Getting started
Never forget that you are a property developer - not a property speculator. If the market prices keep increasing then that is an added bonus and very welcome. However, follow the lead of the professionals and never bank on the market increasing. Always expect prices to be the same 6 months after you've renovated the property.
So can you do it? Well on the face of it - property development is very simple. Essentially it consists of 5 basic steps:
- Establish your finance
- Find a property
- Buy the property
- Rennovate the property
- Sell the property
If you invest your time to learn them well, then almost anyone can be successful. Never forget that to learn from your own mistakes can be very expensive, but to learn from the mistakes of others costs you nothing but your time.
Learning from the mistakes of the professionals is the most valuable investment of your time.
Roosevelt said 'to learn from your own mistakes is smart - to learn from the mistakes of others is genius'
The biggest reason for not taking on a property is the fear that it will go wrong or that you will lose money. Yet, there is a very simply secret for ensuring that no matter what the market does - booms, crashes or levels out, you will always be able to make money.
You will have heard of so many people making money out of property, and no doubt quite a lot losing money too (back in the last property crash). In most of these cases it is a mix of good luck and good fortune that made them money, not always because they were doing it the best way. Property is such a good investment that the market will often bail out a bad investment over a number of years, but the short term risks can be substantial. That's why it is so important to reduce your risk.
The key to managing your risk is to ensure that the rate or return or yield on a property is sufficient to cover any drop in prices. Property Developer Secrets recommends you should work on a base return of 20%.
Why 20%? - because the average market price has never dropped more than 20% and because mortgage companies implictly assume that 20% is a safe margin - that's why they want a 20% deposit!
In addition, you need to know how to deal with builders and how to manage the renovation work. Of all aspects of the job, this is the one area which causes the greatest number of delays and increased costs. If you don't manage this professionally, all your hard work and effort can quickly result in no return or even a loss.
Here's a typical builder nightmare: a good friend recently paid his builder up front for development work on his house. The builder told him that he need the money for materials and that he could give him a better price. So my friend agreed and went along with the builders advice. What do you think happened? Yes, the builder started work and turned the house into a great big mess and then disappeared off onto another job. No matter what our friend did, the builder wouldn't come back to finish the job. Finally, when the builder had no more work, he came back to 'finish' the job. That means he came to complete most of the work and remove his tools. Our friend then had to pay another builder to come in and complete the job - finishing the work 1 year later!
It is crucial to know how to deal with builders so that you never get compromised. The funniest thing about this story is that our friend is a highly successful corporate lawyer. In other words he should have known better! That's the value of a really good guide to property development. If our friend had taking advice on managing his builders then he would have been able to avoid this situation, save £1,000s and get the job done on time.
Move quickly. When you buy a property to develop, you start paying finance from the moment you exchange contracts. Therefore, the ability to move quickly and complete the work is crucial to you maintaining your return.
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