If you are looking for a career change or a new interest becoming a property developer may not be the first option that springs to mind.
However, if you are looking for a vocation that allows you to take risks, provides the opportunity to make money, and requires skills such as negotiation, accountancy, creativity, and project management - property development might just be the perfect occupation for you.
What is property development?
Property development is the process of purchasing land or a building, improving it, and selling the end product for a profit.
Improving land or property could range from doing up a run-down flat to designing and building a multi-complex office/retail centre or large housing development. For the purposes of this article, we will be focusing on the development of two or more residential properties or commercial investments.
Why should I become a property developer?
Aside from the fact that the capital gains on property tend to rise year on year, property developers are providing a much-needed service. Britain is desperately short of quality housing.
The government is not building new homes fast enough, therefore, one way to plug the gap is to develop existing properties. Knowing that you are providing a person or family with a warm, comfortable, safe home can be hugely rewarding emotionally.
With people returning to the office following the Coronavirus pandemic, the need for commercial property is also rising. Furthermore, despite the cost of living crisis and people going back to in-store shopping, demand for warehouse space continues to soar. This means that the need for smart, dynamic people who can develop properties for commercial use is higher than ever.
What qualifications do I need to become a property developer?
You do not need any formal qualifications to become a successful property developer.
However, it helps if you have the following skills:
1. A great eye for spotting up and coming areas: Fortunes have been made by people who simply had the foresight to recognise that a run-down area would soon become a sought-after location. Examples of gentrification in inner-city London since 2010 include Tower Hamlets, Wandsworth, Hackney, Lambeth, Southwark, Hammersmith and Fulham, Islington, the Royal Borough of Greenwich and Lewisham
2. Knowledge of interior design and building skills: The more work you can do on a property yourself the more profit you can make on the finished product.
3. A robust risk appetite: You need to be comfortable with risking the money you use to purchase the property you plan to develop. Rises in interest rates, changes in how people use commercial property, increases in building costs, regulatory changes, and market price fluctuations can dramatically affect the value of your investment.
Property development projects can be stressful, therefore, you need to be able to handle pressure and uncertainty and cultivate a positive outlook that things will work out fine in the end.
How to finance property development
Unless you happen to win the lottery or have access to a large sum of money, you will need to borrow money to purchase a property to develop. There are several finance options available, including:
- Residential mortgage: A financial institution will loan you up to a certain amount to buy a property. You will need a deposit and the lender will value the house and stress-test your finances to ensure you can afford the mortgage repayments. This option is ideal if you plan to live in the property whilst you are doing it up.
- Buy-to-let mortgage: If you are planning to rent out the property once it is developed you will need a buy-to-let mortgage. These types of mortgages usually require a higher deposit than simple residential mortgages.
- Commercial mortgage: A financial institution provides the money you require to purchase a commercial property.
- Bridging loan: If you are waiting for funds to be released to purchase a property, for example from the sale of an existing home, you may qualify for a bridging loan to acquire the money you need for the acquisition. Note that the interest rates on bridging loans tend to be high as the lender is taking on considerable risk.
- Unsecured loan: Money for renovations can be obtained through an unsecured bank loan. Avoid companies offering pay-day loans etc as their interest rates can be extortionate.
- Secured loan: If you need a large amount of capital to undertake major renovations your best option may be to take out a loan using the property as security.
Get legal assistance from LawBite
Developing property is a complex, rich, and rewarding career. However, you do not have to make it your full-time focus, many people develop properties as a hobby. Whatever way you choose to bring property development into your life, you will need to rely on professional advice from solicitors, estate agents, mortgage brokers, engineers, tradespeople, and builders. Therefore, it is essential to develop trusted relationships with people working in these areas.
At LawBite, our commercial and conveyancing lawyers have years of experience advising property developers on the legal aspects of their craft.
If you are thinking of purchasing a property to develop, please get in touch with our friendly team who would be happy to discuss your long term business plans and ambitions. Just click ‘Get started’ below for a free 15 minute consultation.