Property development in the UK has become an increasingly popular venture, not just for the wealthy or the audacious but also for the average investor looking to make substantial returns. The landscape of property investment has shifted, creating new opportunities for those willing to explore the world of property development. Ritchie Clapson, co-founder of propertyCEO, has some given suggestions for prospective developers.
The Changing Tide of Property Investment
Traditionally, investing in buy-to-let properties was a favoured route for many. However, changes in taxation and regulations have made this option less appealing, steering investors towards property development. The government’s encouragement of small developers to convert unused commercial properties into residential spaces using permitted development rights (PDRs) has opened a new frontier. This shift reveals that development isn’t confined to building vast housing estates; significant profits can also be made from converting single buildings.
The Rise of Small-Scale Development
Small-scale property development typically involves transforming commercial buildings like offices, shops, or industrial units into residential flats. Such projects, which can range from four to 20 units, aim for profits between £100,000 and £500,000, with durations of 12 to 24 months. Unlike new constructions, which require navigating the complex terrain of planning permissions, conversions offer a more straightforward path to profitability through PDRs.
Key Questions for the Novice Developer
1. Starting Capital
Contrary to popular belief, entering the world of property development doesn’t necessitate a massive personal investment. For instance, purchasing and converting a shop into four flats might require an £800,000 investment. However, commercial finance providers often lend up to 70% of the property’s purchase price, significantly lowering the developer’s upfront financial commitment. This setup demonstrates that with strategic financial planning, substantial developments are achievable with relatively modest personal investments.
2. Building Your Team
For those new to development, it’s crucial to recognise your role as the visionary rather than the tradesperson. Hiring experienced professionals for construction tasks and focusing on strategic planning and risk minimisation will be your primary responsibilities. Your ability to lead and make informed decisions will drive the project to success.
3. Identifying Profitable Projects
Training and a solid understanding of permitted development rights can unveil hidden opportunities in commercial buildings. This knowledge gives first-time developers a competitive edge, allowing them to recognise and capitalise on the potential of converting commercial spaces into residential units, often at a much higher value.
4. Establishing Credibility
As a newcomer, your financial contribution and project vision make you an attractive partner for building professionals, lenders, and commercial estate agents. Successful collaborations on your initial project can pave the way for future opportunities, making you a valuable entity in the eyes of seasoned professionals.
5. Ensuring Profitability
While no investment is without risk, aiming for a 20% profit margin, maintaining a contingency fund, and obtaining proper training can significantly mitigate potential losses. These strategies, coupled with the flexibility to refinance or rent out units, provide a safety net for developers navigating the market’s ups and downs.
Conclusion – A Promising Path Forward
Small-scale property development offers a rewarding venture for those willing to invest time and resources into understanding and navigating the field. With the right financial strategies, a reliable team, and a keen eye for opportunities, first-time developers in the UK can achieve significant returns on their investments. Proper preparation and education are paramount to avoiding common pitfalls and maximising the potential for success in this exciting industry.