Property development in London or elsewhere is a competitive business and mistakes cost money. Whether you are new to the trade or an experienced developer, your business will benefit if you know which errors to avoid. Here are our top 5 property development tips to help you avoid common mistakes.

Lack of Research

The adage ‘Location, location, location’ is perhaps overused but its importance to property development should not be overlooked. Buying your development property in the right area is fundamental to sales success.

There has never been an easier time for accurate research with property apps available to help you investigate cost, crime rates and local facilities but it still pays to get chatting to professionals and locals if you want the best advice about up and coming areas and negative future influences.

As well as research about an area you should also consider the following:

• Local schools – check league data-tables
• Employment opportunities – present and forthcoming
• Parking facilities – particularly alternatives to on-street parking
• Transport links – Traveline offer a comprehensive service
• Leisure facilities – parks, green spaces, sports facilities etc.

If you want to make considerable changes to a property you will need to check for possible planning permission issues before purchase. You should consider:

• Listed building status
• Recent local planning applications and results
• Local authority searches
• Water drainage searches
• Environmental searches
• Additional location dependent searches – for example mining

Effective research should involve both seeking professional advice and getting to know the locals.

Underestimating Costs

Even with the best in materials and marketing, a development property will not make a profit if you have underestimated the costs. Before your project starts you should be working out maximum and minimum costs as well as building in a contingency percentage. Costs will change as a project progresses so set aside regular time to recalculate.

All building and decorating costs should be itemised in as much detail as possible; the more you breakdown costs, the easier it will be to make budget adjustments and purchase decisions as you go along.

More property development tips

Property development has some common, hidden costs:

• Legal costs
• Materials wastage – particularly when using reclaimed materials
• Service connections
• Site office and lock-up facilities
• Lenders’ valuation and survey fees
• Stamp duty and Land Registry fees
• Non-recoverable VAT on some purchases including equipment hire and delivery charges

When considering property development costs, you should always take into account your own time and expenses. Time you spend on a property is time you don’t spend earning money elsewhere, make sure that you build this into your calculations and consider taking on a project manager.

Neglecting Your Team

There is no doubt about it, finding the right team for your property developing project is going to be paramount to its success. Be prepared to pay premium prices for contractors that come with high recommendations.

Work hard to maintain good relationships; this will enable you to build a bank of reliable contractors for subsequent projects. Investigate references carefully and view examples of work before accepting them. Make sure you insist on fixed price contracts.

Employing an experienced project manager is one way to ensure that you build a strong team, as they will already have a bank of industry contacts.

Cutting Costs

As a project progresses and the budget becomes tighter, it is tempting to cut costs on materials and products. This can be a mistake, it is fine to shop around for high quality goods at discount prices, but prospective purchasers will be put off by poor quality fittings and finishes.

Choose elements that will stand the test of time because long term potential is a key factor in property selection.

Remember also that the exterior finish of a development is as important as the interior; many buyers’ decisions are made before they even step into a property.

Key factors that will influence a purchaser’s decision include:

• Door and window quality
• Flooring choices
• Kitchen design and finishes
• Taps and bathroom fittings
• Temporary furnishings chosen to ‘dress’ a room

Failing to Control Cash Flow

Cash flow should be considered long before your project starts. Whether you choose to use a professional cash flow planning tool such as Cash Calc or utilise your existing spreadsheet skills, your project will succeed or fail on your cash flow decisions.

Running out of cash may mean that you pay contractors to stand idle or that you have to take expensive last minute loan options.

There are some important key cash flow issues to bear in mind:

• Contingency – you should allow a contingency fund of 2-5%. Whether you allocate this to different cost centres or leave it as a lump sum is up to you.
• Pre-project costs – service connections such as electricity and water, which are essentials on site, will need to be made at the start of the project.
• The utilisation of OPM (other people’s money) may be costly long-term but may save you the expenses related to poor cash flow.
• By including a management development fee in your initial calculations you will be able to pay yourself an income during the timespan of the project.
• Talk to professional finance consultants, accountants and solicitors. Listening to their advice, even if you don’t take it, will facilitate your understanding of your cash flow management.

Perhaps the most important thing to remember with property development is that it is your money you are placing at risk. Even if you have had previous development success, don’t be tempted to stint on the research, set-up, overseeing and finalisation work that is key to ensuring a project’s success.

Whilst there is an element of luck and a keen eye in successful property development, the main ingredients are all down to good old-fashioned hard work.

We hope you found our property development tips informative, and if you are looking for professional property purchase advice in London, Arlington Residential offer an independent and individual service. We have a long tradition of client satisfaction and a wealth of London property experience.

If you would like to speak to a member of our team about how we can help you with your property sales, rentals or investments please call us on +44 20 7722 3322 we look forward to hearing from you.
 
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