Elijah A property developer has been defined as “someone who makes a living from building a new property or renovating existing homes to then sell on for a profit”. With the demand for housing rising, a shortfall in supply and with many buildings ready for conversion to residences, it seems like stepping into property development could be the solution to a profitable career. From the outside, it would appear so, but crossing the threshold without being aware of the pitfalls inside could result in a nosedive.
Here are a few common errors that small-scale property developers should avoid. As estate agents work with developers to market their properties, it is good to have a good rapport between the two, as estate agents in Sittingbourne will agree.
Branding: It is important to create a brand with a logo, business card and website. This will make it easier for you to be trusted by all the people you have to deal with – the estate agent, architect, other professionals and, above all, the investor. Who would want to hand over a large amount of money to an individual who has no business name, visiting card or website? Having a branded image acts as a guarantee to the people you will encounter.
Feasibility study: This will help with the accuracy of the price you are negotiating for a property.
- One common error, pointed out by a leading developer, is to “underestimate the cost of constructing your project while overestimating the price you can get on the completed buildings.” Analysing the financial feasibility will make you aware of all possible costs. Checking numbers could be helpful as even a small mistake in the figures on a spreadsheet or an error in pricing can cause miscalculations.
- Contingency fund: It is always wise to allow at least 10% of the construction costs towards contingencies.
Off-market: Agents have admitted that some of the best deals never come to the open market.
They have a good property to offer and with a few calls to interested developers, a small number of viewings and the deal is transacted without having to pay fees for staging, photographs and advertising. Amazon has mentioned, “Every Real Estate Agent needs ‘A Little Black Book’. A place to write ‘secret things’ and to write ‘stuff’ that you think about and want to remember. If your name is in the little black book, you will be informed in advance of “off-market” properties available at good prices. It is wise to look for such off-market deals, which could lead to a good investment.
Working without a team of professionals: One of the errors to be avoided is trying to manage your own project. Property development is time-consuming and involves many professionals other than the developer, including an architect, solicitor, finance expert etc. Two essentials are hiring the main contractor who will be in charge of all onsite work {instead of many subcontractors) and an experienced Project Manager to oversee the many aspects, reporting back to you and raising any queries. Not only will it save you valuable time, but it will ensure that the work is carried out in an efficient and systematic manner. However, the choice of a trained professional is vital, as the wrong choice can land you in deep waters. Undertaking a project development course yourself could ensure that you are coached to notice snags and can make the right choice. The cost of the training and professional team will be well worth the rewards obtained from the use of them.
Ignoring legalities: Although time-consuming, it is necessary to check legal documents to ensure that all is in order. Any loopholes in building contracts, option agreements, pre-lease agreements, JV agreements etc, could cause problems. Similarly, the site for purchase should be checked out beforehand to see if there are any legal complications or problems with building there. Also if there are nearby amenities (such as good transport facilities, shopping, schools) to make it feasible to sell later on. Buying a site in the wrong location could end up in a loss of investment by selling at a much lower price than anticipated. Clarifying tax liabilities as a company, payment to employees and claiming against expenses is required. A property developer’s income is usually considered under trade and not capital gains.
Conclusion: A property developer should have a goal and a plan to achieve it. As one expert put it, “The easiest way for anyone developing property to achieve their end goal is to add value to the property they’re acquiring”. This involves skill in making the most of heritage features of a property, maximising storage space, increasing natural light, installing premium appliances at lower costs and other factors that will make the property appealing to buyers. Of course, avoiding the errors mentioned above will also add value to the property.
