Financing a Property Development
Jun 29th, 2008 | By admin | Category: financeTrying to get the finance together to embark on a project can be tough, not many of us have spare sums of cash lying around. I would suggest if you are going to get into property development you should save very hard for a few months to get some money for a deposit for a property. There are some mortgage lenders that will offer 100% mortgages however, this can be very risky. 100% mortgages will incur higher interest rates and more than likely a higher lending fee. If the value of your property goes down you could end up with no way to repay the loan.
Get your finances in order
When you get your mortgage and have found the property you wish to develop make sure you have enough finance to finish the project. You should always have enough money in your budget for fees, and contingency. Paying for the work with another loan or on credit cards is a danger, because if you find a major problem half way through and you have exhausted all your finance problems you could get stuck with a property that you can’t finish and can’t sell.
If your budget is really tight you should try and do as much of the work yourself, you should enrol on some courses to help you do the work. There are plenty of courses available they include plumbing, tiling, plastering and electrical courses. You can enrol on 5 day intensive courses or do part time evening or weekend course. There are even quite a few women only courses.
It is important when property developing to do your research before purchasing any property. Check out the location of your property and the market value of similar properties. Read all paperwork before you sign anything, as you may find hidden costs associated with the property. For example if you purchase a flat you may have to contribute to refurbishment work taking place throughout the whole building, which will of course eats into your budget.
As part of your research if your building is listed you will need to get permission to perform certain changes to the property. Always get permission before changing things as you may have to pay to get the original features put back in. Always check with the local conservation officer what can and can’t be done before you do it.
My advice is you should always get the full structural survey done. This is because it will potentially save you money in the long run. If there are major issues you can re-allocate your budgets and time scales, if necessary to fix the problem in hand. You should never hide problems you should always fix them.
Once you get started on the project you have to be realistic. If the budget is small don’t do any major structural work like moving bathrooms and knocking down walls. These tasks will unnecessarily escalate costs. If the budget is really strict aim for a quick turnaround tidy and clean up the property and give it a nice finish.
It is essential that you think about your market when developing your property. What kind of people are going to buy your project. First time buyers will want something modern, stylish but cheap, where as families will look for other factors. The target market for your property will determine the final purchase price so take this into consideration when researching. When setting your estimated sale price be realistic. Do not rely on a rise in the market value to bring you in a profit. Use the current market values to help you estimate your expected profit.
When fitting out your property you should always shop in the sales, this will keep your development costs down. There are a number of outlets that sell ex-display kitchens and you could pick up a kitchen for around £500.
When developing your property take into consideration the style of property you wish to achieve. Don’t mix up too many styles as it won’t look right and can reduce the market value of your property. If your property is listed then the choice has been made for you. Bring back to life the original features that make the property special. If it is Victorian then pick kitchens and bathrooms to suit the period. If your property has an art deco (c. 1908-1935) exterior go for interior decoration that embodies this period and simple clean smooth lines.
One thing that will save you money is being organised. Create a schedule and stick to it, this will help you keep a tight rein on mortgage fees. When setting timelines weigh up whether it will save you time and money by getting a professional in. You may yell “But that will cost me more money”. But think about it, you may save money if the job is finished quicker and you may boost your final purchase price if the quality of the work is of a higher standard then you yourself would be able to achieve. For example a professional plasterer may complete a task in 1 day that could take you a week.
Other things to consider are be prepared for long days, with lots of stress and if you are serious about finishing the project on time no going out for a while. Towards the end of the project your enthusiasm may be falling and you may be dying to get your teeth into the next project, this can be a dangerous move as it might take a while to sell the current property. Make sure that your profit is actual, taking into consideration all the time and labour you have put in. Then you can use the money to finance the next project, if you are prepared to go through it all again that is!
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