How To Make Money From Property

Ever wondered if you should give up the day job to become a property developer? Property Ladder’s Sarah Beeny tells you how (and how not) to go about it.

Where to buy?

Your first step is to get to know what the market is like where you want to buy, who lives there and who wants to live there. If you’ve got in mind a particular type of property you want to develop, you also need to establish that there’s a market for it. Get to know an area. You can do a lot of research on the internet. There’s no substitute for pounding the pavement, though. Even in half a day, you can find out a lot. If you’re a first-time developer, it’s easier to work with what you know, so stick to areas close to where you live.

Will it be a good investment?

It’s important to build a profile of the property you’re developing based on how it will be when you’ve done it up. This should involve location, number of rooms, layout and features. Contact local estate agents to find out how much newly renovated properties that match your profile have sold for in the last two months.

Think like a developer

There’s a big difference between buying a house to live in and buying something to either sell on or let. Buy where the opportunities are, not where you would like to live yourself. Make yourself a checklist:

• How good is the local transport? Is it near a train or underground transport system or a good bus route; what are local parking facilities like?

• What about schools? Are there good primary or secondary schools (these make areas desirable but expensive)? Language schools or a university (plentiful sources of tenants if you’re considering letting)?

• Are there good leisure facilities, such as sports and arts centres, parks and open spaces, restaurants and shops?

• Beware of houses near problem schools, electrical pylons or mobile phone masts, or that are under a flight path. Look out for signs of poor council services (litter, shabby street furniture or graffiti).

How to spot the right area

Every developer wants to be able to spot the next property hotspot and sell for a huge profit. Try not to get too hung up on this as no one knows for certain exactly where these hotspots are going to be. Often, what promises to be up-and-coming can take an age to become gentrified. Signs of an area becoming more popular include new bars, restaurants and shops or estate agents’ offices, and skips outside houses, indicating they’re being done up.

Areas next to already popular locations are also worth looking at. Anyone who can’t afford the desirable address will often move as close as they possibly can.

Target your market

It’s not just about finding the right area, but locating the right property in that area, and different groups want different things from a place to live. The safe option is to try to make your property appeal to the broadest market.

Students (with parental help) want good-value, larger properties that are suitable for sharing.

First-time buyers want cheaper properties with small gardens, good transport links and shops.

Families want at least three bedrooms, two bathrooms, and a garden, parking and good storage.

Business professionals want en suites, high-spec interiors, parking and convenient restaurants and shops.

Viewing houses

• View several houses to get a feel for whether something is right for you.

• Don’t just look at superficial detail, such as a pretty front door or good decoration. These can be easily (and cheaply) changed.

• Make notes and ask permission from the owners to take photos.

• Spot flaws such as big cracks in indoor or outside walls, which can be a sign of subsidence. Look out for wet rot (where water has been allowed to seep, which can lead to rotting timber) and dry rot (woodwork that looks crumbly or powdery). Rewiring can also be messy and expensive, so check the electrics.

Will you make any money?

It’s an easy equation. Take the initial cost of the property and add to it the fees incurred in buying it and selling it on – estate agents, solicitors, stamp duty, borrowing costs, survey, land registry, planning and building control costs if you’re taking on major renovation – plus the realistic cost of the renovation or decorating work (rather than guessing yourself, try to find a willing builder to view the property with you and give you an honest quote). Then add a 20 per cent contingency for unforeseen expenses. Subtract this total from the potential selling price. That’s your profit. In real life, it will probably be lower because what you think you will spend and what you actually end up spending are never quite the same.

Do it or leave it?

ALWAYS be realistic about your own skills and buy in any skills you don’t have.

NEVER buy a property until you’ve had a survey done. If the property’s going to be a money pit, it’s best to get out while you can.

ALWAYS make sure you’ve got a healthy contingency fund. However generous your budget is, extra costs have a way of creeping in.

NEVER stretch yourself to the limit financially. Developing can be stressful at times – don’t make it stressful right from the start.

ALWAYS make sure the fabric of the building is sound before you start making expensive alterations.

NEVER forget that your aim is to make money – don’t waste cash on things your target market won’t be prepared to pay extra for.

Work out your budget

If you are going to make any money (which is the whole point), you need to come up with a realistic budget and stick to it. It is up to you to itemise the work you want to do and price up each job realistically. Before you put in an offer, get an idea from a builder as to what your planned renovations might cost (don’t forget to add a contingency fund of 20 per cent).

Your list of costings should take you through every last detail, from planning and building control fees, major structural alterations, to new bathrooms or kitchens (price this up based on the suite or units you want to buy, rather than allocating a random sum), decoration, garden landscaping and furniture hire for when you come to stage your property for sale.

When you get the survey through, take note of what it says needs to be done, get a costing on how much any extra work will cost (even though you will have spent money at this point on solicitors and search fees, you can still pull out if the survey has too many unpleasant surprises) and build this into your budget.

Spend or save?

Make sure you have what the market demands. Ask estate agents what buyers want and, more importantly, what they will pay for. Fancy features, such as glass staircases, for example, will not recoup their cost.

SPEND on getting the property structurally sound. You can’t just cover up problems – the buyer’s survey will spot them.

SPEND on getting professional design advice from an architect for ideas on how to get the most from your space – unless you’re working on a very straightforward project.

SPEND on kitchen worktops. If the market demands granite, don’t try to get away with laminate. If you’ve saved on carcasses and doors, you can afford to spend a bit more on the tops.

SAVE on kitchens and bathrooms. You can now get affordable designer ranges, so there’s no need to blow the budget, whatever market you are targeting.

SAVE on appliances. Even budget ranges come in stainless steel. Choose midrange products, German technology if you’re marketing a high-end product, and don’t be tempted to include built-in appliances, such as coffee machines, unless you are going to live in the property.

SAVE on flooring. Midrange carpet in a neutral shade is fine unless you’re marketing a trendy loft warehouse, where you might want wood. Vinyl or tiles are great for kitchens and bathrooms, but don’t get carried away with limestone – there are plenty of excellent ceramic or porcelain copies.

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