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How to Get Into UK Property Development
There are many things to consider when it comes to your financial future, including where you invest your money. There are so many options available. Most people would agree that it’s not always beneficial to let your savings sit in a bank account – especially with interest rates being so low.
While some might risk the volatility of stocks and shares, others want a more secure investment opportunity. Property development is full of possibilities and provides investors with more stability in the long term.
There are two main ways to benefit from property development.
Income Generation: When you purchase a property, you can rent it out. Your money is safely invested in the property, and any rent you generate will count as additional income.
Capital Appreciation: You can purchase a property, renovate it and watch the value increase over time. In the future, you can sell your property and generate a substantial profit.
In this post, we’ll reveal five ways to get into property development and how to make the right choices to secure your future and be a successful property developer.
Perhaps one of the most effective ways to get into property development and generate some capital gains is buying a property and renovating it. This is usually the first port of call for amateur property developers because it’s easier to renovate a house or flat and sell it at a profit.
In most cases, you can find a cheap house or flat that needs some basic renovation work and redecorating, then sell it on. There’s no specialist knowledge required, just general DIY and entrepreneurial spirit.
Things to Consider
When it comes to investing in a residential property, there are so many things to consider. We always recommend that you don’t go into the deal blind because while most people manage to make a profit off of their investment, it’s essential to know your limitations.
Will You Make a Profit?
It’s pointless to purchase a property and do a lot of work on it, only to find you break even – or even worse – suffer a loss. Before investing in a house, flat or hmo property, you should research and look at the income other properties in the area generate.
Zoopla has a valuation function, which is helpful to determine the value of a property, and you should always aim for a minimum of 20% profit.
Be Ready For Competition
There’s a lot of competition when purchasing residential properties with renovation opportunities, so you should always be aware of people with more experience. Parents often buy auction properties to renovate them and offer their children somewhere to live, so you need to be mindful of your limitations.
New properties come up all the time, so if you’re struggling to secure a property, don’t put yourself out of pocket. Instead, wait for the right investment opportunity and be patient.
Be Aware Of The Ceiling Value
All properties have a maximum amount they can sell for on the open market. It’s known as a ceiling value and will always stand, no matter what you do. For example, if you buy a property in a high-crime street, it doesn’t matter how much expensive furniture you add; the ceiling price is of the utmost importance.
What If I Don’t Want to Sell the Property?
In some cases, you might want to rent out the property instead of selling it, so the best option is to secure a Buy to Let mortgage. It will cover the purchase and allow you to pay off the mortgage and make a healthy monthly profit.
Multiple Occupancy House
Multiple occupancy tenancies involve renting a private room to an occupant, with all tenants sharing kitchen, bathroom and living room areas. A classic example of this is student housing, which offers plenty of benefits for landlords, including a more substantial rental income.
However, there are often more maintenance costs, and it can be trickier to navigate renting a property to numerous tenants.
Commercial Properties to Residential Homes
Another popular option for a property development project is to purchase a commercial property and turn it into a residential home.
A key benefit of commercial development is that it requires less planning permission. Local authorities are more likely to favour your application if a commercial development has been empty for a long time.
There’s also the opportunity to make a significant profit, especially when you factor in the size of a warehouse, factory or office building.
What You Can Gain From Renovating Commercial Buildings
If a property developer wants to generate significant capital gains, renovating a commercial building is a fantastic opportunity. For example, if you purchase a warehouse for £1 million and turn it into an apartment complex, you could sell each apartment for £250,000, making a significant profit.
Things to Consider
Turning a commercial development into residential apartments is no easy task. You’ll need to think about everything from the cost of materials to not compromising the structural integrity and designing an interior that will appeal to potential buyers.
Securing planning permission is also essential, so while this option has plenty of opportunities to make a profit, a lot of people find it’s incredibly stressful.
Building a Commercial or Residential Dwelling on Your Property
Why Would a Property Developer Choose This Option?
For most property developers, the opportunity to reduce their costs is always welcomed with enthusiasm. Buying a plot of land to build on can cost £100,000 or more depending on the area you’re developing in.
If you have extra space that you don’t use, you can save a lot of money by building on your land, but it’s also suitable to save money on construction work.
It’s also likely that you won’t need utility companies to dig up the road to access water and gas pipes.
Things to Think About
Building a second property on your land can prove to be very beneficial, but you should consider the space limitations. If you don’t have a large enough garden to accommodate the other property and create substantial living space for both buildings, it can reduce the value of your property and limit your options for selling or renting it.
There’s also the planning permission to consider, and we always recommend that you secure it before you begin your build.
While building from the ground up offers the best capital gains, navigating the entire planning, building and selling process can also be challenging.
The Planning Process
Before even beginning construction work on your land, you need to understand your limits. For example, some land is a protected wildlife area, so you could purchase a plot and find you can’t use it for development.
If you do your research beforehand and factor in the potential legal fees, you’ll be able to save money.
There are many things to consider when building from the ground up, including the type of building project and the construction costs. We always recommend that you hire a construction manager because they’ll handle all aspects of the build, including project management, hiring contractors and sourcing quality materials.
If you don’t have a construction plan in place, it could result in unforeseen costs, and you might not generate a profit.
Making a Profit
Whether you want to turn your development into office buildings, new homes or student accommodation, it’s essential to evaluate your options and make sure you can offer the right price to your target market.
For example, building student accommodation in a rural location isn’t a good idea because most people want to be close to their university. At the same time, a housing development in an industrial area won’t be popular with potential buyers.
Taking the time to think about exactly what will offer the most opportunities to make a profit means you can make a long term investment that will meet your goals.
How to Secure Land For Development
If you’d like to develop a property, you probably already have some cash to put towards the purchase, but there can be a significant expense involved with purchasing land and building on it.
A personal loan can help you secure the land. Still, residential and commercial bridging loans offer the most flexibility because they’re a short-term solution for investors to inject some cash into their projects.
Bridging Loans: Are They Worth It?
Bridging loans aren’t designed to be a long-term solution for investors, and in most cases, you’ll need to present a lender with an exit strategy.
Exit strategies let lenders know how you plan to pay the money back, and they’ll take your strategy into account before agreeing to the bridging loan.
In some cases, it could be securing a commercial or residential mortgage when the development is complete, which will pay off the bridging loan and enable you to settle into a long-term mortgage while generating income from your development.
Overall, bridge loans can help you secure development finance and succeed in the competitive property market. It would be best always to consider whether you can pay back the money before applying for a loan.
Buying Land & Selling it to a Developer
For people who are highly experienced in the property industry but don’t want to worry about development finance and the construction work, there’s the option to buy land and sell it to a property developer.
But why do people do this?
Well, developers often want to diversify their property portfolio, and many professionals see securing land for future property developments as saving for the future.
If you want to take advantage of this opportunity, you need to watch out for a few things – otherwise, you won’t make a profit on the initial purchase price of your land.
The most significant obstacle you’ll come across is the tricky world of planning permission. It’s known to create considerable losses in the property investment world, but doing some marker research can save you a lot of headaches.
To be successful, you should know the local area and understand how likely planning permission is for your plot of land. If you buy land and can’t secure approval, developers won’t want to take on the project because it will offer no opportunities.
The Waiting Game
People don’t realise it, but waiting is a critical skill that you should never overlook. Making a significant gain on your land requires a lot of patience because you have to convince a landowner to sell you their plot, then secure short-term funding.
There’s also the process of finding the right developer to sell to and waiting for planning permission. It’s no easy job, but when done right, the rewards of selling on land are definitely worth the work.
Becoming a Successful Property Developer: Key Things to Take Away
All property professionals start as inexperienced developers at some point, but knowing your limitations and being aware of the potential pitfalls can help you secure a development opportunity and generate a profit.
It’s best to start with smaller-scale projects such as renovating a residential property before working on more challenging projects.
Remember these key points:
- If you want to get into property development, walk don’t run. The perfect investment property will come up, so don’t rush into anything just because you can.
- When planning to secure bridge loans, make sure the lender has a copy of your business plan and pay special attention to the exit strategy.
- Consider buy to let mortgages if you want to rent an investment property out.
- Set yourself a limit and stick to it when you attend property auctions.
- Always do market research to give you an idea of the best areas and the ceiling price.
Would You Like to Discuss Your Secured Loan Options?
Whether it’s a residential or commercial project, you’ll probably need to secure finance in advance. There are many costs involved with renovating a property, so it’s essential to evaluate your finance options and weigh up the pros and cons of using a bridge loan.
If you’d like to receive a free consultation and discuss your options with our friendly advisors, please don’t hesitate to contact us.
We have extensive knowledge of the property sector and can help you make the right decision for your needs. Contact us today through the website, telephone or email, and we’ll get back to you ASAP.