10 Worst Mistakes Made by an Amateur Property Developer
Last updated 23rd July 2018 • JaeVee Marketing • JaeVee
Property development doesn’t always have a fairy tale ending which sees the investor run into the sunset with a pot of gold. Here are the top 10 mistakes made by an amateur property developer, so you can avoid the pitfalls of property development.
- 1. Wrong area
- 2. Budget
- 3. Time
- 4. Poor tradesmen
- 5. Bargain materials
- 6. Layout
- 7. Wrong forms
- 8. Greed
- 9. Know your market
- 10. Shop around
1. Buying property in the wrong area
This is the first and possibly the worst mistake that you can make as a property developer.
Buying in the wrong area means that you could have put months of hard work and hard earned cash into making a gorgeously renovated property - only to be stuck with something that you can’t let out and won’t sell for anywhere near it’s worth.
Luckily, it’s also a pretty easy mistake to avoid, as long as you put in the research.
Here’s a short breakdown of what most tenants will be looking for, so you know what to base your research on.
A quiet area
Convenient transport links
You should also look at how other properties in your chosen area are doing.
Pick a few comparable properties in a .5 mile radius, and have a look at what they’ve sold for, after how long.
Check for properties that have been sitting on the market for a while - is there a problem with the property, or is the area running out of steam?
It’s also a good idea to look at how many jobs there are currently and are being created in the area, and the area’s average income.
Even if the prices are currently good, this could predict a downward trend over time.
Instead look for areas with a good average income where supply is below demand. This will push up prices and your potential profit.
If you’ve noticed that prices are starting to fall by just a *slight* margin, it might be tempting to get started more cheaply by developing there.
You might be optimistic that the market will naturally pick up, or that tenants will fall for the unique features your property will offer. This is not a great option. You should always look for good potential appreciation on your property in the coming years.
2. Know your budget
It is easy to get carried away with renovations, but you must know your budget and not doing so is one of the top 10 worst mistakes made by an amateur property developer.
Try not to release your inner ‘changing rooms’ and go too over the top when developing a property.
Your personal taste doesn’t matter. You’re developing the property to appeal to as many people in your market as possible, so always put their needs and wants before your own.
All you need to do is make it clean, simple, and modern. Then it will have mass appeal, and your buyers have free reign to do the hard work of decorating themselves.
You also need to make sure that your exterior looks just as appealing as the interior to a potential buyer.
A word of warning: Saving doesn’t mean scrimping. It can be easy to get anxious when spending money.
But if you’ve planned properly, there’s no need to worry. As long as you make sure all your purchases will increase your profit, you’re spending money in order to gain more.
It can be tempting to use budget friendly fittings and fixtures to save cost, but it is a mistake that many a property developer has had to learn from.
Chances are they will need to be replaced early on. Invest in items that are functional and made from quality materials. Cutting corners will only slash your pocket in the long run.
Do not borrow more money than you need, and shop around for the best loan or mortgage deal. Sometimes less really is more.
10 mistake made by an amateur property developer is underestimating the time a renovation project can take, or the fact that it can be a number of months before you receive an returns.
Take the time to do your preparation, get the forms filled, the permissions acquired as it could be costly in the long run.
4. Poor tradesmen
If you are not a keen on the DIY approach then you will need to invest in some reputable tradesmen to do it for you.
No amount of skill or expertise means that you can go it alone. Unless you are very handy with DIY, chances are you are going to have to enlist the help of some tradesmen.
Do not go for the cheapest, instead go for the most recommended. Finding your perfect property team is essential for every developer.
Don’t make the mistake of using cowboy builders just because they are cheap as they may leave you high and dry.
As with all things property, research can only help you. Take a look at their reviews and reputation.
Good tradesmen will save you a fortune in the long run, so trust them to do the jobs they’ve been doing for years.
5. Bargain materials
When renovating a home it can be luring to save some cost and buy some cheaper furnishings, or budget range fixings.
This is a top 10 mistake that amateur property developers make. You really must go in with the attitude of investing to stand the test of time.
Putting as many bedrooms as you can into a property will not make it more appealing or make you more money.
Your buyers won’t be too pleased. Instead you should focus on the living space and making sure your property has a nice practical flow to its layout.
Make sure every bedroom you put in your property has a place and purpose.
Don’t make the mistake of packing it full of small bedrooms that your buyers will have a hard time using.
7. Wrong forms
You need to know your way around paperwork in this business.
If you don’t, it can be one of the most costly mistakes you could make.
Not to mention it could lead to just another set of forms or even knotty legal battles.
You’ll need to have your planning permission approved quickly and without complications before you undertake anything major.
Look at every form you’re given as if it’s vital - because it usually is.
Make sure not to overlook anything and always back up your records. Just as with the tradesmen, it can’t hurt to enrol the help of an extra professional if you’re unsure of any processes.
8. Don’t get greedy
You’ve spent time and hard earned money into developing your property. In your eyes, the blood, sweat and tears are built into the bricks and mortar.
So your rose tinted glasses will naturally tell you that it’s worth a million pounds. But it might be hard to get the market to agree.
There’s no use getting greedy with your sale price. You won’t be able to rake in the pounds if the price is ridiculous. You might as well have developed in the wrong area, or chosen to refurb a property with more problems than you bargained for.
Be realistic to make sure that your efforts will result in the sale and reasonable profits that you deserve.
Timing is everything, so get expert advice on what your property is likely to be worth, that way you’re not seeing your dream sit empty.
9. Know the market
You have spent your hard earned money and time, but now you can’t sell it.
Not knowing the market is one of the top 10 mistakes that a property developer can make, knowing when to wait and when to sell is key to good returns.
10. Shop around
You’ve found the property, now you need the finance.
It can be tempting to accept the first one that is offered to you.
Not shopping around and exploring your options fully is the final top 10 mistake an amateur property developer can make.
If you want further more reading material, have a look at the other JaeVee Blog posts.