An exciting venture but not one for the faint-hearted in the current UK economy
There’s potentially a lot of money in property; a fast-paced, highly profitable industry that attracts many ambitious entrepreneurs every year. But there are also significant risks when entering the unwieldy property market.
Why become a property developer?
Property development is a very exciting industry and as such appeals to a wide variety of entrepreneurs. There is significant money to be made, although you must be very disciplined and shrewd to do so. Entrepreneurs who like more freedom to express their creativity are also drawn to property development, as are those who aren’t ready to give up their day jobs. It’s possible to become a part-time property developer although the turnaround time per property will be increased, particularly if you plan to actively take part in the renovations.
What skills will I need?
A fantastic head for figures and a shrewd knowledge of the property market are essential. Property investment is very cash-intensive and you’ll need to be confident financially in order to maximise returns. Making poor investments can quickly sink a start-up, so you’ll need to start small and build your capital by making low-risk investments. You’ll also need to know the best way to buy properties, often at auction, off-plan, in developing areas or in un-modernised areas where the cost is lower.
There are very few training opportunities in property development and you’ll typically need to learn from experience or your own research. Whilst there are professional qualifications – such as degrees – available, some entrepreneurs may wish to forgo the cost in favour of gaining practical experience. Talk to local property developers and see if you can work for them. You may have to volunteer if they have no paid positions available. Watching and analysing the property market will also prepare you for becoming for a developer.
Start-up costs vary hugely depending on the area in which you buy, the renovations you plan and your target market. As much of the work will be on-site you’ll probably not require an office in the early stages. If you’re paying contractors and tradesman then you won’t require tools and supplies although you’ll obviously need to budget for their wages. You may also need to factor in marketing and promotion if you don’t plan to sell the property personally.
Insurance and compliance
Depending on the level of renovation needed your properties will vary between building sites and finished properties. Discuss compliance-related issues fully with the local councils to ensure you always operate within the law with regard to health and safety. Asbestos is a major concern if you’re working on older properties. Employer’s liability insurance is essential if you’re employing tradesman although the manner in which you employ them will sometimes require a specific type of insurance. You should also consider public liability insurance and professional indemnity insurance; talk to a reputable broker for more information.
Your first step
Analyse the property market. Successful property developers make money when buying a property rather than selling it because returns are not guaranteed. Buying at under market value is therefore essential. You’ll need a good knowledge of property auctions, off-market prices and other key indicators of value to ensure you’re making money from the first stage. Talk with tradesman and see who is available; think long-term partnerships rather than individual jobs.