Introduction to Property Developing

Property developing

Property developing can provide you financial freedom – but be prepared to bolster your knowledge.

Like most things in life, you only get out of property developing what you’re able to put in. To this end, you’re only ever going to be able to succeed in property if you have a natural love of all things property.

Now I’m not suggesting you need to be a builder or surveyor or have a trade but a basic knowledge of how things are put together can really help you to make better buying decisions. One of the best ways to gain this knowledge is to ‘ jump in’ and try and develop a property yourself. This is what I did (I had no building expereince at all , just a collins DIY manual!). There’s pro’s and cons to this. The pro’s being you get to learn quickly and the cons being ‘if you make a mistake, you have to do it again and this cost money’.

If you’re serious about property developing you should consider taking a basis course in construction. This will give you a clear understanding of how a property is constructed.

Secondly, I would recommend reading a few books on freehold/ leasehold law and conveyancing. A bit of background knowledge can help you identify a bargain and a red herring.

Property developing requires some key skills that you can learn or acquire through experience.

Basic knowledge of construction – You need to know how things are put together. Tell the difference between a stud partition and a load bearing wall. When plaster is ‘Live’, Basic plumbing and electrics. Signs of subsidence. A basic knowledge will protect you and enable you to cost modernisation costs.

An idea of tradesmen rates - You need to know what things cost and how long they take. I’ve seen plenty of bored housewives get ripped off by tradesmen charging £300 per day. For great people I always pay more but basic labour in London it’s around £80 – £120 per day. Know your costs.

Do your maths - I am no Mathematician, but I know what things cost. And here’s the key word “Everything”. Any property developer needs to take into account all their coasts including professional fees, Stamp duty on completion and sale, agent fee’s, Personal tax as well as any development costs and finance cost over the period of the development. I also add in my own time as a cost ( I hate working for free in the hope I’ll get some reward at the end). Do your maths accurately before you even consider making an offer.

Find motivated sellers - Property developing is all about profit. That means buying at below the market rate and selling above. You do this by finding tired property and developing it to a standard that will get people spending more. Just because a property requires work doesn’t mean you can buy it cheap. Find motivated sellers, always ask the question ” what is the vendors position”, “why are they selling”,”do they want a quick sell”????. Only take the motivated sellers seriously.

Sort your finance out – I know this sounds obvious but property developing doesn’t happen without finance. At any time there are 1000′s of finance products on the market, so before you go shopping it’s important to know how you are going to finance your deal and whether you can get the financing in place. I alway use the internet sites to get a general idea of what rates and fess are on offer. But I always buy through a broker, they are able to calculate the overall cost and compare wholesale product not available via retails services like moneysupermarket. Most lenders will want to see your income as a way of guarenteeing any finance. If your self employed then this may make finanicing a little more difficult but not impossible. Talk to your broker after understanding what rates and fee’s would be competitive. I wrote more on this subject a while ago.

Understand the law - Over the course of my 25 years in property development I’ve read a number of books on conveyancing and I’ve read even more deed titles and leaseholds. But I am not an expert. My basic knowledge gives me enough power to ask my conveyancer questions that any normal buyer would not identify with. There are so many potential restrictions in the deeds of a freehold and potentially even more in a leasehold so I would always recommend using the services of an expereinced conveyancer, especially if you intend to make a purchase at auction, where many lots carry some potentially difficult leaseholds such as short lease, new lease, restrictions on lease (e.g. no sub letting restricting letting potential).

Never take your legal representatives word for it, always read any legal documentation associated with your purchase. Title deeds are available at the land registry and can be downloaded for £4. Read them before handing over to your conveyancer with any questions you have. This will demostrate you are focused on the details and they need to be too and it should reduce your fee.

Act Quick - Property developing is not about taking your time. If you want to see a profit you need to act with speed and accurate judgement. This means doing your research early and planning ahead so your development can be done to plan.

For further reading check out these other posts