Your first property development is obviously a daunting prospect. There are so many things to consider and things often get missed. In this guide, we will cover some of the main mistakes people make when taking on their first development and how you can avoid them.
Understand the numbers – and once they’re right, check them again
The numbers are key. Property development is a business and the numbers must add up if you want to be successful in arranging development finance.
Estate agents are tasked with getting the best possible price for a site and work for the seller. Never get caught up in bidding wars and never increase your offer without fully re-running your figures. It’s important that you ensure the project will achieve the return you expect before making the offer.
It’s common for projects to be remarketed as buyers make this mistake, only to withdraw their offer after it’s accepted. This can damage their reputation and may make future deals harder to secure.
The team around you
The team around you can make or break your project. They are the people you are relying on to take the project from concept to completion and it is of vital importance that they deliver.
You can reduce the risk of picking a poor team by making sure you ask for details of previous projects, checking online reviews and speaking to previous clients. If your team are doing a great job, they will usually be more than happy to prove it by giving you all the information you need to see how good they are.
Your team should include experienced contractors, finance broker and solicitors. Weakness in just one of these areas can throw your project off-track.
The demand for what you will be creating
The demand for the type and quantity of units that you’re creating is another important factor. Without sufficient demand, the value of the site is unimportant.
Always look to ensure the site is in keeping with the surrounding area, won’t suffer from any local ceiling prices dragging the price down and that similar units are selling well.
There’s endless property data available online for free these days, so make sure you use it. Check how long similar properties take to sell in the local area – this can be as important as the price they achieve.
Any similar projects in the area
If your demand is deemed strong, but another scheme is due to hit the market at the same time, you may find your sales will struggle. Even if your project is stronger, any delays could see the other scheme hit the market before yours and taking a lot of buyers out of the market.
If you’re struggling to find out about other schemes, phone around some local agents and ask them directly. There’s a good chance they will be aware of anything due to hit the market.
The site – especially drains & utility services
The two things that tend to get taken for granted for developers with less experience are services and drains. If the drains are running through the middle of the site, where your foundations are needed, you may well have to move them. This will add significant cost to your project, with no uplift in value to offset it.
Services can pose a similar issue. Make sure you know exactly where everything is underground and how you can connect into it. If you fail to check these crucial points, you can find your costs spiralling, with little to nothing that you can do about it by the time it comes to light.
Keep reading- check out our development finance case studies or the documents needed when applying for development finance.