We've all seen the TV shows that make doing up a property look as easy as A-B-C, and a surefire way to make money, but what does it really involve and is it for you? We take a look.
It’s likely that at some point we’ve all fancied the idea of packing in the day-job and becoming a property developer. After all, developing property in order to sell it on for a profit requires little or no experience and there’s certainly money to be made. However, the reality of developing property may not be as glamorous and fun as certain TV ‘experts’ like to make out.
What does it involve?
Being a property developer in the simplest sense means buying a property, developing it through renovation, then either selling it on for a profit or renting it out to tenants for a tidy second income. Often property development involves buying a property on the cheap that’s in desperate need of being updated and renovated through new furnishings, repairs, maintenance and so on. Buying a property cheaply means that hopefully once you have injected new life into it, you’ll be able to sell it on for much more than you originally paid for it.
Why be a property developer?
One of the most appealing things about property development is that anyone can do it – technically you don’t need any qualifications or training to get started. Anyone can become a property developer simply by buying a house then selling it on for a profit.
If you’re a creative person, have ever fancied yourself as the next Laurence Llewellyn-Bowen, or you simply enjoy DIY, property development can be an ideal pastime.
Plus of course, if you get it right the financial rewards can be substantial, particularly when you start to build a portfolio of renovated property that has been sold on or rented out. What are the risks?
Like many money-making ventures, the reality of property development is that it’s often much, much trickier than first appearances might suggest. Taking on a property to develop is a serious commitment and if you get it wrong, you could end up in a lot of debt with a property you can’t shift, and even face losing the roof over your own head.
Before you even start to look into property development it goes without saying that you would have to be in a very stable financial position. If you have any debts or your daily finances are being squeezed in any other way, now is not the time to start trying your hand at developing property as you’ll only plunge yourself into further debt.
Developing property represents a huge financial commitment because it involves the initial outlay of buying the property, then the significant expense of doing up that property and arranging for it to be sold or rented out. Rather than simply buying a few pretty furnishings from IKEA, this will often involve hiring contractors, having a structural survey done, fees you may have to pay to external agents, and much else besides.
The hope then is that you will be able to sell the house for a profit, but there is no guarantee you will be able to do this and the worst case scenario is that you’re left with a house you can’t sell which is doing nothing more than burning a hole in your daily finances.
There will also be structural issues to consider such as subsidence, as well as things like asbestos and the property perhaps needing more maintenance and repairs than you originally might have budgeted for. Developing a property will almost always incur unforeseen costs that you will need to have set aside even more cash for if you are to cope with them.
As well as the huge cost involved in property development, it’s also important to remember just how much research you would have to do before considering buying a property. To give yourself the best chance of success you would have to know the market inside-out, find out how much other properties go for in the area, decide on who your target buyer or tenant might be, find out about stamp duty, as well as a whole host of other things you would need to be aware of when buying a property with a view to selling it on.
What else should I consider?
If you do decide property development is for you, it’s best to start off small with your first property and only move on to bigger projects as you gain experience and confidence. It’s easy to get carried away chasing the first property you see and like, but this will only see you paying over the odds for the property which then means there’s more of a risk you won’t be able to make a profit on it. Remember that neither buying-to-let or buying a property to develop and sell on are get-rich-quick schemes. If it was as easy as some TV shows make out, everyone in the country would be a property mogul with their own property portfolio.
Property development involves a significant amount of research and capital before you can get started, and will require a huge investment of both time and money – so if you do decide to become a property developer, just make sure you know what you’re letting yourself in for before jumping in.
