How To Become A Property Developer!! – Making Money From Property Strategies
To become a property developer there are multiple considerations to be made.
They include but are not limited to:
- Developing A Business Plan For Your Property Development Business
- Defining Your Investment Strategy
- Working Out The Return On Investment For Your Property Investment
- Understanding Your Location
Please Note: This is not an exhaustive list, the list should merely be used as a base, and as you develop into a property developer, you will develop your own golden nuggets, and one day we hope, that you will come back, not as a student, but as a teacher to train us!!!
1. Develop A Business Plan For Your Property Development Business
A business plan is a useful tool whether you are planning to do property development full time or part time. Heed the age old saying, “If you fail to plan, you are planning to fail!”.
Some reasons for why you should create a business plan:
A business plan allows you to clearly lay out hard facts, numbers and the vision you aim to achieve.
A business plan is effectively an action plan with numbers. If well-constructed it will be a map to your success.
A business plan will help you to make decisions.
If you decide to follow a business plan writing guide or template, the process will involve filling out multiple sections that require specific information. This process, if taken seriously, will eliminate grey areas, because you are forced to ask yourself questions, and think of the right solution.
For Example. what is your Purchase strategy? or what type of tenants would best suit your properties?
A business plan can foster new ideas, writing down your plans can/will encourage thought.
Writing a business plan is a dynamic process, coming back to it and making updates as you come across new business challenges will mean that you will be constantly thinking creatively to solve each new challenge.
A business plan can be a reality check.
The process of writing a business plan will often be difficult, particularly if it is a new venture, but the difficulty in answering key questions is encouraging, because it will get you to think, and enable you to define dreams in away that they can become realities.
2. Define Your Investment Strategy
There are multiple property investment strategies, you should do your research and understand what strategy you want to follow.
Below are summarises of strategies employed by professional property investors:
The purchaser buys a property and then rents it out to tenants.
This is a long-term investment strategy
The purchaser buys a property with a view to sell it onward
This is a short-term investment strategy
Often the investor will buy the property at below market value or buy the property in order to add value
When engaging with this strategy you must be aware of the market conditions, you may not be able to sell at the speed you require or or at the price you initially had in mind
The investor lets a property to multiple people, individual rooms are let out.
This results in increased income, cash flow and yield over the conventional Buy-to-lets where the property is let to one tenant.
This is an agreement between you and a homeowner, giving you the right but not the obligation to buy the property.
Other buyers will be excluded from purchasing the property within the period the option is valid
Whilst holding the option the option holder has full control of the property.
This is when a sale price is agreed to buy a property. Normally a proportion of the property is paid for with a deposit, and the rest is paid over time until completion date.
This is the process of converting a commercial property (offices) into residential properties (Flats).
This is when investors partner up to make a purchase of a property. The degree of partnership can be of any permutation. One partner may have the knowledge and one may have the funds, or any combination of the two.
This is when an investor finds a property investment. They generate a lead then get rights to purchase / engage with the property from the owner. This right is then sold on as a package for a fee to another property investor.
3.Work Out The Return On Investment For Your Property Investment
Considerations need to be made for the return on your investment.
The metrics below are ones for you to consider:
Definition: Rental Yield is the Annual rental income against the value of the property.
Calculation: Yearly rental income divided by the value of the property.
Definition: Return on investment is a ratio between net profit and cost of investment
Calculation: (Current Value of Investment−Cost of Investment) / Cost of Investment
Definition: Pay-Back-Period refers to the amount of time it takes to recover the cost of an investment. It can also be viewed as the length of time an investment reaches a break-even point
Calculation: Amount of the investment Divided by the annual cash flow.
4.Understand Your Location
Understand where the property is located.
Property location is important because it determines the value of the property in terms of the sale price and also the rent your property can command.
Considerations to be made when thinking location:
What is the property’s proximity to entertainment and, or recreational areas?
For example but not limited to: How close is the property to restaurants, cinemas & parks?
What are the Neighbourhood characteristics?
For example but not limited to:
What are the Economics of the area? What are the demographics of the workers? Are there schools and hospitals?
What is Crime like in the area? Are police in the area, what is the crime rate like?
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