How Do You See Yourself as a Developer…
What is your Commitment?
A serious one, who’s out to make maximum profit, or someone whose just playing at it?
It’s vital that you decide before you take even the smallest step into the process, because that decision must affect every future decision.
Assuming current building regulations and other legal requirements are always adhered to, (i.e. no illegal or dangerous process are undertaken), there are 3 types of developer.
In & Out ‘Arry…. (Seriously serious)
He doesn’t live in the property. Serious developers don’t do that!
Everything is thoroughly researched. He knows exactly what that property, in that road, in that neighbourhood, in this current economic climate will fetch when it’s finished. (It is this economic climate by the way, because he will be finished in 7 weeks).
He knows exactly the standard of renovation he will undertake, which aspects will have to be undertaken by tradesmen, what he will do himself, how long it will take and how much it will all cost him.
Most importantly he knows the maximum price he must never exceed when buying the property! His pre determined profit requirement and the time it takes to acquire that profit will determine this price.
The time element is vital, the property must sell ASAP, and the selling price is one of the two most important factors relevant to the time this sale takes. (The other is how pretty it is). What’s the point of £25.000 profit if it takes 9 months to sell? He could do 2 more in that time and make another £15.000 on each!
When totalling his profit, in addition to the materials and any builders he has to shell out for, he also knows how much any planning permission, building inspectors, architects, structural surveyors, party wall surveyors, etc. will cost him and exactly how much it costs to buy and then sell a property, when paying solicitors, estate agents, stamp duty, etc. And he never forgets VAT!
Mr and Mrs Newlywed
Just like ‘Arry, they need the money so they are going to go for it (bless them). Unfortunately they have to live in it of course, so right from the start they have no chance of keeping to their 6 months timescale. Also, they actually like the property (it’s their first home together for goodness sake), so they paid a bit more than they should have done for it. Dave will do a lot of the work himself of course, so that will make up the difference!
It turns out that Dave’s not as competent as he thinks, also his brother doesn’t commit the time he said he would. They put in a kitchen and bathroom that are too expensive, they haven’t really costed everything properly and they run out of money about 6 weeks before it’s finished. Still, they can decorate and things, so it potters along nicely.
The upshot is, it takes about 9 months to finish, they had to put in a new gas boiler that they hadn’t costed for but they make £15.000 profit and they have learned a lot. Unfortunately, that evening spent in the new bath together led to other newlywed type activities and little Johnny is due in 2 months, so they will have to wait a year before they do it again. (Develop the next house I mean, not get in the bath together).
Dennis & Sandra
Their children have left home, Dennis’ mum has just died and left them £450.000. They’ve bought a new silver 4X4, been on a cruise and joined the golf club, so now they think they might buy a nice house in the Dales and “do it up”. They can use it as a holiday home until it sells and deprive some sad little village of yet another “family in residence”, because no locals will be able to afford it once it’s been gentrified. (I’ll fall off this high horse one day and hurt myself, I know I will).
Obviously they don’t cost anything out in any meaningful way, pay the asking price, get builders in to do everything, spend way too much on a kitchen and bathroom, put up a conservatory, landscape the garden and give it a new roof. It takes 6 months to complete, costs £70.000 to do it and doesn’t sell for a year. Mind you they make £50.000 profit, haven’t lifted a finger and see some spectacular countryside, could be worse I suppose!
That’s the “WHY” of property development dealt with (after a fashion). Have a look at article “Where to Begin”, It’s not specific, just general stuff about vital decisions that all developers have to make, relative to potential profit. (Not for Dennis or Sandra).
The specifics come later!