Become a property developer following a few simple steps
By: Emma Gettings
Wanting to know how to build a property portfolio? Follow our guide as to how you can get your property business on the road to success . . .
Now could be the perfect time to start a property development business with lenders providing greater access to finance for buyers. We have outlined a few simple steps for the perfect investment opportunities.
- Create a business plan
It’s always worth developing a property development business plan, even if you’re planning on starting the project for an additional way to make money on the side or part-time. The plan should cover targeted goals as to your aims to what you want to achieve and outline how you will achieve your main objectives.
- Decide whether to buy-to-let or buy and sell
In your business plan you’ll need to identify your exit strategy whether buy-to-let or to buy and sell? To help you decide here is a breakdown of what each strategy can offer:
- Buy-to-let will provide you with a longer-term strategy, which will allow you to extend your property portfolio in order to supplement, or even replace, your current salary. Please note that HMRC views income that is generated from your rented properties as a salary and will therefore be treated the same as income tax. If your tax is classed as ‘higher rate’ you will be taxed 40% of any earnings.
- Buying and selling will provide you with more of a short-term strategy to quickly increase your capital. However, you will be much more dependent on market conditions which therefore makes it a riskier option, although it does offer a faster return-on-investment. Properties sold incur capital gains tax which is currently between 18% and 28% dependent on income, with an annual exemption of £10,900.
- Always keep in mind the rental yield and return-on-investment
The rental yield is essential if you’re planning on a buy-to-let strategy. However, even if you’re wanting to sell you have to be prepared for a volatile market and in a recession you could get stuck with property you can’t sell. Rental yield is calculated by measuring annual rental income against the value of the property. Start Ups have advised that, 10% is considered a good gross yield and this can increase rapidly with (HMO’s) multiple occupants, for example letting out properties to students. It’s been advised by property experts, that when you are looking to sell a property / properties, you need to aim for a minimum of a 30% return on your capital.
- Don’t over pay for a property
Researching property prices on sites such as; Right Move and Zoopla can certainly help you compare property prices in certain areas to ensure that you are not paying over the odds for the asking price. Other factors to consider is to ensure the property does not have any structural issues for example or checking out the neighbourhood, checking that this will not have an impact on the property’s value.
- Buy in the right location tailored to your buyers/renters
Location is essential when looking to invest a property. It is best to spot an area that’s on the rise and buy early, when there’s the greatest chance of making a healthy profit. Look for areas of growth and where other developments are taking place or are planned. The property could be in an ideal location for transport links for example, targeting young professional who need to commute to work. Therefore, it is also worth addressing in your business plan the market you are trying to target e.g. young professionals or for families. This will also have an influence on the fixtures and fittings for the property for example; would the property be kitted high-spec or child friendly?
- Making sure you have the necessary development finance in place
If you are looking to become a property developer you will require to invest a lot of money initially, which will be tied up until you sell your first property. It’s vital that you ensure you’ll be able to raise the necessary finance that you will need. BiG Property Finance have dedicated property finance experts that can advise you on available and suitable funds ranging from bridging loans, development finance and joint venture partnerships.