There are many different skills you need in order to be a good developer and below we have listed 5 tips on helping you making your way there. They are important points to note when considering a property development opportunity.
- Always work backwards from the Gross Development Value when calculating the purchase price.
It is the most appropriate way to work out what you should be paying for the site or piece of land on offer. You need to be realistic about this Gross Development Value and it is recommended to be a little bit pessimistic when calculating this figure. The reason for this is because if you over inflate the price then you would be consequently over pricing the purchase price for the site/land. Therefore always be realistic in your GDV and not hopeful as this would allow you to work out your costs and profit margin realistically.
- Just because a property does need refurbishing it DOESN’T mean it makes it a good deal
If you spot a property that appears to be £20,000 below market value if you think you will spend £30,000 undertaking the refurbishment then that I am afraid is not a deal! Unless you can add some real tangible value in some other way for instance say building in the back garden I would suggest you should be looking for another project. Just because a plot has planning it does not guarantee you a profit or that the property can even be developed at all for that matter. Obviously you need to undertake your research carefully and dare I say if the agent is offering up some fairly persuasive numbers for example the Gross Development Value keep in mind the agent makes a commission if you buy and therefore you should put more faith in your own numbers rather than the agents.
- Always have a schedule of Works for the Project
If you do not know what you want how would the builder know what you want and how can you possibly have a realistic budget and quantify your costs and margin. You cannot build from planning drawings it is therefore impossible for the builders to actually price the build from them. You would need to request your architect to produce building regulatatory drawings before you go and get any prices. This is an extra step but an important one as this would allow the builder to then provide you with a more accurate quote for the works to be undertaken and at the quality you envisage.
- Do not be afraid to outsource to experts
By outsourcing to experts as the project is progressing it will save you £1000s in the long term. In essence if you tried to make the project into a DIY job you will end up arranging for experts to come in and undertake the work after you make a mess of it as you would find firstly you did not end up obtaining a high quality finish and secondly you took a lot longer which would consequently affect your profits. Therefore as much as we would like to think we are experts we should understand that it is better for us to get the real experts in to undertake the work.
- You do not have to appoint the cheapest builder
You do not have to necessarily appoint the cheapest builder it is important to appoint the best builder. On any one project you can only achieve two of the following three items you can get (i) high quality, (ii) fast turnaround or (iii) low cost. In essence you should aim for high quality along with fast turnaround if you possibly can. As a low cost will probably cause you to spend more in the long term as they may necessarily not have undertaken the job properly or if you decide to rent out after developing there may be further repairs later down the line. Always consider your options. Please keep in mind that delaying the project whilst trying to beat down the price can cost you more in the longer term than what you are trying to save. Delays tend to swallow up your profits as the financing costs on any given project are generally quite high. Always agree terms with your builder before the work starts and write them down for both parties to keep a record of and on larger projects do not be afraid to use a formal contract to set out the schedule of works and timescales.
- Is project managing the works really the best use of your time and skills?
Or may your time be better spent going out and looking for that next deal. In essence if you ensure you have a trusted team and you have clear instructions and outlines in place for your builder you would not necessarily need to spend too much time project managing. Provided you are clear with your team and obtain and view on a consistent basis you can effectively use your time to find your next project. Remember your money is made when you buy your property/land not when you sale!