, problems do arise that there really was no way of knowing about before the project is bought. In this case, a degree of imagination is sometimes called for to resolve it without blowing that contingency fund. The most expensive and challenging problems are things like disused wells or buried objects. However these are rare.

3. Not being able to sell or let the property at the end of the building phase.

This is a problem that has affected many aspiring property developers over the past 4 years. As mortgage companies suddenly tightened their criteria for lending, the amount of buyers across the market as a whole reduced to such an extent that demand came to an abrupt halt.

This might be regarded as the greatest of all the risks involved in a property venture. It is theoretically possible to have a property advertised for sale for an indefinite period of time; and this scares the life out of many prospective developers.

Property is widely regarded as being highly ‘illiquid’. This means that the value cannot easily be released. The opposite end of the scale is cash; this is obviously a ready source of capital that can be used easily. Because of the nature of property’s lack of liquidity, it has certain characteristics such as a degree of stability of value (due to the fact that it is a tangible item, unlike for example – company shares). Unfortunately because of this shortcoming, capital can be ‘wrapped up’ in a property with little way of extracting it.

The way this problem is managed, is again by proper financial management. To reuse my quotation from above…. far better to purchase a property at a good price and sell at an average one, rather than buying at an average price and hoping to sell at an exceptional one. You must remember this! In many cases, the reason why properties stay on the market for so long is because they are overpriced for resale. Sticking to a rigid budget dramatically reduces this risk because there is less chance of financial overstretch. You should certainly make sure that you have planned for the property to be complete yet vacant for around 6 months after the build.

4. Experiencing financial hardship in order to complete the build.

Clearly, this is a variation on the perceived risks already mentioned. Most successful private developers have sufficient ‘surplus’ income to cope with the increased monthly outlay to cover another mortgage.

Some amount of flexibility will be needed to cover unforeseen problems, but the contingency fund will be in place to cover them.

There are not really many valid reasons why novice developers should find themselves enduring financial hardship to get their project completed.

To conclude, sensible and realistic budgeting should go a very long way to managing the anticipated risks involved. However as I’ve mentioned already, property development and investment is risky; if it wasn’t, there would be no money to be made in it.

May 13th, 2011

Understanding Building Regulations

Building Regulations are as important to a property developer as Planning Permission is. For all new-build, newly-converted and renovated buildings, the building works carried out have to comply with Building ‘Regs’ by law.

According to the UK Government Planning Portal, if you want to:

1. Put up a new building

2. Extend or alter an existing one

3. Provide services and/or fittings in a building such as washing and sanitary facilities, hot water cylinders, foul water and rainwater drainage, replacement windows, and fuel burning appliances of any type.

…the work must be compliant with current (that is, current at the time of work being carried out) Building Regulations. They must also not make other fabric, services and fittings less compliant than they were before – or dangerous.

Building Regulations will very likely also apply if you intend to change the use of a property, for example a shop being converted into a residential dwelling. Although a property in its original use might have been building regs’ compliant, the proposed new use may have different requirements.

To summarise, any work that involves the following, falls under the term ‘Building Work’ and will therefore be subject to Building Regulations:

1. The erection or extension of a building

2. The installation or extension of a service or fitting which is controlled under the regulations

3. An alteration project involving work which will temporarily or permanently affect the ongoing compliance of the building, service or fitting with the requirements relating to structure, fire, or access to and use of buildings

4. The insertion of insulation into a cavity wall

5. The underpinning of the foundations of a building

6. Work affecting the thermal elements, energy status or energy performance of a building.

Before commencing work you should refer to Regulation 3 of the Building Regulations for the full meaning of ‘building work’ or, if you are unsure, seek advice.

Speaking from experience, Building Regulations are not the easiest publications to work through. They are changed very often and tend to be quite ambiguous in many aspects. A link to the 2010 Building Reg’s is here.

If you are planning on using a builder to carry out renovation or development for you, then the responsibility to comply with Building Regs is on him. However, I advise you make all possible enquiries to check that not only are your builders indemnified by insurance, they know their way round the regulations too. Once the work is finished, it is likely to be very difficult to get the builders back to rectify any non-compliant work.

If you are carrying out the building work yourself, then you must be familiar with the regulations to ensure that the workload is planned correctly, the materials are compliant and the standard of workmanship is also high (yes, this is enforced as well). If you are not familiar with the regulations, then it is very advisable that you recruit the services of an appropriate professional consultant such as a Building Surveyor, Architect or Structural Engineer (as appropriate to the work that is being carried out).

Building Regulations are enforced by the Building Control Service. This can be provided by either the Local Authority Building Control Service, or an Approved Inspector’s Building Control Service (they should be registered with the Construction Industry Council (CIC)). The Approved Inspectors though are less likely to be able to work on plans for new-build houses, flats or private-rented property. They are better suited (for insurance reasons) to working with extensions and additions to properties.

If the work is substantial, a ‘Full Plans Application’ is made to the Local Authority. It involves the submittal of detailed plans and material specifications of the intended work. The plans should be drawn up by an architect or designer (this might be a bit expensive). The point of this approach to obtaining approval is that any ‘glaring’ problems can be rectified before the project starts and it becomes even more expensive to remedy.

The cost for the Full Plans application is collected in 2 lots. The first payment (the plan charge) accompanies the plans when they are submitted. The invoice for the second payment (the inspection charge) is sent after the work has begun. This charge is to pay for inspection(s) that will be carried out on the site during the build. Once the design problems are resolved, an approval notice will be issued. Work must then commence within 3 years from the date the plans were deposited. When the build is complete and is judged compliant with the Regulations, a certificate is issued to confirm this.

The alternative route to Building Regulations compliance is based upon smaller scale projects such as property extensions, alterations etc. It’s known as ‘Building Notice’ procedure. This cannot be used for buildings that have to be compliant with Fire Precautions/Regulations, or work that will be carried out near or over rain water or foul drains. The building notice approach does not provide for the plans to be scrutinised prior to build. This means that in the inspection phase, any non-compliant work will need to be removed or made-good.

The disadvantage of the Building Notice approach is that a certificate is not issued to confirm Building Reg’s compliance. If the work you are carrying out on the property is funded by borrowing, the lender might very well require the certificate of compliancy.

Note that Building Regulations are only applicable at the time the work is carried out. Once a property has been issued a compliance certificate, no updating is required unless other legislation requires it.

For help in understanding the Building Regulations, there is an explanatory leaflet that answers many questions. The link can be found here.

Apr 19th, 2011

Property Development Finance

Many aspiring Property Developers procrastinate over their plans because they believe they will not get finance to fund their project. This is clearly an extremely important point, because as I’ve written in many posts, even if you can afford to, it does not make good business sense to use 100% equity (capital that is not borrowed) in a venture. One of the main advantages of working in property is that because it is a tangible asset (i.e. not a paper asset) it can be borrowed against.

In the current economic climate, you might be mistaken for believing that it would be impossible for you to get a mortgage based around a property that needs substantial work to put it into a marketable condition. This is not necessarily the case. The vast majority of mortgage providers will be sceptical when you mention ‘property development’. This is because the sum that the developer borrows is secured against the property itself. This is why mortgage debt is the cheapest of all loaned cash; the bank/building society massively reduces its risk by ensuring that it has a legal ‘charge’ over the property in the event of a default of mortgage payment. Essentially meaning it can sell the property to settle your debt if it needs to. If the property were to be repossessed in an uninhabitable state, the banks chances of recouping its loss would be severely compromised.

Another likely scenario is that the mortgage provider might only release a very small proportion of the total amount being borrowed for land/property purchase, and only release the remainder when the project is completed. This obviously means that the developer has to fund the individual build stages out of his own pocket. This can be catered for when you are an established, experienced professional developer. However a novice is likely to be financially stretched.

The alternative to this is to have each payment released at each (pre-agreed) stage. This is a fairly common approach because it’s an established way of only paying interest on what is being borrowed. These payments will however, be released in arrears; meaning that the individual stages must be covered by the developer, but the funds to pay costs and fees will be released in arrears at each stage boundary.

At this point, I’d like to take the opportunity of pointing readers in the direction of my posts on Financial Leverage in Property Investment and Development, and carrying out a Property Development Appraisal. This is so that you are aware of how to calculate how much you need to borrow and why it’s not a good idea to use all your own cash.

Be aware however, specific conditions still apply. Mortgage lenders are now more than ever, quite risk averse. All the usual conditions of obtaining a mortgage approval still apply:

You should definitely not be overstretching yourself too far. This is (arguably) one of the causation factors for the recession, too many people borrowing beyond their means to buy more and more expensive properties. This is currently the most common reason for rejection of mortgage applications. You simply have to be creditworthy.
You must have a good proportion of equity to invest. This is now usually around 10% minimum with the most generous of lenders on an owner-occupier mortgage (this level of gearing would not even be considered for a development project). A realistic figure for a property developer is around 50%-60% of the GDV. An alternative to this would be if you already own the land or pre-development property yourself.

In common with all professional developers, the novice must accept that full compliance with lenders conditions for each individual project is vital. It’s not like a conventional owner-occupier mortgage, where you simply pay the instalment each month and the provider more-or-less leaves you alone. Developing for profit is almost a joint venture with the bank. They must be absolutely 100% happy that you know what you’re getting into, or at the very least employing an experienced professional who does.

Apr 10th, 2011

Increasing the Value of a Property

To be a successful property developer and/or investor, you must learn to see your business or property through other people’s eyes. That is to say that if you intend to have a tenant occupy the property for example, you must think about how a prospective tenant will see your property when they view it. It is far too easy to make the assumption that your property (the ‘product’ of your business) is the perfect one for them because they have identical taste to you. Likewise, if a prospective purchaser arrives to view the property they are unlikely to be particularly impressed by a hot-tub installation or a state of the art media system as in almost all cases, a new property owner enjoys the process of changing the property to suit his or her own taste.

Have you ever noticed how builders change properties when they purchase them? This is yet another ‘pair of eyes’ that you should learn to view a property through. Builders know better than almost anyone how to add value to a property and fully maximise all features and benefits. This is one of the very reasons why they are probably about the most successful group of people at developing property. The other reason they are so successful is because they know how to carry out the development in the most cost-effective way possible. All materials and labour will be sourced shrewdly. Extensions, loft conversions and conservatories will be added to the property wherever possible. Rooms will be knocked through to make open-plan areas, en-suites and downstairs loos will be added and cellars (where present) will be used, all for the purpose of fully increasing the value of the property. They are very successful at it too. Be aware though, that in the majority of cases, planning permission must be sought to ensure legal compliance.

The way in which the extensions and loft conversions etc increase the property value is simply by increasing the internal property area. That’s it; the most certain way of increasing the value of a property is to increase the internal dimensions. There are some other ways to increase the value but they are not as reliable as ‘square footage’. They will be discussed later.

Property valuation is described by property professionals as ‘an art, not a science’. This means that there are no difficult calculations to carry out and no secret information that only estate agents are privy to. The majority of property valuations are based upon ‘comparables’. Comparables (in the context of property valuation) are similar transactions completed recently, that provide a guide to the likely sale price of a particular property. So to use a very basic example, if a 2 bedroom flat sold 3 months ago for £220,000; and another 2 bedroom flat sold 4 months before that for £215,000, then it would be fair to say that any similar 2 bedroom flat is likely to sell for a similar amount now. This is the technique that estate agents and valuers use, and it’s also the technique that anyone who knows the property market in a particular area uses. It really does not take long to get the feel for an area and whether properties are over or underpriced.

Property features such as garages, swimming pools, a quality kitchen and bathroom will also add value. However, there is a danger that you might not recover the initial cost of these things in the eventual sale price of the house. A double garage can cost around £10,000 to have built, but it is not guaranteed that it will make £10,000 worth of difference in the value.

So what happens if you have a property that cannot be extended or substantially altered such as a terraced house or a flat? There are still many ways that the value can be increased, it’s just a little trickier. This is because it depends so much on the property itself and the prospective owner or tenant you are hoping to ‘sell’ to. If the property is Grade II listed for example, period features must be kept and probably even emphasised. A high quality finish to the kitchen and bathroom is probably the most reliable way of adding value in this case. Materials such as slate and oak are instantly noticeable and will give that impression of quality.

In more modern and unlisted properties, the alteration of various internal walls to allow more natural light into the property will help a great deal as this will give the impression of extra space. This can also be done by adding velux type windows where possible or a ‘Sky Tunnel’. In these types of properties, it’s easier to alter things to maximise the feeling of space because you aren’t limited by the traditional layout and features of listed properties.

The modern practice of adding en-suite bathrooms wherever possible should be discussed here. A master bedroom (in a property with multiple bedrooms) with an en-suite is a clever move. If the property has more than 3 bedrooms, an en-suite to the 1^st and 2^nd bedrooms is a good move too. However, an en-suite to every single bedroom is too much. Once the bedrooms begin to get smaller, en-suites simply rob the room of valuable space. If you are hoping to sell or let the property to a family with young children, an en-suite will be useless in a baby or infant’s room. A single bedroomed property is not really suitable for an en-suite either. One bathroom/toilet is plenty.

Jan 25th, 2011

Planning the Workload in your Property Development

Picture the scene, you’ve just completed on your first property development project. The keys are yours and for the last month or two, you’ve been mentally running through what you can do to this, your very development property and the first step on the ladder to becoming a professional property developer. You might have a very long list of things that need replacing, reworking, extending, removing or simply repainting. Tempting as it is to get stuck right in, I urge you not to rush in quite so quickly.

There is always a logical order to the various tasks that need to be completed; if you are using a builder he will advise you on what you can do first (if you intend to carry out some of the work yourself). If you intend the builder to complete pretty much everything, then depending on the scope of the work, a Project Manager might be needed.

If you are planning to carry out the majority or all of the work yourself, then a plan must be put in place to avoid some potentially expensive rework later on. It may seem obvious to many novice developers that certain jobs need to be progressed to a certain point or completed before other work can be started, however it just doesn’t occur to others. For example, an expensive floor might have been laid in a kitchen or bathroom; this should not be the point at which you begin to consider the plumbing requirements. The plumbing should really be almost completed before floors are laid.

Again, it may seem obvious, but you must have a plan in place before you start trying to progress individual tasks. A logical approach is suggested as:

All mains services should be located and well marked. This is so that any potential hazards or financial disasters (such as a mini-digger damaging a water-main) are avoided as much as possible. If the existing property is going to be demolished, the location of the services will also need to be incorporated into the design of the new development. These mains services MUST be disconnected by a qualified tradesman, through the appropriate company). If the water supply onto the site is working, a lockable box should be fitted around the standpipe for security.
Look at the ‘largest’ aspects next. This would be any possible extensions to the property, any groundworks such as underpinning, additional foundations, anything involving drainage, mains services or tree-roots etc, and any structural work on the building as a whole, such as brickwork or the roof. There will be overlap of various trades and jobs during this process because there is never a ‘clear-cut’ boundary between work stages.
Next, the property should be made ‘weatherproof’ as soon as possible. In large projects that involve extending the property or replacing the roof coverings, this work should be completed before most other work is begun. Weatherproofing the property simply means ensuring that if it rains or snows, the inside is dry so that work can continue within. External doors and windows are normally fitted at this point.
Electrics and plumbing should then be planned out. It is often said that you can never have too many electric sockets; however if aesthetic appeal is important to you, plan carefully where the outlets will be placed to make them discreet (such as behind where furniture is likely to go). If you make a drawing of each room with the location of the electric sockets, this should form part of the contract with the builder/electrician. Plumbing should be equally as carefully planned. This includes provision for any en-suites, additional cloakrooms, utility rooms, outside taps, underfloor heating etc. The electrical cables and pipework can be routed through the floors/ceilings before the boards are put down.
The property can be made to look much smarter because it is then time to plaster over all the conduit for the cables, and the floorboards and ceilings can be put in too. Included in the plastering, is coving and tiling.
The walls are coated with a watered-down mixture of PVA glue to seal the dry plaster. Once this has dried, the walls can be painted. This is also the point where kitchens and bathrooms can be fitted.
There will now be many tradesmen progressing different aspects of the development. At this point, 2^nd fix carpentry (architrave, skirting boards etc), electrics (light fittings, wall switches and sockets) and plumbing (taps, toilets and showers) can all be fitted.
The final phase is really only carpet fitting and decorating. These are the two finishes to the property that are most likely to show sign of marks (like muddy boots or scrapes along the wall). Therefore it makes sense to have these jobs completed as the very final activities.

The above is merely a suggestion, every property is different and the scope of the work carried out in each development project will vary a great deal. The main point of this post is that a plan should be established to place the activities into a logical order. This will minimise the risk of expensive rework.

Nov 8th, 2010

Finding a Good Builder

Finding the right builder is one of the most important aspects of any development project. People you might speak to seem to have no end of horror stories to put you off the whole idea of property development.

Make no mistake however, there is potential to completely ruin a project if the builder turns out to be totally incompetent. Anecdotal evidence of this is really not difficult to find. However, it really isn’t that difficult to find a builder who will accommodate your plans.

The majority of novice property developers carry out at least some of the work themselves. The main reasons for this are:

1. To save money. All work done by you is free; or is it? There is what is known in economics as an ‘opportunity cost’. This means that if you spend most of your evenings and weekends renovating the property, what are you missing out on? It’s likely to be opportunities to spend time with family and relax. This is the cost.

I can also assure you from experience that working a full time job and spending all your free time working on a renovation is a very effective way of becoming stressed, fatigued and highly inclined to look for a convenient way out of the project before you complete your goal. Think very carefully, and be realistic about what you can achieve in the timescale you have planned.

2. To maintain an element of control over the project. Again, do not underestimate the amount of stress generated by a renovation. This can be down to deliveries not turning up, the wrong item being delivered, builders not understanding your requests, unforeseen problems etc. If you are involved with the project on a daily basis, this stress can be reduced as the problems are less likely to all come at once. However, this brings us back to the above aspect of spending all your non-work time at a building site.

Project management is a good way of maintaining control over your development. This does not all need to be carried out on site so it is more suitable for novice developers who also have ‘normal’ jobs. Builders often have the facility of bringing in their own Project Manager. You will need to carefully consider the level of free reign that you are willing to grant them though; you don’t want them ringing you dozens of times a day for approval, and likewise you don’t want to lose touch with how it’s all going.

It is said often, that the best way of finding a good builder is through word-of-mouth. This is very true, however what happens if an abundance of this information is not available? To start with, a simple look through the Yellow Pages or Yell.com will produce some results of local builder’s availability. If there’s an advert or website, simply look for the symbol of the ‘Federation of Master Builders’, in fact the FMB run a website – www.findabuilder.co.uk. This site lists individual trades as well as general builders and particular specialisms too, such as agricultural buildings, loft conversions or groundworks. The site also has a page for free contracts that are recommended to be used with their members.

Other sites that run a similar service are:

1. www.mybuilder.com.

2. www.goodbuilderguide.co.uk

3. www.findpolishbuilder.com

4. www.findatrade.com

These sites are an excellent idea, as they list feedback for individual builders and even photos of work carried out by them. However, I strongly recommend doing your homework on any builders found on these websites. It will not come as a surprise to mention that these websites do not offer any form of gaurantee whatsoever for the builders listed.

I would also like to add that it’s never a good idea to employ any builders that call house-to-house. It’s often difficult to find any background information on these people and let’s face it, if they’re any good, why are they calling at houses rather than working? I am also ‘reassured’ by the builder turning up in a van that’s in good condition and with professional signs (for the right company) on the side. It just gives the impression of a good, healthy company who are less likely to disappear with your money before completing the work.

The builder should see the property as soon as possible to get an idea of the work to be carried out (if you use one of the above websites, the builder should have supplied an initial estimate based upon the scope of the work initially described) he will no doubt want to confirm this work by looking at the development project itself.

The builder you use should be covered by Public Liability insurance (this is quite likely to be in place if a reputable builder is found, but definitely check). Many builders can offer a NRWB (National Register of Warranted Builders) Warranty; this is another excellent indication that they are not cowboys. Any time schedule that you are keen to follow, should be discussed and included within the contract.

The scope of the work is one of the most common sources of disagreements between builders and their clients. The problem is not usually the initially specified work, it’s the little extra bits that you might believe shouldn’t amount to much, but the builder thinks otherwise. It is very important to regularly discuss with your builder the progress of the project. Unless you are attending the site every day, regular phone calls are important. Better still, make a point of visiting the site every couple of days or so; this might contradict the advice regarding not spending all your free-time on site, but the visit need only be brief. The point is that it is very important to strike up a good working relationship with your builder.

To ensure that the Scope of Work that you provide for the builder is the same for each one you speak to, write it out and quote it word-for-word each time you ask for a quote. You should also remember that a quote is not an agreed cost for the work, it is just a fairly rough estimation. The quote should also include VAT. If you’re offered a discount for cash, then alarms bells should be ringing in your head. That’s not to say that anyone who offers this is a cowboy, but if their financial turnover is above the HMRC threshold they’re breaking the law.

A fixed-cost arrangement is a very sensible one to ask for. This obviously enables you to draw up a budget with a reasonably accurate figure. However contrary to some popular belief, a fixed-price contract is not always 100% guaranteed to be particularly ‘fixed’. The conditions will be specified within the contract, but any work beyond the scope of the original specification will almost certainly cost extra. The method of pricing this extra work should also be stated in the contract. The contract should really be downloaded from the Joint Contracts Tribunal (JCT). The JCT are an organisation who offer standardised contracts for the construction industry. Their ‘Homeowner‘ section provides contracts for building work that are really easy to complete. I highly recommend the use of one of these!

Nov 2nd, 2010