Tag Archives: property development

News, Property, Property News

5 frequent questions asked by first-time small-scale property developers

Written by Ritchie Clapson CEng MIStructE, propertyCEO

Small-scale property development projects can generate impressive profits, but only if you know what you’re doing. Here are the five most frequent questions that come up at the property development training company I co-founded, and the best advice I can offer for each:

  1. What does ‘small-scale’ mean?

Although there is no formal definition, typically you’re looking at projects of between 5 and 20 units – flats or apartments that would produce a profit of between £100k and £500k over a period of 18-24 months.

A new build can fit the bill, but it’s not the easiest route because you need to get planning permission first. A better path for a novice developer is to go for a conversion project. This could be converting an office, shop, bank, restaurant, light industrial building, etc. into apartments.

A small-scale property development project has a bigger budget compared to a flip or a refurb, and this means you can afford to hire an experienced Project Manager to oversee the work on your behalf. The larger budget also means you can afford to appoint a main contractor rather than a jobbing builder, which gives you a larger, more reliable organisation with better systems and greater abilities.

  1. Is securing finance a challenge for new developers?

The money you need is split into two parts: asset finance, which is used to buy the property or land; and development finance, which pays for the costs of developing the project to completion, including all the finance costs and professional fees.

A specialist commercial lender will usually lend you up to 70% of the asset finance, which means you will need to find a deposit of around 30% to buy the building/land. However, many lenders are happy for you to borrow the bulk of this deposit money from private investors who typically earn an 8-10% return on their cash annually (a very attractive proposition for them) leaving you to fund only a fraction of the deposit yourself. And the very same commercial lender will lend you 100% of the development finance to cover all the development costs. A fair bit of cash is involved, but most of it comes from other people.

  1. Where do I find a commercial lender?

The best way of accessing commercial lenders is via a broker. The property development lending market is mature and sophisticated, with many lenders and brokers in the field. The massive advantage of using a broker is that they’ll do the shopping around for you – and they won’t get paid until they’ve found you a lender and your project moves forward. This makes life a lot simpler for you as a developer since you don’t have to comb the market yourself. Another great source of investment is through specialist crowdfunding platforms that work with developers and private investors.

  1. How can a new developer be confident that they’ve got their numbers right?

Engage with a cost consultant/quantity surveyor to ensure your costings are accurate, and you can obtain quotes for many of the costs and fees. You’ll also be getting feedback from local residential estate agents on an achievable selling price. The good news is that it’s not all down to you; your commercial lender will insist that you target a minimum 20% profit based on the selling price of your units (GDV), and they will be crunching their own numbers independently to make sure your deal stacks before they agree to lend you any money. Plus, you would always include some contingency in your numbers to allow for any additional costs.

  1. Are first-time developers at a disadvantage?

This is a common misconception. The reality is that the new developer won’t be building or designing anything – that will all be done by your team while you play a more executive role. Your job is to find a viable project, arrange the finance, appoint the team of professionals that will do the work, and play the role of CEO.

The core skills you need as a developer are management, organisational, people, and decision-making skills. And these are skills that many people already use in their day-to-day lives, jobs, and businesses, which is why development has such a broad appeal.

Additional tip

Please do your due diligence before jumping in. Property development is an amazing way of creating wealth, but it’s not easy, and you significantly reduce risks by knowing where the pitfalls are before you start. There are books and training available that will increase your chances of success.

ABOUT THE AUTHOR

Ritchie Clapson CEng MIStructE is a veteran property developer of almost 40 years and co-founder of propertyCEO, a nationwide property development training company that helps people create a successful property development business in their spare time. It makes use of students’ existing life skills while teaching them the property, business, and mindset knowledge they need to undertake small scale developments successfully, with the emphasis on utilising existing permitted development rights to minimize risk and maximize returns.

https://propertyceo.co.uk/

 

For more property news, visit propertynewsdesk.co.uk

News

One Stop Business Finance secures facility increase with Shawbrook Bank

Specialist working capital, property development and bridging lender, One Stop Business Finance Limited has secured an extension of up to £4 million to its existing £6 million funding line from Shawbrook.

The amendment to the facility, signed on the 13th of September – contributes to the alternative lender, One Stop Business Finance Limited continuing to grow its loan book and exceed lending targets for the year.

The facility has increased to £10 million on an uncommitted basis, which allows One Stop Business Finance Limited to continue to support SME businesses throughout England and Wales. This follows sustained profit growth and a successful recruitment campaign, which saw eight new team members join the group earlier this year.

The company typically funds secured property transactions, offering responsible, alternative funding solutions such as working capital, bridging, revolving credit facilities, and invoice finance.

This agreement is a strong endorsement of the development of One Stop Business Finance’s commitment to investing in business growth, operations and risk procedures and offering exemplary customer service.

Due to its proximity to its customers and the market, owner-controlled One Stop Business Finance has the flexibility, knowledge, and appetite to help businesses when their bank is unable to do so.

Andrew Mackenzie, Group Managing Director of One Stop Business Finance, commented on the facility increase: “I am delighted that we have been able to build further on the relationship that we began with Shawbrook in 2019. This additional funding line continues to sit well alongside our private money and ensures that we have sufficient cash availability to deliver our short-and medium-term plans. Shawbrook continues to be very easy to deal with and has wholeheartedly bought into our strategic growth plans.”

The Speciality Finance team at Shawbrook has an established track record in providing funding lines to non-bank specialist lenders across multiple sectors, including property, SME, and consumer finance.

Luke Randell, Associate Director of Speciality Finance, commented that “Shawbrook has proudly supported One Stop Business Finance since 2019 recognising the business’ success in providing flexible financial solutions. We were able to provide a bespoke funding solution increasing our facility to £10 million following years of successful prudent loan book growth. We value our relationship with One Stop Business Finance and look forward to remaining a key funding partner as the business continues to grow.”

News

Revitalising our town centres by tackling the housing crisis

A stroll down your local high street is not what it used to be. Once upon a time you would pass bakers and butchers and fishmongers and greengrocers. These days it’s charity shops and vape stores. Out-of-town supermarkets and internet shopping have had our high streets reeling for some time. Customers making fewer visits to the centre of town meant stores and businesses shutting down. The pandemic didn’t help. It’s easy to think that further decline is all that is ahead of the high street. But there is something that can be done. We can help by being creative about how we engage with a different crisis: housing.

Fixing two crises

According to the Conservative Party’s 2019 manifesto, we need to be building 300,000 new homes every year. To put that number into context, that is more than the number of homes in Oxfordshire or Worcestershire. In other words, we need to be building a new county’s worth of homes every year.

But we don’t just need space. Infrastructure, proximity to jobs, and people not wanting to relocate far from family and friends are all considerations. And this means trying to squeeze new homes into parts of the country that already have quite a lot of housing.

The death of the high street has led to a significant number of commercial buildings such as shops and offices becoming redundant. If we could convert some of the commercial properties in our towns into residential, we would increase the number of people living there. With new inhabitants in towns comes the need for more amenities. They will need shops. They will need bars and cafes, and restaurants. They will need entertainment and recreational venues and outdoor amenities. And these things will all automatically materialise because the demand is there from the new homeowners.

Advantages

Brownfield redevelopment has a lot going for it. First and foremost, it means we’re not concreting over the green belt. It is a vote-winner too, since few voters would object to empty buildings being recycled into homes, or to our town centres being given new leases of life. These buildings are surrounded by infrastructure, so there’s no need to undertake massive civil engineering projects to make them accessible. And they’re also in the middle of communities where people want to live – there would be no need for everyone to up sticks and relocate to areas that currently have lower populations.

Much of this brownfield land is in towns, where the retail revolution has had an interesting impact on our shops. Back in the day, the upper floors of shops would store stock. But with today’s just-in-time inventory systems, retailers no longer need the same level of storage space, and the ‘uppers’ of many shops are often unused. This makes it possible to convert these upper floors into residential use without making the store underneath unviable.

Small-scale is key

Large housebuilders have a specific business model: cookie-cutter homes with well-designed blueprints that can be plonked on any piece of virgin land anywhere in the country. The plans and drawings already exist, and the team knows how to build them. The only decision needed is which designs are going in which field. They aren’t experienced in converting buildings, and there isn’t enough money involved: converting a small building into flats produces only a fraction of the profits a new greenfield housing development would deliver.

The solution? Small-scale property developers.

They mostly fall into two categories: individuals looking to get into property but who are put off by the usual buy-to-let proposition being less attractive than it once was; existing landlords looking to grow their portfolios more quickly by generating regular lumps of cash. The beauty of this type of development is that you can afford to be relatively hands-off – unlike a flip, where the profits are substantially less, and you also invariably end up project managing things yourself. But with a small-scale development, you have the budget to hire a project manager, whose fee is paid for by the development finance. And this can make life a whole lot easier.

It’s this promise of more profit for less work that’s tempting more and more people to consider small-scale property development as an investment strategy. And encouraging these projects to focus on our declining high streets can only be good news for our town centres

News, Property

propertyCEO and property investors network to create The pin Partnership

propertyCEO, the UK’s leading property development training company, and the property investors network (pin), the UK’s largest property training and networking organisation have agreed a strategic partnership which will create a new venture; The pin Partnership.

The new pin Partnership will become a central resource for property training and education, enabling anyone interested in learning more about property to access a variety of high-quality training courses, safe in the knowledge they are getting the best the industry has to offer.

propertyCEO was founded by Ritchie Clapson CEng MIStructE and Ian Child and provides training and mentoring to people interested in small-scale property development. The courses are designed to help trainees leverage their existing skill sets to tackle smaller development projects successfully, and to make the most of the recently expanded range of Permitted Development Rights.

pin and the Property Mastermind Programme, both founded by Simon Zutshi, have enabled thousands of people to benefit from Buy-To-Let investing and have helped landlords make the most of their portfolios by providing much needed quality housing in the private rental sector.

The new pin Partnership aims to be the benchmark of quality and value across the entire property training space.

“Over the last two decades, pin and the Property Mastermind Programme have set a high bar for property networking and training for landlords and investors. Our new venture with propertyCEO means that pin Partnership students will now also have access to propertyCEO’s world-class training and can take advantage of the massive opportunities that exist in small-scale property development right now. The pin Partnership is now the go-to place for high quality training right across the property spectrum,” said Simon Zutshi.

The pin Partnership provides significant benefits for the students of both organisations.

“Landlords are extremely well-placed to tackle small-scale development projects, and this new partnership means we can help more people reap the benefits of tackling these smaller projects. And of course all pin Partnership students will have the peace of mind of knowing that they will be getting industry-leading training at a fair price.” said Ritchie Clapson CEng MIStructE.

The organisations and their products will continue to operate independently, but each will now also operate under the new pin Partnership umbrella.

About pin and the Property Mastermind Programme

Founded in 2003, the property investors network has provided a positive, inspirational, and supportive environment in which people can learn how to become successful property investors. Today, the network boasts over 50 monthly meetings across the UK and teaches both new and experienced property investors how to invest with the knowledge and skill they require to minimise risk and maximise their returns. The 12-month Property Mastermind programme is the UK’s leading property investment training course, which has now been running for 15 years. Devised and delivered by Simon Zutshi, the programme has a proven track record of delivering life-changing results for its students

 About propertyCEO

propertyCEO is a nationwide property development training company that helps people create a successful property development business in their spare time. It makes use of students’ existing life skills while teaching them the property, business, and mindset knowledge they need to undertake small scale developments successfully, with the emphasis on utilising existing permitted development rights to minimize risk and maximize returns.

https://propertyceo.co.uk/

Book Releases, Construction, News

NEW BOOK: Industrial to Residential Conversions: The essential guide to converting industrial buildings for profit

‘Industrial to Residential Conversions: The essential guide to converting industrial buildings for profit’ is the new book from property experts Ian Child and Ritchie Clapson, founders of propertyCEO.

In this fully up-to-date book, you will discover: the secrets to converting industrial buildings – opportunities that the vast majority of other developers overlook; a practical system that allows first-time developers to take on any type of development project, even if they have no previous experience; the art of building your own experienced professional development team who will be highly motivated to work for you; and the secrets to getting funding for almost any property development project.

‘Industrial to Residential Conversions’ takes the reader through this little-known property development strategy that can generate six-figure profits.The book also covers:

  • A complete overview of the development process, with illustrative pictures and diagrams
  • A full explanation of the Permitted Development Rights introduced in August 2021 that allow many types of building to be converted without full planning permission
  • A step-by-step guide to creating a property development business in your spare time
  • How to source finance for your projects
  • How to find opportunities, both on-market and off-market
  • What type of property to build and how to work out your numbers
  • How to get the maximum number of units from your development site
  • Tips for selling your finished units

This is the ideal book for anyone considering small-scale property development as a means to generate wealth, and those looking to find a development strategy that can generate substantial returns with limited competition from other developers.

Ian Child and Ritchie Clapson CEng MIStructE have over 70 years’ property and business experience between them. Together they founded propertyCEO, a nationwide property development and training company that helps people create a successful property development business in their spare time. It makes use of students’ existing life skills while teaching them the property, business, and mindset knowledge they need to undertake small scale developments successfully, with the emphasis on utilising existing permitted development rights to minimize risk and maximize returns. https://propertyceo.co.uk/

‘Industrial to Residential Conversions: The essential guide to converting industrial buildings for profit’ is available on Amazon and from all good bookstores. RRP: £7.99

News, Property

The skills you need to be a successful property developer

By Ritchie Clapson CEng MIStructE, propertyCEO

A property developer requires skills used by many people in various industries, day in, day out. They are the skills of a CEO.

I’ve lost count of the number of students I teach whose initial ambition was to become their own Project Manager. This is not the way to go. Instead, you want to be the CEO who hires a Project Manager to manage your projects for you. The PM will then be your eyes and ears on the project and will report back to you.

At a high level, your job breaks down into several key roles:

  1. You’ll need to establish your business, strategy, and brand, and decide what type of development you’re going to tackle.
  2. You’ll have to recruit your team of professionals, including architects, solicitors, project managers, structural engineers, etc.
  3. You’ll need to be able to find a supply of good quality, profitable deals. These will need to be analysed to sort the wheat from the chaff and decide which ones are worth pursuing.
  4. You’ll be arranging the finance for your first project, working with both commercial lenders and private investors.

I’ve been training and working with developers for nearly 40 years, and here are the essential skills that you need to do the job well.

  1. Organisational skills

Your property development business won’t happen unless you are highly organised. You also need to be systemised and make sure you establish processes for each part of your business. They take effort and foresight to set up, but they pay big dividends and stop your business from degenerating into a shambles.

  1. People skills

Development is fundamentally a people business. Not only will you be working with a team of professionals, but you’ll also be wooing estate agents, lenders, and private investors. This requires the ability to create and build rapport. And, of course, development projects always have a few bumps in the road, so you’ll need to be able to make sure you get to the end with all of your critical relationships intact, ready to go again.

  1. Management Skills

Property development is a business, and you need to operate it as such. This means deploying management skills to run your business and being highly disciplined. You’ll also need to stay on top of cash flow, as even profitable deals could fall into the red on their journey unless you manage things effectively.

  1. Decision-making skills

Any decision is often better than no decision, and in development, you’ll have a team of professionals to advise you. The problem can arise where the developer needs to make a difficult call, and they dither, hoping some silver bullet solution might suddenly arrive. This dallying has scuppered many a project, frustrating the contractor who can’t get on with things until a decision is made. So when the ball is in your court, make a decision quickly and move on. In development, time is usually money.

  1. Hard work

Once you’re up and running, development can be a job you do in your spare time. But you’ll need to put in some hard graft to get started. You’ll also need to be persistent. Great deals don’t grow on trees, and there’s no guarantee you’ll find one quickly. The good news is that this frightens off most of the competition, so if you know what you’re doing and you stick with it, you’re likely to be successful.

  1. Determination

It’s easy to get disheartened. Great deals can be difficult to find, and projects rarely go entirely as planned. The spoils go to the developer who keeps going. But your first project will inevitably be your most challenging, and the journey gets easier as you build your experience and reputation.

  1. Education

Your property development education is the glue that holds all of the above together. Can you avoid making any expensive mistakes without getting training? It’s theoretically possible, but then it’s also possible to jump out of a plane without training. The other thing that education gives you is the ability to see opportunities that other developers can’t see. And you’ll want that edge so you can get the best possible deals.

ABOUT THE AUTHOR

Ritchie Clapson CEng MIStructE is a veteran property developer of almost 40 years and co-founder of propertyCEO, a nationwide property development and training company that helps people create a successful property development business in their spare time. It makes use of students’ existing life skills while teaching them the property, business, and mindset knowledge they need to undertake small scale developments successfully, with the emphasis on utilising existing permitted development rights to minimize risk and maximize returns.

https://propertyceo.co.uk/

News, Property, Property News

How to choose the property development project that is right for you

By Ritchie Clapson CEng MIStructE, co-founder, propertyCEO

Small-scale property development offers something for various tastes, but if this is something you are thinking of trying, be careful not to bite off more than you can chew. There are risks.

Small may be easier and less risky, but will it make you enough profit? This is where you need to do your own maths. You’ll be targeting a minimum of 20% of the GDV (gross development value – the amount your units will sell for) as your profit, and it will take you on average 18-24 months to complete a small-scale development end-to-end. So, as an example, to make an average of £100k a year, you could do one project every 18 months that produces £150k in profit. That equates to a GDV of £750k, which in development terms is very small. Or you could do two even smaller schemes with a GDV of £375k apiece. Simply decide how much you want to make and work out the size of developments you will need to do. You will quickly spot that you do not need to do mega-developments to make a very decent living, but the math works equally for those aiming for more significant returns. A big attraction of property development is that what represents a small project in industry terms can be quite literally life-changing from a personal income point of view.

When considering what should you build, you need to be thinking about reducing risk (again). Building a £1m luxury house is riskier than building five £200k flats because, if the house does not sell, then you are left paying interest on all the money you borrowed, but if just one flat does not shift, at least you will have already paid back your funders by selling the other four. Also, I would urge you to build for the ‘need’ market, rather than the ‘want’ market: this means 1 to 2-bed flats, or houses with up to 3-beds. 5-bed detached luxury houses look nice, but they are a non-essential purchase and can be more difficult to sell in a tough market.

Find out where the demand is in your target area and who will be buying. Downsizers? Young professionals? Families? They each have different requirements for location, transport links, local amenities, and home design, and your local estate agents will be a valuable source of guidance. Build for your customer and never for yourself, and always focus on your bottom line. You may think those gold-plated taps look amazing, but if they dent your profits, go for something plainer. After all, you will not be living there.

Risk crops up again when it comes to planning. Since planning permission will generally be required for most projects, it would be great if the English planning system was ultra-modern, well-resourced, speedy, and completely free of any doubt or subjectivity. Unfortunately, the opposite is true. Although the recent Queen’s Speech announced a draconian overhaul of all things planning-related, my preferred route is still to avoid it as much as possible. I have seen many planning applications get terminally stuck, costing their developers both time and money. Luckily, we have a weapon in our armoury that can make life a lot easier, and it is called Permitted Development Rights (PDRs).

PDRs allow us to change the use of a building without the need to apply for full planning permission, and such is the government’s frustration with the lack of homes being built currently, they have seen fit to significantly extend the PDRs available in 2021. From August, you will be able to convert a wide range of properties into residential, many for the first time, without applying for planning permission.

Ideally, you want your project to be within an hour’s drive from home. While you will not be spending much time on-site, you will still need to do your research and due diligence before buying. Having to travel the length of the country is a bind, plus it makes for a more distant relationship with your contractor, which is a disadvantage. If you do not find a decent project within an hour’s drive, then you have not been looking properly.

For the new or inexperienced property developer, choosing the right project can often present something of a challenge, but small-scale property development is now seen as a highly attractive option for those becoming disenchanted with the buy-to-let model.

 

 

ABOUT THE AUTHOR

Ritchie Clapson CEng MIStructE is a veteran property developer of almost 40 years and co-founder of propertyCEO, a nationwide property development and training company that helps people create a successful property development business in their spare time. It makes use of students’ existing life skills while teaching them the property, business, and mindset knowledge they need to undertake small scale developments successfully, with the emphasis on utilising existing permitted development rights to minimize risk and maximize returns.

https://propertyceo.co.uk/

https://www.facebook.com/propertyceotraining/

https://www.instagram.com/propertyceotraining/

https://twitter.com/Property_CEO

https://www.linkedin.com/company/propertyceo

 

 

News, Property, Thought Leadership

Small-scale property development opportunities

By Ritchie Clapson CEng MIStructE, co-founder of propertyCEO

If you are considering property as a potential investment opportunity, career path, or spare-time enterprise, there are a variety options to choose from. Small-scale development is one area that an increasing number of investors and landlords are moving into. It can be lucrative, and a lot less scary than many people imagine.

 

What do we mean by small scale?

Typically, you would be building somewhere between four and 20 flats and planning to make a minimum 20% margin on what you sell them for. As an example, let us assume you started small and converted a small shop, office, or commercial building into four flats which you then sold for £150,000 each, then you would expect to make a profit of £120,000. If your next project saw you convert 12 flats, based on the same numbers, you would make £360,000. In development terms, that is relatively small beer, but compared to the long game that is buy-to-let or a graft-intensive doer-upper, nice numbers.

 

Is there a great deal of work involved?

As there is more money involved compared to a flip (a small project where savvy DIYers and bargain hunters freshen up run-down homes and flip them on for a profit), developers can afford two things that make their lives considerably easier.

The first thing you can do is hire a Project Manager. The Project Manager’s job is to oversee the development for the developer. Worried you might be out of your depth (or get exasperated), turning up on-site to manage architects and contractors? Well, your Project Manager will do this for you. A highly experienced set of eyes and ears managing things on site, looking after your interests, and reporting back to you regularly.

Secondly, developers can also afford to hire a main contractor. Where flippers and doer-uppers make do with a general builder and then employ many of the other trades directly, a small-scale developer uses a contractor who is responsible for all of the trades/subcontractors. This makes life considerably easier since there is only one relationship to manage, and the contractor then coordinates all of the construction team.

Additionally, because you have a main contractor AND a Project Manager, you do not need to oversee everything yourself—you play the role of CEO instead of being a hands-on-newbie-project-manager—leaving you with more time than if you were involved in a smaller project where you frequently need to be on site. In fact, most small-scale developers oversee their projects in their spare time.

 

What skills do you need?

Your critical job as the developer is to create your own development ‘brand’, pull a team together, get the finance sorted, and then find profitable deals. And, of course, you need to be able to make decisions under advisement from your professional team since you are the ultimate boss. It is very much like the role of the CEO, and as such, you need to have solid organisational and management skills, as well as good interpersonal and communication skills. I would never tell anyone that property development is easy, but many people already have the generic core skills to be able to do it successfully. And to correct another popular misconception, you typically need to invest less of your own money in a development than you might think.

 

Remember there is risk

There is a reason why property developers take the lion’s share of the profit, while everyone else gets a fee, and primarily it is all about risk. There is no getting away from it – property development has many moving parts and is inherently risky. But, if you get yourself educated, it is possible to de-risk the development process significantly. It is the people who ‘jump in and go for it’ who tend to come a-cropper. I have certainly trained many developers who had learned the hard way that they did not know what they did not know.

 

Why is it so lucrative?

Converting unloved commercial property into attractive residential units generates a significant premium, particularly in a market where so many owners of commercial properties are financially challenged. And in my 40 years’ experience, relatively few developers know how to convert properties well.

The government recently announced a whole range of Permitted Development Rights in England, making it possible to convert many commercial buildings without needing full planning permission. These rights come into effect from August 2021, so the timing could not be better to take a long, considered look at the opportunities offered by small-scale development.

 

 

ABOUT THE AUTHOR

Ritchie Clapson CEng MIStructE is co-founder of propertyCEO, a nationwide property development and training company that helps people create a successful property development business in their spare time. It makes use of students’ existing life skills while teaching them the property, business, and mindset knowledge they need to undertake small scale developments successfully, with the emphasis on utilising existing permitted development rights to minimize risk and maximize returns.

https://propertyceo.co.uk/

 

 

 

 

 

 

 

 

 

News

The Future Of Property Investment – What are the opportunities?

There was a time when being a landlord was a sure-fire way to make a good return on your money. But the times they are a-changing, thanks to taxation and regulatory reforms over the past five years that have seen a significant number of portfolios become unprofitable and forced thousands of landlords to leave the market altogether.

 

A raft of permitted development rights that allow non-residential buildings to be converted into residential homes without the need for planning permission have been created with a view to converting the ever-increasing number of brownfield sites that are well-suited to redevelopment as housing instead of building on our highly prized green belt. And there lies opportunity.

 

But surely major homebuilders have got this market sewn up?

 

No, they haven’t.

 

The significant majority of brownfield opportunities sit way below the scale necessary to interest the big boys. The government has recognised this and is instead targeting small-scale developers, many of whom will be undertaking development projects for the first time.

 

The repository of buildings that are ripe for residential conversion has been increasing of late – look at the number of redundant stores in the wake of the recent collapse of Arcadia, Debenhams, et al. As our shopping habits have changed, so many High Streets have become ghettos. As these primary brands depart our town centres, the secondary retail around them is also affected. There is likely more to follow; when the furlough scheme ends, we will see a significant number of businesses collapse, and their properties, whether retail, commercial or industrial, will become vacant. One struggles to envisage there will be a glut of buyers waiting to snap them up.

 

Where does this leave the humble landlord? Surely property development is more complex than snapping up a couple of buy-to-lets? Interestingly, the strategies and skills that a new small-scale developer might need are very similar skills to those of a landlord, senior manager, or business owner. There has to be an overarching understanding of what’s involved in development, but most of the heavy lifting and technical issues are delegated to the professional team.

 

But don’t property developers need to have a small fortune in the bank to develop their projects? The answer in most cases is ‘no’. Whereas landlords typically fund their buy-to-let deposits personally, developers often secure a significant part of their deposits from private investors. The remainder of the asset capital and the development funding is obtained from a single commercial lender.

 

One major advantage of development over buy-to-let investment is the speed with which capital is created. You can expect a small-scale development project that would typically return a six-figure profit to be completed within 12 to 24 months. For a buy to let investment, the pay-back period is usually a lot longer.

 

Imagine you have £50k to invest in property, and that the multiverse is a thing. In one world, you use your £50k as a deposit on a £200k three-bed semi, which you then rent out. You clear around £300 per month in profit, but it will be several years before your equity growth enables you to remortgage and raise a deposit for buy-to-let number two.

 

Meanwhile, on another world, you use your £50k as the deposit on a small development project, a retail building that can be converted into flats using permitted development rights. You obtain the remainder of the financing you need through a commercial lender, and you expect to receive a profit of £150k within 18-24 months. You can also make up any deposit shortfall by tapping into private investment.

 

And while world-one-you is still waiting for equity growth (and occasionally dealing with broken boilers), world-two-you has made enough profit in 18 months to buy three of world-one-you’s buy-to-let houses AND has £50k left over to start a second development project.

 

Project things forward and, given that it’s possible to run multiple development projects at once, you can see how world two’s portfolio growth could be stratospheric compared to world one’s.

 

In our world, the hybrid landlord-developer role is starting to become popular, as existing landlords discover that small-scale development is well within their capabilities.

 

Please visit: https://propertyceo.co.uk/