Things to consider
People are starting to see the potential of property development, and it’s not surprising. After all, nothing beats making a great deal of money while utilising your creativity in the process.
If you’re one of the many people interested in getting into this ‘lucrative’ business, my advice is to slow down.
Although property developing and putting it up for sale or rent can be done by anyone, it doesn’t mean that everybody can be successful in it. It requires a lot of money, and if things go wrong, you may just find yourself buried in debt.
Aside from a huge capital, it takes skills and research (a lot of them too). It’s not as simple as buying a random property, making improvements to it, sell it, then you get your money. That’s just not how it works.
What makes property development a viable career for many is that one, it doesn’t require any particular type of qualification. Two, you can do it anytime you see fit, and it doesn’t even have to disrupt your full-time job (if you have one). And three, it’s very rewarding which is already a given.
Let’s say you’ve already done your research and there’s a property you’ve been eyeing on. Before you decide to take the plunge, think about the following considerations first.
Define your target market
This should be one of the first things you need to pay close attention to before everything else. Know your target market inside and out.
When you start considering areas where you want to start developing a property, think about who would want to buy in that area. Is the location ideal for:
- Young professionals?
- First-time home buyers?
All these groups have different needs. Defining your target market will establish how the whole development process goes. For example, it doesn’t make sense for you to buy and develop a property near busy roads if your target market are families. Obviously, it would be unsafe to do so.
Condition of the property
It goes without saying that you’re up to the challenge of renovating a property. But it doesn’t necessarily mean that you should jump straight away at every opportunity presented to you.
A survey done by a chartered surveyor will give you a better grasp of a property’s worth. A full structural survey is highly preferred compared to a basic one. After a thorough study of the property, ask yourself if it’s possible to do some of the repairs on your own.
For parts that need serious attention, get professionals to do the job. Again, with the power of research, get quotes from multiple contractors with the best ratings and recommendations. You’d want them to be trustworthy and be able to finish the task on time.
Remember: Selling a house with defects is unsafe to live in. You can get yourself into serious trouble because of this so keep that in mind.
Most people do not want to live in a neighbourhood that’s unsafe.
The curb appeal of a property is a significant factor in this business. But at the same time, peace of mind is something that buyers will also consider before the purchase. You would not want to skip this part.
Since you already took the time to do your research about the area, extend it a bit further by asking local police departments. Crime rate statistics will also help in knowing if the area is safe and secure.
The best location
A common mistake in this industry is getting a property in an area that’s already well-established. You will most probably pay the highest price if you buy a property in the centre of the ‘best area.’ This would take a huge chunk away from your profit which you don’t want to happen for sure.
You need to have the skills to be able to spot an area that’s on the rise. Be one of the first people to buy early. This is where the greatest chance of making a healthy profit lies.
Ideally, you’d want to develop an area located on the outskirts of an established city.
Room for growth
Locations that are just starting to undergo gentrification are the perfect place to start your property development journey. The secret to success in this industry is to ‘buy low, then sell high.’ And these are the places where you’d be able to get properties at low prices.
Look for areas with employment opportunities. If you notice large corporations moving to the area, migration will follow. You would want to seize that chance right away. If there are schools that are being constructed, students will naturally follow as well.
Future developments like hospitals, banks, shopping centres, roads, and other amenities are just some of the signs that you have to look for.
No matter how prepared you are, there will always be unforeseen costs along the way. You will not thrive in this business if you are unprepared to face such things.
Calculate how much you need to replace major parts of the house for instance. Always have an extra amount of cash as a buffer for these unforeseen renovations. Not doing so will just prolong the development of the property and worst, the value will have depreciated before you sell it.
Allot funds for the following:
- Getting a structural survey done
- Maintenance and repairs
- Hiring contractors
- Fees you may have to pay to agents
- Structural issues
Watch the market
Another common mistake that developers make is thinking that they make money when they’re able to sell a property.
You make money in property development when you buy, not when you sell. Losing your head over an ideal property will lead to you paying more than what you had planned. The result? You’ll have a tough time making a profit when it’s time to sell.
Make yourself aware of the market trend. Take into consideration that prices may change while you’re still renovating the property. If the value goes down before you’re able to sell it and you bought it at a higher price, you’ll lose money.
Give yourself the best possible chance of making money by trying to buy below the market price.
Always remember this: you’re putting your money on the line in this business.
Time is of absolute importance. Faster turnaround means you’re able to make a profit quicker. The quicker you make a profit, the more capital you’ll have for future projects.