8 Simple Tips To Become A Property Developer
Last updated 22/06/2018
The following 8 simple tips to become a property developer will certainly give you a gentle push in the right direction.
Buying a run-down house at a reduced price, transforming it into a dream family home and then selling on for a handsome profit is the dream, isn’t it?
Is it really as simple as Phil and Kirstie make out? (Location, location, location). Let's take a look.
1. Choose your path
The first question you need to answer is what type of property developer do you want to be? There are two official routes you can go down - build to rent, build to sell (or both).
Building a portfolio containing both allows you to generate a regular cash flow whilst growing lump sum profits to be realised in the future once you achieve sales to purchasers.
Our first simple tip is to become focused on an area with strong economic drivers over a 5-10 year period.
Once you’ve decided on an area that works for you (typically within a 50 mile radius of where you live), research everything there is to know about that area so you know it like the back of your hand.
2. Do your maths
Our next simple tip to become a property developer is to check you have the funds to do so and take account of your finances. With simple maths, you can factor in all of the fees and extra costs, the taxes and payments that go with buying and selling or renting out a house. Hiring tradesmen or materials to make it liveable. A quantity surveyor, an architect, a contractor.. the list is expandable.
Can you really afford to have the property sit empty? What happens if the tenants in the property cannot afford to pay the rent and you have an outstanding mortgage to pay? If the market fluctuates will your investment really hold out?
There are a lot of costs involved, and you will need to rely on profit from the rental yield (the income from rent each month) or capital gains once the property has had value added to it and you sell it on for a profit.
3. Plan, plan and plan again
One of the key simple tips you can follow to become a property developer is to make a business plan of your short and long goals, aims, potential costs, income and any other factors that need to be considered.
Your plan should encompass all of the research and knowledge you have of your given strategy and the area you are operating in. Your chosen path should be at the centre of your plan as well as weighing up all of the risks.
Within your plan, you should feature how you plan to fund your property developments. Few will have the cash to buy the property outright which means you will need to look into leveraging debt.
The next simple tip to become a property developer is to know what funding options are available to you.
Seek financial advice from a professional and together you can explore buy to let mortgages, bridging loans, development finance and commercial term loans.
When you work with JaeVee, we provide 100% of the funding in the form of a joint venture therefore taking care of the funding side leaving you to concentrate on finding profitable property development opportunities.
5. Market research
Another simple tip to become a property developer is to use online sites and tools as well as estate and letting agent’s local knowledge to gain invaluable research on the market, the upcoming areas, planning permission applications and rental prices. This should be reflected in your business plan. Learn who your target market is (as it will differ geographically) and what is in demand in the local area.
6. The right price
Quite simply, in property you make money when you buy. It is essential that you learn how to get a property at the right price. If you get it wrong, the results could be catastrophic. Don’t allow emotions to cloud your judgement and stick to the ceiling price.
7. Know your tax
There are many types of taxes and reliefs that you need to know about in advance and it is our next simple tip in becoming a successful property developer.
There are buy to let tax implications, such as the HMRC viewing rental income as a form of income and subject to the relevant tax band. If you are buying property to sell on then you will be subject to capital gains tax and of course stamp duty. We recommend you seek advice from a chartered accountant when it comes to taxes.
Finally, our last simple tip in becoming a property developer is to know your exit strategy at the beginning of your journey. This comes from knowing how to work out your end market value or gross development value. You do this by researching the sold prices of similar properties to those you’re looking to deliver to the local market within your proposed scheme.
Caution to the wind, it’s important to check the supply being delivered versus demand over the next 5 years in the local market to make sure the scheme you’re delivering (within that timescale) will hold up in terms of the property values.
For more advice on becoming a property developer check out our further blogs.