Career Testing
Career Testing
Career Testing
ENTREPRENEURSHIP / JUL. 28, 2014
version 5, draft 5

How to Start a Property Development Business in the UK

Looking for a (potentially) profitable hobby? Or a new, full-time career? Did you love and always win Monopoly as a kid? Do you enjoy DIY projects? Either way, property development might be something you should consider. There is major opportunity, but it’s coupled with risk.

Buying, renovating, and then selling or renting a property is an ideal side gig for anyone who loves DIY projects. The time and money invested is relatively low if you’re working nights and weekends and do most the work yourself. The costs go up, of course, if you hire additional help.

Property developing in the United Kingdom, when done carefully, could be a major financial windfall. Start small, work carefully (regardless of whether you’re doing the actual work yourself), and learn at each step of the way. Aim for a slightly bigger, more ambitious project each time.

Find a Worthy Property

The first step is finding a property with potential. The less you pay, the more you stand to make. But - and this is a big but - some properties are beyond redemption. Don’t base your decisions on price alone. When it comes to property, locations trumps price almost every time. Buy the best property you can afford in the best neighbourhood you have scouted.

How do you scout a neighbourhood? Read up on it. Look at occupancy rates for residential and commercial properties in the area. And walk around. Get a feel for the community. Would you want to live there? Are there decent amenities like shops, transportation, schools, and parks nearby?

Once you’ve narrowed down the locations you’re interested in, you need to start looking for something to buy. You have several options:

Auctions

Auctions are a great source for properties, and the chance of landing something good for a very decent price is always there. Just make sure you don’t get carried away in the moment...have a budget, and stick to it.

Listings

There are dozens of websites and portals to search thousands of listings.

Agents

Finally, you could always turn to a professional real estate agency.

The Finances

In an ideal scenario, you’ll have the funds available yourself so you can avoid having to borrow the money. But in a property market with an average purchase price of roughly £200,000, that might not be possible. Careful consideration of how much you spend, and where you get it, needs to take place. Property development is subject to highs and lows, so be sure you can recoup your costs.

You could go to a bank, but as a first-time buyer (depending on your personal financial and employment situation), you might not qualify. Other possibilities include services specifically aimed at property development endeavours, including:

As a first-time buyer, you likely won’t have to pay the stamp duty land tax, but be aware that you will be on the hook after that. Stamp duty is charged depending on the value of the property.

Renovations

Beyond the price of the property itself, don’t forget about other costs when considering whether you can afford something. Renovations could add up quickly. How much work does it need? How long would that take? Can you afford to hang on to it that long? Renovation financing is often available for owners and developers.

If you’re doing the work yourself (an excellent hobby and creative outlet), don’t cut corners at any point. Do it right the first time to avoid headaches later. If you’re going to hire someone, do your research. Check them out online. Ask for and/or look for customer testimonials. Inquire about previous complaints. And get everything in writing.

Surveys

Before buying a property, you (or possibly your mortgage lender) will need to have a survey conducted on the property, for both value and condition. There are essentially three types:

  1. Condition Report - the simplest and cheapest option, costing between £100-250.
  2. HomeBuyer Report - the middle option, utilizing a simple traffic light system (green, yellow, and red) in terms of condition and possible issues. Costs roughly £250-400.
  3. Building, or Structural Survey - the most complex and detailed of the three. Costs about £1000, but well worth it if you can afford it.

A few useful links to help you understand your options:

Structural Surveys Direct

Home Buyer Report

Home Buyer Surveys Explained

Sell vs. Rent

Both have their appeal. Owning and letting property will take time and money each year, but sell something and you’re done. Rental property is a fairly steady stream of revenue, but you could unexpectedly lose a tenant and have an empty property on your hands.

It’s a good idea to examine the Rental Yield, which is calculated by dividing the annual rental income by the total cost (purchase price including tax, surveys, and ongoing costs) and multiplying by 100. Anything over 5% is usually considered a good investment.

If you don’t want to be a landlord, you need to list and sell the property. Look at the going rate for similar properties in similar areas and set your price accordingly. Price too high, and it will sit empty (costing you money). Too low, and it’s not worth the time and effort.

Property development is by no means a sure thing. There are risks. But if you do your homework, work hard, stay honest, and think ahead, it could prove quite profitable and worthwhile.

 

Photo by Mark Moz

Creative Commons License

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