In terms of options for savings, investments and beating inflation, property investment is often considered. In terms of fundamentals, housing is a necessity and the current housing shortage doesn’t seem to be decreasing that quickly. Private investors can make a difference in this situation and help create quality homes, with good amenities that people want to live in. Before diving in, it is important to think about the support network you’ll need and questions around location, budget and exit strategy.
How you will be financing your project and a rough budget is the first thing to decide on.
- Will you be using loans/ mortgages to finance the purchase?
- How will you pay for any construction work required, savings, loans or a JV?
- Does your budget allow for flexibility; contingency spending and adjusting the level of finish?
The budget will dictate the location of your development to a certain extent. It can be difficult to find ‘entry-level’ projects in London but keep an eye on auction websites like Allsop and Barnard Marcus, there are often greenfield plots or garage sites with reasonable starting bids. It’s important to think about what you plan to do with the property once it’s complete before you’ve begun works. What’s more, you need to have alternative plans in place in case the market moves in a direction that is no longer favourable to your original plans
Concerning exit strategies you need to be asking yourself,
- Will you carry out the works and put the property back on the open market?
- Would the scheme potentially work if you built and sold it in stages
- Will it be offered for market rent? Could some of the units be rented, and others bought
- Will you do any works at all, perhaps obtaining planning permission would realise a worthwhile profit.
While it is possible to go solo and figure things out as you go along, unless you are prepared to learn the detail of each discipline involved in, sourcing, negotiating, buying and redeveloping a house or building for sale, it makes sense to have a team around you who are seasoned professional and understand the demands of the market and your vision for the development – both in terms of social and economic value. A streamlined advisory team could include an estate agent based in the area they hope to target; a builder or contractor with a good network of reputable tradespeople and a good understanding of current build costs and an architect who will be able to advise you on how to translate your vision into an asset that maximises potential value, is attractive to the market and satisfies local planning regulations.
As the capital city, London has a lot of positive points in terms of location is usually one of the mainly considered options. Depending on the exit strategy you are considering it would make sense also in pastures rental yield has dropped considerably resale prices remain buoyant. At the medium-upper price range, house prices are usually the last to be affected by market interactions and the first to bounce back after recessions.
Assuming you decided upon an appropriate exit strategy and location, it is important to then consider what strategies you will utilise to market the property. Will you depend on agents to assist to rent or sell the property or will you attempt to do it yourself. It is usually recommended to set aside a figure of around 2% of the total construction/ renovation costs to market the property. This can seem high, but if your works were completed using debt, every month the property is sitting on your hands will cost you dearly.
If, in the worst-case scenario the market changes – you may need to change tack quickly. You should already have a range of alternative plans at hand for these situations. Will you need to rent the property out for some time, will you need to subdivide the development for an easier sale or target a different sector of the market? Again, this is where having a really good team around you can be vital. At times like this architects can be vital to give you a neutral, unbiased view of your plans.
Whatever you are planning to do, remember that planning, critical thinking and adaptability are going to be key to avoiding the common pitfalls of new property developers. The team that you surround yourself with will need to have a proven track record of efficiently producing effective work, thinking flexibly and communicating well. Always keep in mind that project failure is usually a result of general ambiguity and a lack of clarity and, so make sure you have at least a vague understanding of your desired outcome and find a team who can flesh that out and push towards it until completion.
