July 26, 2019
Exactly How Do Property Developers Make Money?
Buying a residential property to renovate and let out or sell is the most common type of property development undertaken by individuals. And, when planned and executed correctly with the right property development finance in place, it can generate an impressive profit!
The key to this, of course, is ensuring that the total amount you pay to buy and improve the property (making clever layout changes, updating fixtures and fittings, and bringing external areas back to life, for example) is significantly less than the figure you expect to receive when your fully-renovated property sells.
Within this, property developers will make their money because they get the basics right:
- Location is everything – find the worst house on the best street then let the renovations begin.
- Every property has a ceiling value (a maximum amount it is likely to fetch on the market) so don’t get carried away with ultra-luxurious upgrades.
- Equally, cheap materials are unlikely to add value, particularly in the kitchen and bathroom.
- Developing multiple properties? Call on contacts and secure bulk buying discounts.
Boosting Your Property Development Profits
If you’re a seasoned developer, you’ll already have ticked those boxes. Box clever with these six additional profit-boosting strategies from the team at Tiger Financial:
1. Be smart about development finance
Careful financial management is key to being profitable so a comprehensive development appraisal (working out how profitable the opportunity is and how much you can afford to pay for the site) is an essential starting point. From here, choosing the right lender is vital – the wrong rate could see your profits plummet. High street banks generally mean high-interest rates whereas property renovation-focused lenders offer excellent flexibility and development finance rates. They can be hard to find so let a development finance broker manage the complex financial arrangements, property loans, and so on.
2. Capitalise on commercial
With commercial properties generally offering larger square footage than their residential counterparts, they naturally offer more profit potential – the more units you fit into space, the more profit you generate. Could a warehouse in an up-and-coming area be turned into industrial-style apartments for trendy renters? Or an office block into student accommodation? Such conversions are often viewed favourably when it comes to planning permission, especially if the property has been vacant for some time.
3. Be creative
What about avoiding planning permission altogether? If you already have a few properties, take an in-depth look at them. Could profitable improvements be made? Perhaps a layout could be reworked to squeeze in an extra rental room or a garden could be landscaped to boost the appeal of a family home. A property loan would potentially be required so get in touch with your development finance broker.
4. Build on what you have – literally
Looking to your current portfolio – or your own home – is there capacity for an additional property? Securing planning permission on your own land could save you hundreds of thousands to spend on making your project as profitable as possible. You’re also likely to save time and money when it comes to getting the new build connected. Not sure whether you have space? A garden around three times the size of the property that sits within it could be built on without affecting the value.
5. Sell to the big players
High-profile developers always seek sites with planning permission, ready for future builds. But a seasoned property investor could beat them to it then sell on to them. Of course, you’ll have to fall on an untapped opportunity or persuade a landowner to sell to you. And it’s all about the long game so you’ll need patience as you await planning permission. It’s a risky approach but it could reap real rewards – selling land with planning permission is more profitable than that without.
6. Get ahead with data analysis
The property market is volatile and complex – not ideal for making investment choices that’ll maximise profits. However, the data-driven market analysis gives you the opportunity to objectively examine where and when you should invest, as well as predicting the accurate value of properties. So, instead of relying on speculation or gut instinct, this sophisticated software can analyse locations based on crime rates, school ratings or traffic congestion, for example. Predictive analysis even lets investors determine future tenants so renovations can be done with the target market in mind.