Property development tips

Lubbock Fine, 15 November 2018

Placeholder image

By Andy Noton, partner
020 7490 7766

Investing in the property market for the very first time can be a daunting prospect, but, if you do it right, the rewards can be significant. Whether you’re looking to build a large portfolio, or simply ‘flip’ a house for a quick profit, if you’re serious about becoming a property developer there are one or two important things you need to know before taking the plunge.

Make a plan

  • The cornerstone of any successful enterprise is a sound business plan, so, before you even think about dipping your toe in the market, you need to sit down and get your ideas on paper. Here are some important points to consider when compiling your business plan:
  • What’s your starting point? Think carefully about how much capital you want to invest, how much time you’re able to devote to a project, and what skills and experience you’re bringing to the table. Part of the appeal of property development is that it doesn’t require any professional training or qualifications, but a little knowledge can go a long way. The more work you can do yourself, the more you’ll save on outside contractors but beware of false economies.
  • What do you hope to achieve? Do you want to generate a stable, long-term income stream with a buy-to-let portfolio, or ‘flip’ your property for a quick injection of cash? Think about how much you’d like to earn over the first three, five or ten years, and how quickly you’re looking for a return on your investment.   
  • How are you going to make it happen? Finally, and crucially, you need to consider how you’re going to achieve your objectives. Things like financing, business modelling and cash flow all need to be taken into account.   

Once you’re happy with your business plan, it’s time to start thinking more carefully about your budget.

Calculating your costs

A thorough cost analysis is crucial to any successful venture, and, even with a large budget and a perfect location, you’re unlikely to make a decent return on your investment if you underestimate your costs. You should already have a clear picture of how much you want to spend from your business plan, factoring in fees for contractors, surveys and structural repairs; but that’s just the beginning. You’ll almost certainly incur unforeseen expenses once you start work on the property, so it’s important to have strategies in place before you break ground. With that in mind, here are a few tips to help you stay within your budget:  

  • Create a contingency fund. In the event of any unexpected issues, it pays to have a financial safety net. A good rule of thumb is to set aside between 2-5% of your overall budget to safeguard your investment.
  • Hire a Project Manager. This may sound expensive, but, particularly for large new-build projects, it will almost certainly save you money in the long run. An experienced Project Manager will help you recruit a reliable team, as well as overseeing day-to-day duties on site.
  • Itemise your building and renovation costs. Keeping a detailed breakdown of everything you spend will make it easier to adjust your budget later on if the need arises.
  • Manage your time effectively. Building or renovating a property can place huge demands on your time, so you need to work smart. Create a realistic timetable, and set yourself weekly and monthly targets.
  • Don’t get carried away. While you should never cut corners on quality, it’s easy to go overboard on fixtures and fittings. Remember, this is a business project, not a passion project.

Depending on the scale of your investment, and whether you’re developing a property from scratch or renovating an existing building, there may be other hidden costs you need to be aware of. These include:

  • Legal fees
  • Service connections
  • Materials wastage
  • Stamp Duty
  • Land Registry fees

Over the past few years, the government has tightened legislation on stamp duty, tax relief, and overseas investors, so it’s always wise to consult a financial professional before making a purchase. Here, at Lubbock Fine, we’re specialists in property development accounting; we can guide you through the process step by step, help you cut through the red tape, and give you the peace of mind that your investment is safe and secure.

Choosing a location

Once you’ve set a realistic budget and secured the necessary funding, it’s time to begin exploring the market, and the first, and perhaps most important thing you need to focus on, is location. It’s easier than ever to source information, through websites, apps and industry papers, so do your homework. Compare house prices, crime rates and transport links, and, wherever possible, get boots on the ground. Visit shops, restaurants and pubs, speak to the locals, and seek advice from professionals. Here are some other things you might want to factor in when deciding on your ideal location:

  • Employment opportunities. Many people relocate for work, so an area with thriving industry or good links to major business centres is likely to increase the value of your property.  
  • Parking facilities. This is particularly important in major cities, where off-street parking is often at a premium.
  • Entertainment and leisure facilities. Easy access to sports centres, green spaces, restaurants, pubs and cinemas all add to the appeal of your property.
  • Schools. Check local league tables and accessibility. For many young families, a poorly-performing school or a difficult school run can be an absolute deal-breaker.
  • Security. Good street lighting, speed bumps, CCTV and neighbourhood watch schemes are all worth taking into account, particularly in built-up areas. 

Playing the market

Property development can be a tricky business, with more than a few pitfalls to trip up the first-time investor, but, with a little research and the right guidance, it can prove an extremely sound and profitable investment. So, if you’re interested in taking your first steps on the property ladder, get in touch today and speak to one of our specialist property accountants