How to make money from property

Property DevelopmentSo here is the big question, “how to make money from property”!

I’m not going to gloss over this or give you some easy to follow formula that will guarantee unbelievable wealth. Every Property developer I’ve ever met has had more than their share of stress. But, making money from property is possible if you know what to look for and how to manage a project. I’ve been developing for over 20 years now and I’ve made more than my fair share of mistakes. I’ve brought too high and I’ve sold too low. I’ve spent too much and I’ve also not spent enough! Over those 20 years I’ve always learn from my mistakes. So whilst this formular might not work for everyone, if I was to go back to 1993 and give myself some advice, this would be it.

Get a plan togetherWhat’s that saying “fail to plan, plan to fail?!” – it is true, if you don’t plan your own destiny you’ll be part of someone else’s. It’s important to list you’re objectives and work out how to achieve them. Now I’m not a white toothed “Wealth Guru” I’m a developer who still spends most of his day in steel toe capped boots, but I do know you need objectives in life to remain focused.

For me my plan was to stop commuting for 2 hours a day and to work for myself. I didn’t know I could do that through developing property. One day, after working 12 hours, in a boring office behind a computer screen, I wrote down what I wanted out of life. I was unhappy and I wanted to change. I loved property and one of my friends was developing property in West London and making a living as a landlord – I figured he had a good way of life, so I decided I could do the same. The goal of developing property was born and I was gong to give myself a year to do it.

Get your capital together
You don’t need me to tell you that buying property isn’t cheap. And to be a developer you need a significant deposit to get on the ladder. So here I was living in rented accommodation with next to nothing for a deposit. I had looked at the flat prices and seen that I would need at least £10 for a deposit. At the time I was earning £15k a year so there was no way I was ever going to get enough deposit together to get going. Things had to change.

Firstly I started on my ‘Mega Economy Drive’ no after work drinks, no expensive weekend trips. I lived like a monk for a year, but looking back I didn’t see it as any hardship at all. Next I was gong to have to take on a second job. I was working as a graphic designer, so it was fairly easy for me to pick up the odd brochure, business card or leaflet design from the printers I was working with. I was set up. I had set myself the goal of saving £1k a month for the next 12 months.

By the end of July (12 month later) I had saved just over £9k but I was still £900 short and I had seen an amazing flat for sale that required modernisation, it had been on for a while and I was worried I would miss the opportunity. There was nothing else for it I had to go to the bank of mum!

Now, let me be clear. I do this site because I know anyone can be a property developer. And whilst I see plenty of privately educated ‘toffs’ in the industry using their family money to buy property I also see plenty of self man people who have come from very modest backgrounds but most have had some financial help to get going. My mum couldn’t afford £900, so I hated to ask her but I also knew I could afford to loose this property. Luckily for me she agreed and I agreed to pay her back 2 months later.

I know had got my capital for my first project. Which, consequently, I was going to live in as well!

Necotiate hard
Making money from property development isn’t just about developing well, it’s about buying well. You really do make your money when you buy not when you sell. So always be in a position to negotiate. Remember never to get emotional about any property, you have to get it for the right price for it to make any sense. If your buying through private treaty (estate agents) don’t fall for any tricks like…

  • “we’ve had 4 viewings on this already today”
  • “we’re about to have an offer”
  • “the vendor won’t settle for anything less than the asking price”

You’re a professional and you’ve heard these tired techniques all before. If you do the maths and work out your potential sale price, your tax, your development costs, your fees and what profits you want to make then you’ll know exactly what the property is worth to you. Don;t be fooled the vendor could be desperate to sell, in which can if you have a deposit and agreed finance in principle, you could look very attractive to a vendor, especially if the properties has been on the market for a while. Many sure you always put in your offer and don’t be swayed by the asking price. You cannot compete with anyone who wants to pay the asking price. I’ve put in offer at 30% below an asking price in the past and they’ve been accepted. You never know a vendors situation.

Try looking at auction property. This can be a speedy way to find a property that you can add value to without the need of lengthy exchange times. There are risks but it could be worth visiting a few to see if you are comfortable buying at auction. I’ve brought at auction and it is a really exciting place to be. but don’t get carried away, I’ve seen properties at auction go for more that they would with an estate agent. Do your sums, stick to your budget.

Your first project
If you really want to see profit, don’t get carried away with spending money. It’s easy to see the lifestyle magazines and think wow ‘this place could be like that’. But the reality is your first project has to be profitable or there just isn’t any point. To this end it means doing most of the hard work yourself. If you need structural, electrical or plumbing work then this needs to be done by certified professionals but project managing (and that means managing your costs and suppliers) we’ll, that’s you. To be a good PM you need to work within your budget and Itemise everything by priority. This way you won’t running around like a headless chicken on day 1 of your project. I start my project plan way in advance of exchange date, this way if there’s any planning applications I can get them submitted well in advance of any completion date – you have to remember, every day you are developing you’re paying for your finance. I’ll come back to this post later with a link to a project plan that I use.

Finding great tradesmen
I won’t go on about his but if your development is going to be a success you need the best people around you. It’s alwayd tempting to go cheap but the old adage hangs true ” you get what you pay for”. Pay below market rate and your tradesmen will be off once they find a job that pays a better rate. For more information on this read my post on finding great tradesmen.

Watch every penny
I know this one is obvious but if you don’t do it things can get out of control. As project manager you need to know exactly what you’re spending and on what. It’s always tempting to go for a kitching you see in a high street store, but you need to shop smart. Look for ex display’s, auctions, classifieds in the local paper and (probably the best source) check out ebay. I’ve found 100′s of amazing deals on ebay. Create a shopping list and start researching.

Another top tip is to create an account with a builders merchant. Don’t let tradesmen buy materials, you just want them to quote for their time. This way you can negotiate discount rates with the builders merchant directly and you pay them directly. Most offer 60 day payment terms as well and this can help with your cash flow.

Sell quick
I know this post is going on a bit but last thing I’m going to add is this. Sell your property quick, get your profit back quickly. The best way of doing this is through a Estate Agent, but be shrewd, make sure they have another development opportunity for you. In my experience all estate agents are pretty similar in the service they offer, so don’t be wowed by talk of professionalism or customer service or a posh accent. Be hard, visit every single local agent with the area get them to visit you and quiz them on what property they have. If they have another development opportunity then they can sell yours and manage the chain.

Sometime timing doesn’t work out right and there just isn’t another opportunity. If this is the case then try selling directly. There are a ton of web sites that offer a flat rate to advertise your property on rightmove and zoopla and let’s be honest, the internet is where most people start their property search these days. You’d be saving a ton of cash.

Finally if you think an Agent is the right way to max a sale make sure you negotiate hard. In London it take, on average, 2 weeks to sell a 2 bed flat. With the average price of a 2 bed flat (at the time of writing this) going for around £250k, that’s a stonking £5k. not bad for a few calls, a picture and the ability to open a door and show people your bathroom. 2% is obscene, always find an agent that is willing to accept 1% and if they exceed your asking price give them a bonus (cash not %). They will all tell you that they don’t negotiate of fees, but they do, bar none. Competition is great and times are tough so be mean, they need your property!!!

Do it again
I know you’re tired and a bit shell shocked and probably need a holiday. But you’re now on a roll, you’ve got a team of people that can help you – don’t let these relationship fade you need to do it again, don’t stop until you’ve reached your goals.

Trust me, I failed all my exams at school. But I found my property developing experience so rewarding. I’m not financial secure, I feel personally fulfilled and the world is a very different place from when I was in my 20′s. If I can do you can to.

If you’ve got questions let me know. I’ll try and answer as many as I can but I only do this blog part time so appologies in advance if my responses are a bit late.