How to get into Property Development.
What are the benefits of being a Property Developer?
A career in property development can be an attractive route to many. The freedom to be your own boss, the opportunity to develop a range of skills, and creating real change in communities. It’s also an industry that anyone can enter with considerable financial rewards if you plan to get things right.
Though qualifications are not required to get started, it doesn’t mean that a profession in property is easy or that it comes without risk. With 50 years of lending experience, Together has worked with developers at the very start of their property investment journey right through to supporting companies and individuals who have built an impressive property portfolio, scaling up as they go. That’s why we’ve used our knowledge of everything from entry-level Buy-to-Let residential schemes through to financing apartment blocks, industrial units, hotels and retail sites to pull together our top tips on how to get started and open the doors to a new career path.
What’s the catch?
There’s a lot of appeal in getting into property, either as a full time venture or second job. With the benefit of providing a source of income, if you rent out the property you have bought as well as benefiting from capital appreciation as the value of building increases - the attraction of getting into property development is that it can provide a good return on investment.
However, if you are considering a move into the market, it’s important to understand the risks and obstacles that occur on the way. Firstly, along with the purchase price, you’ll need adequate budget in place for development, often with unexpected expenses which require a contingency. Developing a site can also take time so it’s important that there are enough funds to ensure cash flows remain liquid until a final sale is made.
How to get a foot on the ladder?
Build for success with a business plan
Have a vision of the business you want and detail how you are going to create it. By creating a plan, you’ll be able to ensure your cash flow stays liquid and that provisions are in place to pay the bills throughout the process.
Produce a plan that details:
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Your target market
One of the very first things to consider before starting a project is who will buy or rent the property at the end of the process. It’s an important question that will dictate the size of the development, any special requirements that your target audience would expect, the overall cost and, critically, your return on investment.
Knowing your market means that you won’t end up with a dream mansion built in a traditionally low income area, or a student-let miles from the campuses, amenities or transport links. Getting your target market wrong now will almost certainly make it harder to execute your exit strategy (and realise financial returns).
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The types of properties you want to develop
Once you know your audience, it’s time to think of the properties that you want to work with, whether you are building from scratch, converting or refurbishing, and that you understand the special needs in each case.
For example, if you intend to pick a property to fix up and flip through a property auction, you should be aware that some of these will be deemed as non-standard due to elements such as damp or missing facilities. Such properties can be difficult to get a mortgage for (in their current state), however the trade-off is that you may be able to purchase sites cheaper and quicker than on the traditional property market, although you will need to address the issues.
Take advantage of financial breaks available by considering grants and schemes in place that reward developers for providing certain types of properties, such as the Affordable Homes Programme, running until 2026.
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Your timescales and budgets for construction or renovation
Knowing how long you want the development project to last and how much you want to spend will allow you to start sourcing labour and materials that meet these requirements. It will also set clear guidelines at the start of your project, mitigating the effects of going over time and budget. However, it is worth considering how delays and unexpected costs can be factored in to your plan so you have contingency if issues arise.
Getting quotes from suppliers and contractors, for both materials and labour, is a great way to start working out feasible budgets and timelines, and will allow you to start building out a network. Additionally, you should look at the resources that you can provide to cut down costs, such as involving family members in the trade to help or taking on jobs that you can do yourself like stripping walls and painting.
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Your exit strategy
Quite simply, you need to work out how you want to see your return on investment. At this stage, looking at your target audience, properties, timescales and budgets should help you decide whether it makes more financial sense to sell or rent out the completed property.
Selling will give you a much quicker Return On Investment (ROI) that you can typically reinvest into other projects. Renting out your property could give you a much longer period of sustained ROI on top of the equity in the property itself.
Figure out finances
Understand what and where is going to be the source of your funds. Some lenders will require a track record of renovation and development to demonstrate experience of managing contractors and controlling costs. It’s important to build a good relationship with your finance partner so that they can get to know your circumstances, the vision for your business and look to support your ambition with criteria, speed and service that ensures that opportunities do not slip away.
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What type of financing do you need?
You will need to decide how much of your own money to invest in the project and how much you will look to borrow knowing that most lenders will base the interest rate on monies borrowed based on your Loan to Value (LTV).
Get to know the options between residential, commercial or Buy to Let finance and match your business plan to the products you need. For example, if you intend to sell the property on within a fixed amount of time (typically 12 months), you may want to research bridging loans as an alternative to a standard mortgage. Once you become more experienced, other options may become open to you, such as bridging development finance.
Shopping around for a lender who shares your vision is essential. Depending on factors such as your credit history, income, employment status and the type of property you are borrowing on, you may need to work with a specialist lender that has expert knowledge of the industry and can be more flexible when it comes to your circumstances.
Reconnaissance and research
Before you buy, make sure you have done your homework:
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Location, location, location
As part of your plan, you will have already thought about the types of locations that best suit your target market. But, once you have earmarked a potential site or property to renovate, it is essential that you do reconnaissance and research on the area itself.
Online, you can research local amenities and transport links that your target market would find desirable, such as local gyms, bars and schools, as well as bus and train stops.
You should also visit the site, at different times of the day, to see if there are any issues that might make the property harder to renovate and sell. For example, the road could be narrow or lack parking spaces, making deliveries to your site more difficult. Alternatively, time specific excess noise, odour and behaviour could put off potential buyers during a viewing, such as buying near a busy train line or pub.
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Who is going to work on the property?
Shopping around for local suppliers and contractors will help you not only get a better understanding of the tasks, timescales and costs involved, but will also allow you to start building up a trusted network and understand how to source alternatives, at speed, if required.
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Planning regulations and permissions
Before starting any building work, ensure that you fully understand any regulations or permissions that apply to the area or building type that you are working on. For example, there are restrictions on developing Listed buildings and you may need planning permission if you want to add an extension. There are plenty of examples where finished construction has been knocked down due to falling foul of regulations and permissions.
Consulting with a solicitor with experience in the industry is a great way to make sure you stay on the right side of the law.
Make a plan to project manage
Ensure you keep on top of the project with good planning and organization.
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Consider using project management tools
If you are not already an experienced Project Manager, the amount of tasks, deadlines and costs involved in a development project can seem bewildering. Using one of the many project management tools on offer, such as Trello, Click Up or Monday, are a great way to organise your project so you know exactly where you are up to.
Additionally, and especially for complex projects, using a good professional team will help to make the project run smoother. For example, using an architect, planning consultant and Quantity Surveyor on such projects will help to mitigate additional costs, identify potential issues, and keep you on schedule.
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Check in on statuses frequently with all those involved
Make sure that your project is moving forward to the budgets and timescales that you have set, reducing the risk of added costs due unexpected issues or obstacles that may threat missing your planned exit window.
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Build your network of trusted contacts
If something goes wrong on a project, it is always good to have an alternative ready at the end of the phone that can help. Have surveyors, architects, solicitors, builders and trades all on speed dial so you can contact if in an hour of need.
Exit, Sleep, Repeat
Once the development cycle is complete, if it’s whet an entrepreneurial appetite, it’s time to repeat.
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Implement your exit strategy
With your project finalised, it’s time to follow the business plan and implement the exit strategy that you decided on. This could be selling to realise the capital gain, letting to generate a regular income source from tenants, or sticking to benefit from a further projected price increase.
However, if you get to this point and the circumstances aren’t quite right to follow your preferred strategy, make sure you know what other options you have and have a Plan B ready to use. For example, if you are struggling to sell the property within your timeline, would it make sense to rent out the property instead?
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Learn from the experience
At the end of each project, take the time to work out what went well and what could’ve been better, such as price changes for services and materials, or contractors that went above and beyond or let you down when you needed them. Factoring in what you have learned into your plan will make the next project go even smoother.
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Reinvest in to your next project
If you want to grow your development portfolio further, it is worth reinvesting your profit back into your business. This could be as simple as putting up more of your own cash up front, borrowing less, and, crucially, repaying less interest over time. Another approach could be to use the equity you have built up in previous developments to borrow more funds for your next project.
Together has been opening doors to property developer’s ambitions for decades. With flexible criteria, speed of service and a common sense approach to lending, we get to know your individual circumstances ahead of funding, along with planning exit strategies, to help you find the right finance solution for you.
Speak to our corporate team about your business venture and find out more about the entrepreneurs and businesses that we have helped:
You can also hear from one of our customers on how they made the move into property.