Property development can take many forms. If can involve anything from refurbishing an individual property – whether a straightforward buy to let, or a HMO – to investing in property which is being built from scratch.
In this article, we’re looking at the former method i.e. buying dilapidated property. This is usually purchased through auction and renovated to either sell on for an immediate profit, or to rent out over a number of years for a monthly income.
A Day in the Life of….
Your typical property developer will spend his or her morning either renovating, or checking on the progress of contractors. This might involve having to order in extra supplies, or chasing up a supplier to find out why something hasn’t arrived. Then again, they may go to a local DIY store and get what’s needed themselves.
In the afternoon, he or she may go out and look at another property they’ve spotted coming up for sale at auction (or been tipped off about by a local estate agent). Afterwards, they could spend a couple of hours working out whether or not it has good investment potential.
Later that day, they may have to arrange an inspection with the building inspector from the local authority and another meeting with the bank manager.
Challenges of property development
Probably one of the most difficult aspects of renovating a property is to ensure that you don’t go over-budget. It can be easy to do this when you’re buying fixtures and fittings in particular. However, the secret is to remember you’re renovating the property to rent out or sell. That means creating a ‘beige’ interior where your personal taste simply doesn’t come into it.
If you’re not going to do the work yourself, then you will have to choose contractors and supervise them (unless you get someone else to do this). This can all mount up and prove more costly than you may have predicted.
You’ll have to be very familiar with the location and the price property goes for there to ensure a profit. Plenty of research will also have to be done on your ‘ideal tenant sector’ i.e. young professionals, families etc.
Risks of property development
There’s always the risk that you’ll make a loss. This is usually when you spend more on doing it up than the property is worth;
Properties can often take from four months to a year to develop – by which time the market may have fallen;
Expect to spend quite a bit of time managing the refurbishment. The alternative is to pay someone else to do it, which will, of course, eat into your profits;
If you couldn’t afford to buy the property with cash, then you could find yourself paying off the mortgage for that as well as your own home.
Rewards of property development
It can be a great way of making a lot of money in a very short time (i.e. £20,000 in four months isn’t unusual);
It’s possible to save a lot of money if you’re prepared to do the work yourself (and have the relevant skills);
Capital Gains Tax is currently 18% for a basic tax rate payer, with a tax free allowance of £11,700 per individual;
There’s the personal satisfaction of not just working for yourself, but also seeing a project through to completion.