Tips On Making 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.

Who’s going to do the work?

You’re going to have to work on a much bigger scale than you have ever done before (it’s nothing like DIY!), so be realistic about what you can take on and what you’re capable of. Depending on what’s involved, you may have to hire a project manager, and this could add up to 20% on top of the development costs. If you are working full time, you might have to bite the bullet and employ a project manager - decisions will be delayed and work won’t get done if you’re not around or run into problems. Your mortgage company, however, will still want its interest, eating into your potential profit.

Remember that the quicker you can turn a property around, the quicker you will be able to make a profit. If you want to make a career of it, it might be wise to hire a project manger for the first development, but watch what they do as closely as you can to get a good idea of what you will have to do next time.

Find the right builders

The builders you choose will have a massive impact on your development. Make the wrong decision and they will end up costing you money – and drive you round the bend into the bargain.
• Ask at least three builders to provide quotes. Either find companies through recommendation of friends or family, or through a trade association.
• Produce a detailed list of what you want done and make enough copies to send to each builder you ask to quote for the job (include architects drawings, if relevant).
• Check when the quotes come in that they include all of the work you want done (so you can compare like with like), but don’t choose on price alone. Visit past jobs to check out the quality of craftsmanship.
• Draw up a contract between you and the builder, spelling out exactly the work that is going to be carried out and when it should be finished (with a penalty clause if they have not completed by this date).

Be your own house doctor

When all the hard work is done, here comes the fun part. You can now make sure your property is irresistible to buyers. With a few considerations to ensure you don’t get too carried away and overspend on frivolities, here’s how:
• Give the property a really good clean and ensure it’s free of clutter. Remember you are not selling your home or your own style. Paint in neutral colours only and fit neutral-coloured flooring. This helps buyers envisage their possessions in your property.
• First impressions count, so the front garden needs to be immaculate, the front door should be freshly painted and any bins hidden away. Don’t park your car in front of the house or in the driveway. Not only will it block buyers’ view of the property, but an empty driveway will enable them to see how much space there is for parking.
• Make sure that every room has a clear function. Bedrooms need to look like bedrooms (people can always decide to turn one into a study later if they want to), kitchen-diners always need a table and chairs, and a second living room should be turned back into a dining room. Add enough furniture to show what the purpose of each room is, but don’t fill it with too much stuff so that it dominates the space.
• Dress the rooms with care. Bring in furniture and props to make it feel lived in, but avoid over-styling and lots of trinkets – it’s a waste of money and might put off buyers. You need to suggest how they might live in the property, nothing more. Bedrooms should be dressed with crisp, white, bed linen; bathrooms, with fluffy towels; and kitchens just need something simple, such as a bowl of fresh fruit or a few pots of herbs on a window ledge.
• You don’t have to buy lots of furniture to stage your property for sale. Ask friends and family for spare pieces you can borrow. You can buy a few bits if you think they might come in handy later, but don’t buy a load of old tat from second-hand shops – you need to show off attractive and robust furniture so, if all else fails, hire some.

Choosing a real estate agent

• Look in real estate agents' windows, local press and on the internet to see how many similar properties are for sale and what the asking prices are.
• Get three local agents to ‘quote for the job’. Wait until you have decorated and dressed your property before you ask them to value it.
• Ask agents to quote the figures of what similar properties sold for. Don’t just go with the highest valuation, but consider who will give your property the best marketing push.
• A sole agent offers the lowest commission (about 2 per cent), but you are tied to them for a certain period. Now so much house hunting is done on the internet, a sole agent (providing they list their properties on the major property sites) should work best.
• Joint sole agents market a property between them and split the fee, but they are less likely to put as much effort into it.
• Open agency is when you use two or more agents. Your property will get wider coverage and more viewings, but the commission is higher (3.5 per cent) and it can send signals to buyers that you are desperate.

Accepting offers

When someone wants to buy, they put in an offer through your estate agent. Don’t jump at the first offer – particularly if it’s a lot less than your asking price. Similarly, if the property has been on the market for a while, don’t necessarily dismiss it. Ask your estate agent to find out all the pros and cons: whether the prospective buyers have a mortgage offer in place, whether they have something to sell, whether they are part of a long chain. Ask your agent what they think of the offer. After all, the more an agent can sell your property for, the higher their commission.

However, it is your property, so if you feel they are trying to sell it for the sake of speed at a price you are not happy with, you are perfectly within your rights to decline such an offer. That said, when you turn down an offer, question whether you are being precious. Sometimes, you need to re-adjust your expectations.
If there’s no further interest after another month, it’s time to ask yourself whether you will be losing more money paying the interest on the loan while you wait for your property to sell than you would if you reduced the asking price. Once you’ve accepted an offer, ask your agent to get confirmation that the purchasers have instructed their solicitor before you take the property off the market.

Plan your next development

While you’re waiting for the deal to complete, there’s nothing to stop you looking for the next opportunity. After all, doing the research doesn’t cost anything. Once you’ve completed on the sale, it is important to take a breather and evaluate all that happened, so you know what to do – and, just as importantly, what not to do – next time. Time to give up the day job?
There’s a huge difference between being an amateur and a full-time property developer. You need to be very realistic about how much profit you have to make each year to provide yourself with the kind of income you’d be giving up if you leave your job.

Don’t forget that you will be taxed on any income you make and, assuming the property is not your main residence, you are liable for capital gains tax on any profit from the sale. Most of all, don’t get carried away with your early success – consider that you will have to make a profit time and time again. There are no guarantees in the property business. It’s not always a win-win situation, and I’m not sure it ever was.

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