It seems like a dream job on the surface. Renovate a derelict property into a block of gorgeous flats and then sit back and admire your handiwork whilst you count your money. In practice, setting up your property development is a little different and is going to take a lot of hard work and planning.
Here are the steps you must follow to give your property development venture the best chance of being successful.
1. Put together a good business plan
All business ideas need a good business plan and property development is no different. If you are starting off your business as a sideline or as an additional income, you can factor in the income that you get from your day job.
Perhaps eventually, you will be able to phase this out and rely totally on your property development activities for your income. Write down some clear and targeted goals about what you want to achieve from your property business. Add in a step-by-step outline of how you will achieve this with a detailed timetable.
2. Focus on buy-to-let or buy-to-sell
You should have one main focus to your business. In a buy-to-let enterprise, you buy properties and then let them out to tenants. Your income is from the rent that they pay to you. Buy-to-let offers a more long-term strategy. If it works you can build up an extended property portfolio. Eventually, you may be able to give up your job and live off the rental income.
When you buy-to-sell, you are speculating on the property market. You will buy a property that requires some work on it or that you can add value to. You will then sell it and make money from the profit. The money that you make can be re-invested in your next project after you have taken some out to live off. Joe Nahas, CEO of Coronation Property does this on a large scale by renovating old inner city properties and converting them into retail and residential units.
3. Always keep one eye on the finances
It is easy to get caught up in the construction side of the business. If you’re planning on a buy-to-let strategy it is essential that you look at the predicted rental yield. This is the annual rental income against the value of the property. 10% is considered a good yield for rental properties but you could get even more if you let out to multiple occupants such as students.
You have to balance this with the costs of management and the turnover of the property. Remember, when it is empty it is not making you any money at all! When you are buying-to-sell it is all about the volatility of the housing market. You can end up making money without doing anything at all in a rising market. The opposite is true when the market is falling and you could get your fingers badly burnt.