Where to start in Property Development and Investment

 

This page is intended for people who are really keen to start on the path to becoming a Property Entrepreneur but are not sure where to start.  This information will be highly condensed, but it is only intended to give you an idea of how it all works and fits together.

I’ve included links to specialist providers of property services at some of the stages.  I absolutely promise you that I receive no payment whatsoever for recommending these companies.  Where no company link is listed, I am currently working on adding links to suitable providers of services.  Of course, please don’t feel obliged to go through these companies just because they’re listed.  You might be very confident doing each individual stage yourself (it would certainly save money).

What is Property Development and Investment?

This might seem like a strange thing to pose at first, but many novice property entrepreneurs are not quite sure what the difference is.  A Developer carries out building work to either build/convert or renovate a property with a view to selling it at a profit.  An Investor is only looking to get a tenant into the property to pay rent, thus providing a regular income to the investor (who becomes landlord).

Obviously there is a lot of crossover here.  A developer might change his/her approach after the project build stage is complete and decide to let the property to a tenant.  Whereas an investor might well have to carry out some building work or even build the property in order to let it.

What to Expect from a Property Project.

This bit is a bit of a reality check I’m afraid.  Property development and investment is stressful, expensive and time consuming.  It doesn’t really work to treat it as anything other than a business, pure and simple.  You should definitely be in a position where you are not financially stretched before you take on your first project, because it’s highly likely you will be stretched once you’re underway!

It is however extremely satisfying.  It is certainly possible to develop or invest in property as a full time career; but it might take a while to get there.

What Development and Investment isn’t…

Property investment is not an easy way to secure an income.  It takes a portfolio of quite a few properties to produce a regular income of sufficient size to live on.  Initially, many investors feel frustrated at the pathetic amount left after Income and Corporation tax, management fees and mortgage repayments have been subtracted.  The vast majority of property investors are actually in it for the increase in capital value over 20 years or more, not the monthly income.

Likewise, property development is not a guaranteed way of creating substantial capital over a short period of time.  It would be unrealistic to expect profits in line with those seen prior to 2007; however this serves to ensure that everyone entering the field is serious and not just in pursuit of a quick profit.

Stages

Finance

This really is the first step.  Most prospective property developers have initial plans beyond their financial reach.  Whilst it is possible to make handsome profits eventually, this takes time and experience.  It is so much better to begin with a modest property development and use it simply to learn.  It’s much less risky doing it this way, and besides you are more likely to get strong investment from a bank once you have experience.

It is so tempting to begin looking at prospective properties as the very first step.  If you follow this route though, you might be tempted to purchase a property with your heart, not your head.  You should always remember why you were drawn into this type of venture in the first place, to make money, not to use a handy property as a blank canvas for your creative flair.

Establish your budget first.  It should not financially overstretch you.  Many lenders require first-time developers to use a considerable amount of their own money as equity in the venture.   Follow the link for a better explanation of property development finance.

For further details of exact requirements of development finance providers, I heartily recommend a chat with Coreco – very helpful and professional finance brokers based in the City of London.

 

Finding a suitable property

Once the budget is set, it’s time to see what’s out there.  Of course this is the bit most people enjoy because the process of identifying an appropriate property brings out the romantic side in them.  It is very important however, to already know your target market first.

Many property investors specialise in a particular market because they know it well.  An example is student properties in university towns and cities.  If an in-depth knowledge of the market is already there, then the approach to structuring a portfolio or renovating a property is a lot more straight-forward.  Chatting to estate and letting agents helps in this stage as they will be able to tell you if there is a shortfall in supply of particular property types.

It’s also quite important to look at properties close to where you already live.  If you are converting or renovating, this is an obvious point; however if you are an investor you might think that you can get by using the ‘hands off’ approach.  To some extent you can, but there will be times (especially when starting out) when you need to attend the property.  In addition, it always helps if you know the area you are investing in, as you will know if the property is selling at a good price.

The first place to look for prospective properties is estate agents and property search websites such as Zoopla and Rightmove.  A property auction is also an excellent place to look for properties, although you HAVE to have done your homework before attending if you intend to bid.  Go through these links for my guide to purchasing property at auction (plus a list of residential and commercial property auctioneers).

Planning Consent

Ensuring the property you purchase for either development or investment holds the appropriate planning consent for what you intend to do to it.  So for example if you want to convert a shop into a residential property, planning permission will be required to do this.  To carry out works on a property without planning permission is illegal, and local authorities have powers to return the land or property to its original state if no consent is in place.  In practice however, they often encourage retrospective planning applications so enforcement action might be unnecessary.

Planning rules change very often, some work that would have required permission 12 months ago might now be regarded as ‘permitted development’.  This means that for some building works, no planning consent is needed.  Follow this link for or a guide to what qualifies as permitted development.

Another, extremely important aspect of planning building work is Building Regulations.  In common with planning permission, building ‘regs’ have to be complied with by law.  They are put in place to ensure that properties are renovated and built to the highest standards, and no danger exists to occupants and people in the immediate vicinity.  Detailed plans have to be submitted to the local authority prior to build and follow-up inspections are also made to ensure compliance.

Follow the link for a more in depth look at Building Regulations.

Build Phase

There are quite a few different ways to approach this.  Many novice developers and investors carry out a high proportion of the work themselves.  This can reduce the build costs considerably.  It must be balanced though with quality and time.  If your experience in carrying out building work is limited, then the quality is likely to suffer (for example if attempting plastering walls and ceilings) and time and money can be spent in rectifying it to a higher standard.  On the other hand, if you have a full-time job, I can assure you that doing a lot of building work in all the spare time you get can definitely make you question your motivation for the project.  Obviously, it’s a decision only the developer or investor can make.

As mentioned above, always opt for a fixed-price build contract where possible.  There are plenty of good builders out there (despite what you might have heard), so if one builder won’t co operate, find another.  Follow these links to read more about planning the build phase workload and finding a builder.

Selling or Letting the Property

Obviously this stage is the goal of entering this industry in the first place.  As long as a reasonable value is agreed upon (for letting or selling), the plan has come about.  In the same way as the other stages have had to be planned though, so must this.

The property is a product.  It must be sold (in a metaphorical way) to the party who is interested in occupying it.  As already mentioned above though, the property has to be marketed to the right target audience.  This will probably be through an estate agent, but don’t forget other sources of advertising too, such as university notice boards (as in the example above of student accommodation).

If the property does not get valued at the level you expected it to, don’t lose heart.  The chances are that the difference won’t be that great and if it’s an investment property, there might be the opportunity of a rent increase after the first 12 months of the tenant’s term anyway (obviously subject to the agreed terms).

There are also particular times that are more suited to selling on the residential property market than others.  Christmas is notoriously quiet, as is summer holidays.  Spring and autumn do tend to be busier though, especially spring.  Buyers tend to be more optimistic at this time and want to be a new property (rented or bought) by summer.

Follow this link for my article on The Best time to Sell a Property.

Further Information

My property experience has been gained through a combination of Studying for my undergraduate and Postgraduate Degrees in Property Management, working as a Commercial Surveyor and personal experience.  However, I do not profess to be an all-encompassing expert on property.  I have used several additional sources of information to supplement what I know.  These sources are first-class guides because the authors really can be considered experts in their field.

Follow this link to my page for my additional ‘toolkit’ with links through Amazon UK to purchase the individual books I have used.

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