There are around two and a half million property investors in the United Kingdom. This is understandable, given that the real estate sector has delivered reliable returns for more than twenty years. These can be true passive returns if you do things right. Supply is naturally constrained, and where there are people, there’s demand.
London is bursting at the seams, creating a great opportunity for real estate investors. Here’s how to get into London property development as a first-timer.
Create a Business Plan
You first have to create a sound business plan and decide upon which model you’re going to go with. You also have to look at the advantages of each. There are a variety of property development strategies available. Buying property to renovate is a popular choice since it typically has the fastest turnaround. You’d then either rent it out for income or sell it for a profit.
Another option is buying commercial property to turn into a residential property. This requires both research regarding demand for the property and the odds you can get the zoning changed. This offers significant returns if you’re able to buy under-utilised commercial property and turn it into apartments, but it comes with significant risk.
A common option is building a second home or commercial premises on the property. You might build this on property you already own and then rent it out, or you might buy an existing property to rent out while building the second rental unit on the premises. One benefit of this approach is that you can earn money from the existing real estate while building the second one.
Ground-up development is often considered the ideal. You buy land and build what you want. The cost is generally less than buying an existing building, tearing it down and building something new. The challenge is finding open land where your new building will command a premium.
You also have to do your research and avoid property where you’re unlikely to get planning permission to build what you want on it. Buying land with the hope that you can get planning permission to build on it is a low cost, high-risk strategy. If you can secure planning permission, you can sell it for a profit to another developer.
Do Your Research for Each Potential Property
It isn’t enough to find potential properties, whether you’re scouting for land or small apartment buildings. Your profits are made at the purchase, and they’re eaten into by construction and development costs. Run the numbers for every project, and be conservative – not optimistic – with the numbers.
You can reduce the risk of errors by using an online concrete calculator like the one on Mixit.co.uk. The concrete calculator will tell you how much material you actually need, given the size of foundation you need. A screed calculator allows you to estimate the amount of material you need for a complex floor plan, and it can give you additional information on insulation, reinforcement and curing protection.
A concrete calculator UK will give you information on how many bags of cement, sand, and plasticiser you’ll need in the commonly available containers sold in the UK. And a concrete mix calculator for British users will give you advice on soil conditions and curing times specific to our climate.
While we don’t recommend the average property developer ignore the advice of skilled craftspeople, these tools give you a good baseline for material costs, work schedules, and labour estimates. Then you’ll guarantee at least a 20 percent profit if your costs come in low, and you have margin if there are unexpected costs. If you’re going to buy and hold a rental property, always take the return on investment into account.
Only select land, buildings, and projects that are within a reasonable scope and budget given the resources you have or can secure. At this point, at least begin researching contractors you can hire for work. However, thorough inspections should be done at this point. Few developers can afford to buy a property they think only needs a modest rehabilitation and find that it needs major foundation or plumbing repairs.
Very few real estate investors have the cash saved up to buy property, renovate it or build on it and then maintain it until they’ve sold it or filled it with tenants. This means most real estate developers will rely on loans and money from investors. Your business plan for the project and detailed budget and schedule will help you to secure financing. Do not begin work until you’ve secured funding for the entire project because no one can afford to get halfway through and run out of money.
Get to Work
If you’ve purchased land, you’re going to start construction at this point. If you purchased a run-down building, you’re either going to repair it or rip it down so you can build something better. In the best-case scenario, you’re going to refurbish the property with minor repairs and upgrades before getting it ready for the market.
You should have at least a shortlist of potential contractors to do the work if you are not going to do it yourself. Call in the plumbers, electricians and other skilled laborers. Check in on the work as it is done, dealing with potential problems as soon as they’re discovered. Prevent scope creep, such as a contractor switching to premium materials because an interior decorator decided it was “better” without caring about the cost.
Dump contractors whose quality of work is shoddy, and find replacements if they are taking too long. You can’t afford to pay debt payments for a few extra months because someone wants to take a break from your project to work on other things. And you can’t afford the risk of a half-done roof or addition when they go out of business.
Put It on the Market
If you’ve built a new home or renovated an existing one for sale, this means listing it for sale. If your business plan calls for renting out the property, you’ll list it so that potential tenants can come to see it. You should have already done the research necessary to price the property competitively. Most developers can’t afford to hold an empty property for six months because they asked too much in rent or posted a sale price 15 over what the market will bear. You’re only officially in business when you’ve closed the deal.
Plan Your Next Move
Real estate developers may profit from rental income, capital gains or even capital growth. For example, you may simply buy property and live off the rental income. Or you might use that rental income to pay down debt, dramatically increasing rental returns Others re-mortgage the property and release the equity of the improved property to help them pay for the next acquisition.
Property development provides several different paths to earning a profit, though none of these strategies is as fast as TV shows promising riches fixing and flipping real estate make it seem. However, you can succeed if you do your due diligence and avoid major mistakes.