If you’re considering going down the route of becoming a property developer – the first question you’re going to ask yourself is ‘is this really worth it?’. I know there will be hundreds of people on both sides of the debate but it’s ultimately down to your personal opinion.
With a targetted return of 20% profit, Property Development is worth it for the people that are willing to put the hard graft in. Say you pick a property that you buy for £400,000 – you pay £10,000 to get it cleaned up and sell it on 6 months later for £492,000. A cool £82,000 gross profit is not too shabby right?
However, this does come at a hefty cost (not just £410,000!). When I say it’s a hard graft – I mean it’s HARD graft… especially if you’re new. There is stress involved at almost every corner. With this in mind, let’s take a look at what you’ve got to weigh that £82k profit, up against.
Learning the art of buying a property
The logical place to start when developing property is… well… the property!
When going around and attending viewings for properties, you need to make sure you’re equipped with the knowledge needed to critically assess the property’s potential. These considerations will include the area the property is in and the condition of the property.
You can’t go in thinking – ‘aw yeah that would be a great place for the kids to play’, you need to look at properties with a keen eye for value that you can add. This comes with experience mainly but in the first few developments, it takes some solid, hard research.
Then comes all of the legal stuff, surveys, contracts – you know, the exciting stuff. Who really can be bothered with it all?
Getting your property – can you afford it?
Now you’ve pulled yourself through the hardship of finding a suitable property – you’ve got to navigate the minefield of financing these purchases.
The sound of that £82k pure profit (excluding taxes) is pretty lush – could definitely use that as a down payment for the next development!
Unfortunately, you’ve got to spend that £410,000 first. Who even has that sort of money lying around?
Probably the most discouraging part of property development – or just getting started in property development is the initial capital you need to get yourself going.
Although you can get mortgages that allow you to buy houses for the purposes of flipping them on – there is no guarantee you’ll be accepted and you’re stuck before you’ve even got started!
It’s so important to do your research on how much money you’ll need to set aside as cash to facilitate the purchase as you need to get the property before you can flip it on!
Got the place, now what?
Amazing – you’ve secured the place, finance is all sorted. The hard work is done right? Lol no chance.
You now need to go through the property and seek out all of the areas you feel that value can be added and how to go about it.
Key things to be aware of are, you need to have a good relationship with tradesmen so that you can get professionals to do the vital things like electricals and plumbing. Additionally, you need to know what to look for in terms of things to renovate and how each issue you find, will affect the resale value of the property.
Selling the property
Lots of hard work done, lots more to go. You’ve fixed up the property real nice and you’re fairly confident you’ll get a resale value close to where you want it.
Now you’re sat with this lovely property that you want to sell on for some sweet sweet profit. Any ideas what to do now?
Yet again, we need to do some research via Google or calling estate agents/realtors and finding out the ins and outs of the whole process.
Remember the aggro that you had to go through for buying? Well – it’s the same but now you’re the one dealing with all of the viewings! An extra little piece of stress on the road to property development.
General admin
Finally, to wrap this lovely experience in a nice little bow – you’ve got to worry about the administrative bits that are added onto the whole charade.
Made profit? Great! Taxman needs a piece and you’ve got to work out what is tax deductible, what’s not tax deductible – did you get a grant? Does that need to be taxed too?
When you did your renovations – are they up to building standards? Did you put in an extension? Do you know how to find out if planning permission was needed? Do you even know HOW to get planning permission?
All of these things are juicy little add-ons that make the whole experience of buying, ‘doing up’ and selling properties that much more stressful. It just boils down to… well… is it all really worth it?
After all that – was it worth it?
To summarise all of the hardships you generally need to overcome – you’re looking at:
- The heaps of research needed to determine if you’re financially viable enough for your first development plus research on how to get started;
- Buying the property;
- Renovating the property (ensuring all standards are met and complied with);
- Sell the property; and
- The administrative bits that follow.
Yes – that seems like a huge headache. Yes – it would be a huge struggle for a lot of people. However, you need to understand that if you’re looking to turn this into a career, you aren’t going to be battling with a 9 to 5 job!
Think about all of the headaches you deal with at your full-time job at the moment. You’ll be contending with these similar headaches but for an £82k salary – and that’s just for 6 months work! Feel burnt out? Take a 2 months holiday and start your next development when you’re back!
If you were to ask me – I’d say the whole process is definitely worth the hassle. But really, it’s down to you.