Property development is a consistent means of growing wealth. It is an industry tethered to a largely stable, if highly competitive market, one that can often match risk with an equal reward. Moreover, property development is a personally rewarding industry. Any serious developer will learn a slate of new skills, build upon existing ones, and cultivate new contacts. That said, while the rewards can be great in terms of personal finances and professional development, property development must be done properly. Property development is an industry with little margin for error. Mistakes are easily made without prior knowledge, and this experience can be costly if you don’t have a plan of action beforehand.

In this article, we will discuss how you can get into property development, why you might consider doing so, and provide a few tips to get you started.

What is property development?

Property development is, simply put, the practice of purchasing a property or plot of land with the intent to add value to it. Once value is added, the property can be sold for an immediate profit, or rented out for a return over a longer term. This is quite open-ended; adding value could be anything from remodelling a single room to the construction of an entirely new property on an undeveloped plot of land. Provided a project can conceivably add value to a property, it can be considered a property development project.

Why get into property development?

There are several reasons to get into property development. As we’ve mentioned, it is a rewarding industry both for your finances and the development of skills. While the latter is certainly valuable, as you’ll cultivate both management and practical skills, the former is certainly the main draw. Property development can be an excellent and fairly reliable method of building wealth when done correctly. Property development can offer a high return on investment, though naturally, this relies on a well-planned and executed project.

What you need for a successful development project

There are many contributing factors to a successful and profitable development project. Some can be controlled, such as a rigorous plan, a good team, and a property’s potential. Others aren’t so easily controlled, and must instead be factored into the general plan. Unexpected issues affecting the schedule is one such example. While these factors certainly do have a hand in a project’s chances of success, there are a few general factors that influence almost every project. Here are a few that you should keep in mind.

A suitable property

Arguably, the most important factor governing the success of a project is the property itself. Not all properties are created equal, and some will be far more profitable than others. While it certainly is possible to make a good profit from developing a derelict, it requires a much greater investment of both time and resources, and is much more demanding on your personal skill set. This can mean a greater reward compared to other projects, but comes with an equally greater risk. As a general rule, beginner property developers should look for more approachable projects with less risk associated.

Choosing a suitable project is partially dependent on potential, and partially dependent on your skills and contacts. Keeping costs down is the best way of getting profits up, so projects that require work you can personally do will help cut down on contractor hiring costs. This isn’t a make-or-break factor, but it certainly is one you should consider when looking for a new property for your portfolio. Additionally, you should consider factors that will impact potential profit and costs. Purchasing a residential development project in an area with high demand is a good idea, but if the area makes it difficult to bring in construction materials, then your bottom line might take a hit.

A thorough plan

Aside from the property itself, the development plan is the most crucial factor for a project’s success. You’ll need to have a clear idea of what a property needs for additional value, the work required, what materials will be required for the project, the time frame, and so on. Most importantly, you’ll need to set a budget and stick to it as much as possible. Accountants can help with drafting a reasonable budget for the project you have in mind, identifying the costs and time sinks, and giving you an idea of the profitability of a project. While this can help give you a good idea of how a project will play out, no two projects are the same. You should account for extra expenses in case things don’t go exactly according to plan.

Reliable finance

A reliable method of financing a project ties all the other factors together. Finance is the prime requirement for a plan to be executed, so having a form of finance you can depend on is paramount. Thankfully, there is a wide variety of options for you to choose from, practically ensuring you can find a form of finance that fits your project.

While many forms of finance have their place, there are a couple of loan types that stand out as particularly effective in the property development industry. Namely, bridging finance and renovation loans are two of the most reliable finance options available. Bridging finance allows property developers to obtain large amounts of finance at short notice. This is done by securing the loan to physical assets, and tethering the loan’s value to the asset’s value. This also helps to expedite the loan application process, making bridging loans much quicker to obtain. As a result, bridging loans are an excellent option, allowing property developers to seize upon opportunities in the market.

However, bridging loans are not necessarily the best option for beginner developers, as they may not have the assets required to raise large sums of money. Renovation loans are a viable alternative. They can provide the means for beginner property developers to get started with smaller projects, and are often used to fund home remodellings, refurbishments, and modernisation projects.

Wrapping up

While not exactly the most accessible of industries, property development is an excellent path to growing your personal finances and professional skill set. It is one of the most effective methods of doing so, offering an excellent return on investment. However, this return on investment heavily depends on a property developer’s actions and the potential of their target property. Thorough plans and properties high in development potential are a must for good profits, making property development a high-risk, high-reward industry.