5 Rules For A Successful Property Development
A young couple has a dream to build a beautiful modern home situated on a secluded plot of land with breath-taking views. Everything is mapped out, planned and budgeted. The building work begins and slowly but surely costs begin spiralling out of control as a smug-faced Kevin McCloud watches on knowingly.
Grand Designs is just one of many examples that illustrates the reality of property development. It’s all too easy to get swept away in the glamour of it. It can be risky if you don’t know what you’re doing and if you don’t have the right team in place. Here are The House Crowd’s five non-negotiable rules to a successful development.
1. Buy land at the right price
The purchase of land will make up a huge chunk of the total costs of a development project, so it’s crucial that you acquire it at the best possible price. If you don’t, you’ll have to rely on the market rising and this is highly speculative and risky.
A massive amount of research is carried out when House Crowd Developments acquire land. The area will be surveyed meticulously, build costs and finance carefully examined, alongside regular communication with local estate agents to get an accurate sense of the site’s final value.
2. Appoint the right team
Property development requires a multitude of people with a vast range of technical expertise. Successful property development projects require all these people to be singing off the same hymn sheet.
The House Crowd Development’s team includes award-winning architects, contractors, planning consultants as well as an in-house team of underwriters and surveyors.
The track record and experience of those involved should always be properly evaluated. You should always assess their reputation, balance sheet, credit history and how many other sites they’re involved in. Only by carrying out this degree of due diligence can you feel confident in delivering a successful project.
3. Risk mitigation
As a peer-to-peer lender, risk mitigation is at the heart of everything The House Crowd does. Mitigating risks involves far much more than simple credit checks. There have been occasions where contractors have incurred over £500,000 of unexpected costs due to a muddy ground.
It’s crazy just how many days in the property development calendar are lost due to bad weather. Then there are acts of god such as the coronavirus pandemic which has halted thousands of building sites across the country and as a result delays are unfortunately inevitable.
These problems are enough to send a smaller development company under and out the property game altogether. You’ve got to do what you can to protect yourself from every possible eventuality.
You can’t predict the future, but you can be well prepared by prioritising the right things.
4. Cost control and budget management
To mitigate the risk of expenses spiraling out of control you should make sure the contractor is on a fixed-price design and build contract. This may mean spending a lot of time at the outset working out a set price that is agreeable to all parties.
A fixed-rate contract will also place the burden on the contractor to deliver, and what’s more, if any unexpected rises in materials occur – which so often do, they will have to absorb them.
The House Crowd has a strict policy of undertaking fortnightly drawdowns where the developer must prove that any subcontractors have been paid before more money is released.
5. Know your market
If you are to be successful at property development, you need to know the area in which you are building. There is no point building a four-story townhouse if the area is crying out for two-bed apartments.
Again, this is where you need a great relationship with the local estate agents to determine what your market wants. These are the people who are in daily contact with property buyers and will give you invaluable insight.
It’s also worth noting that projects can take anywhere between 18 months to two years to complete and there are many factors that can influence sale prices during this time. Having the right team in place and the experience to anticipate any potential events will really help to galvanise your risk management.
By following the above five rules, The House Crowd and it’s development team has been able to deliver on a wide range of successful property development projects to date and has returned over £7million in capital and interest to its peer-to-peer investors in the process.