Millions of property investors in the UK are making consistent returns and property development makes up a considerable proportion of this sector. If you’re wondering how to become a property developer, this guide will help you understand what it entails and how to get started.
There are two ways to potentially make money by developing property, one is through capital appreciation, where your development increases in market value, and the other is through rental income by letting your development property out to tenants. In this guide, we explain the different ways to get into property development and how to finance your development project.
What is Property Development?
Property development refers to the process of purchasing, improving, and/or constructing development properties with the intention of generating a profit. As mentioned, this profit is typically generated through an increase in value or through rental income (or both). Property development can encompass different types of properties, including commercial, residential, industrial, and mixed-use. There are a number of different strategies to consider with varying levels of potential profit and risk. We’ll be discussing these strategies next, so if you’re wondering how to get into property development, read on!
How Do I Become a Property Developer in the UK?
Property developments can come in a wide range of shapes and sizes. Which one is right for you (if any) depends on your experience, circumstances, funding potential and tolerance for risk. Below, we explain the 6 most common types of property developments in the UK.
Renovating Residential Property to Sell
This is perhaps the most common form of property development in the UK, especially for first-time property developers. It involves purchasing an old property in need of a makeover, sometimes called a ‘project property’, and renovating it to add value so you can sell it for a profit. The key is to find a property that has a large potential to add value and then renovate it in the most cost-effective way possible. Typically, you’ll want to look to come away with at least a 20% profit margin and our team of experts may be able to help you secure the right property and finance to make this happen.
Renovating Residential Property to Rent
Renovating a property to rent is similar to the ‘fix and flip’ process described above, except instead of selling the property after renovating it, you rent it out to tenants. This could be your primary model, or it can be a good way of retaining the property (and generating rental income) whilst the market value potentially increases – with the aim of selling it for a substantial profit in the future.
Developing a Residential or Commercial Property on Your Land
If you have enough space to build a development on your existing land, this could be the most lucrative way of getting into property development. You’ll typically need a garden at least 3 times the size of your home, otherwise building a new property could significantly diminish the value of your existing property. The main benefit to this type of development is that you already own the land, which of course reduces the capital required for your project. You may also save money when it comes to connecting services and utilities. The first hurdle you’ll have to jump with this type of development is to get planning permission – and we recommend speaking with an expert to ensure your plans are completely legal before commencing.
Converting Commercial Property into Residential Property
Converting commercial property into residential property is a strategy that has increased in recent years in the UK. Commercial property refers to any building that is used for business purposes, such as offices, shops, warehouses and factories. The government has supported this, especially for properties that have remained vacant for some time. As such, obtaining planning permission may be easier for these types of developments. However, the funding needed for a large commercial to residential renovation can be massive, but there are smaller and more affordable opportunities if you know where to look.
Purchasing Land and Developing Property from the Ground-Up
Ground-up development involves starting a development project with a bare piece of land and constructing a new structure or multiple structures on it. Every developer dreams of finding a vacant plot that holds the potential for lucrative profits, whether it’s through constructing a small block of apartments or a couple of executive homes. However, for a first-time developer, this can be difficult partly because lenders will take your inexperience into account when making a funding decision. Lenders will typically consider a maximum loan-to-value of 65%, so you’ll likely need to have some capital to add to the pot. If you’re a seasoned developer, you may be able to borrow more. The potential profits are large for this kind of development, but so are the risks, so make sure you talk to one of our specialists before embarking on this type of project.
Getting Planning Permission and Selling Land to a Property Developer
This strategy involves purchasing a piece of land, getting planning permission in place for a development, and then selling the land with planning permission to a developer. Although this may seem like a quick win, getting planning permission can take months or even years with no guarantees of success. Therefore it’s important to understand the implications of financing a purchase for what could be a considerable length of time. The potential for substantial returns attracts many developers to this strategy, but it can be high risk for inexperienced developers. It helps to have good local knowledge to identify opportunities and a solid understanding of how planning permission works. Our team of experts can help you to some extent, but we of course can’t make any guarantees of success.
How Do I Finance My Property Development?
If you’re planning to construct a new property or renovate an existing one, securing property development finance may be necessary to finance your project. Property development finance, also known as “development mortgage” or “property development funding,” is commonly used for development projects when a conventional mortgage isn’t an option.
A variety of property development finance options are available, each one catering to different project requirements. Some popular options include ground-up development finance, short-term bridging finance, heavy refurbishment finance, light refurbishment finance, and development refinancing. We can help you choose the right type of development funding for your project by assessing your specific needs.
The Bottom Line
There are 6 common strategies for getting into property development, each with varying levels of risk and reward. Which strategy is right for you depends on various factors, such as your access to finance and capital, risk tolerance, experience, and circumstances. There are also various types of property development finance to consider, and which is right for you will largely come down to the type of project you want to develop. Our team of experts can help you understand the development strategies in more detail and see what financing options are available to you.
At Michael Usher Mortgage Services, we’ve been helping our local community for over 30 years! We offer a comprehensive range of products from across the market, including specialist deals that aren’t available directly from lenders. We’ll aim to find you a development mortgage that suits your needs, guide you through the process, and liaise with your lender, estate agent and solicitor to ensure your application goes smoothly. We can also help to protect your mortgage with our FREE Insurance Service.
Talk to one of our friendly mortgage advisors for free to get going quickly. Our head office is on Frimley High Street, but we can also help you remotely via phone or video call if you’d prefer. We look forward to chatting with you!
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Your home may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice. The precise amount will
depend on your circumstances but will be agreed with you before
proceeding.
There are additional stamp duty costs involved with property development. It is advisable to speak with an accountant and/or tax advisor to clarify your tax position before proceeding.
