6 Tips on How to Become a Property Developer

Establishing your property development business plan is essential if you want to make sure you’re getting the most out of your new venture.

Without creating a business plan for property development, you could ultimately lose profit and find yourself back at square one.

If you’re looking to become a property developer and need a place to start, let’s look at the different property development business strategies available.

Buy-to-Let Property Development

One of the most popular strategies when it comes to property is buy to let.

Buy-to-let is classed as a property investment strategy but can also work with property development.

For instance, a property development project could involve renovating a property to let it out to tenants once completed.

The Pros

• You can generate regular and potentially high returns, particularly if you’ve managed to add value to the property through your development work. Renovations to a property can boost both rental costs and capital growth, resulting in higher returns.
• Once the property is complete, you can hire a rental management company to manage the day-to-day tasks of running a rental home. This can mean earning passive income while building your portfolio.
• There is a lot of demand right now within the UK rental market, meaning buy-to-let properties see a steady stream of tenants.

The Cons 

• You won’t make your full returns straight away; needing to be patient and willing to wait to see your full return on investment.
  f you don’t research properly, you may not see the returns you want from your venture.

Buy to Sell Property Development

Buy to sell is a popular business plan for property development.

With this strategy, you will purchase a property that needs renovation, redevelop it until it meets a high standard, and then sell it.

After redeveloping the property, the aim is that you will be able to sell it for a larger amount than the initial purchase price.

The Pros 

• Buy-to-sell is such a popular property development business plan because of the strategy’s ability to quickly generate large amounts of income.
• Unlike buy-to-let, buy-to-sell strategies allow the developer to sell the property as soon as it’s ready without waiting to build rental income.

The Cons

• A lot of market research and knowledge is required. If you were to sell a property development project at the wrong time, you might lose out on returns you would otherwise have benefitted from at a later date.
• You will generate just one form of return on investment rather than two.
• Your return on investment may be limited if you choose to become a property developer in a poorly performing area where house prices aren’t rising.

The best property development business plan for you depends on your personal goals, time scale, and budget.

Self-build development projects, for example, are typically more expensive than buy-to-let or buy-to-sell renovation projects.

Whereas if you want to get into property development to make large returns quickly, buy-to-sell renovation projects could be your best option.

Many argue, however, that buy-to-let is the best all-around property venture and property development strategy.

This is because, with buy-to-let, you’re able to make rental returns on a regular basis on top of making a profit from the property itself when you choose to sell it per your exit strategy.

All in all, whatever strategy you choose to pursue for your property development venture, they all require the same level of industry and market knowledge.

How to Write a Business Plan for Property Development

Writing a business plan is a great way to begin your property development journey.

Doing this will give you a clear starting point for your project and help you explore and understand certain elements that you may have been unsure of.

A property development business plan should include information on the following things:

• The budget of your project.
• Your funding plans.
• Your projected returns.
• Market research.
• Your business strategy.
• Your exit strategy.
• A SWOT analysis.
• Sales and marketing plans.

Not everyone has the appropriate funds available to get their project up and running when getting started with property development.

This is why the majority of property developers will need some help with financing their project.

From using a mortgage for property development to taking out a specialist loan, here are some finance options to consider.

Buy-to-Let Mortgages

If you’re focusing on buy-to-let for your residential property development business plan, then a buy-to-let mortgage can be a great way to fund your project.

Buy-to-let mortgages work similarly to regular residential mortgages but require a larger deposit and come with higher fees and interest rates.

You can learn more about buy-to-let mortgages with our buy-to-let mortgage calculator and guide.

Buy-to-Sell Mortgages

Buy-to-sell mortgages can make a good option for those starting real estate development with a buy-to-sell strategy in mind.

Unlike standard mortgages that have long contract terms, these mortgages allow users to sell the property shortly after purchase but come with high-interest rates, higher fees, and a larger deposit.

Property Development Finance Loan

If you’re thinking of starting a property development business rather than working on a personal property development project, then a property development finance loan could be for you.

These loans are typically offered to more established property development businesses. If you’re a first-time property developer, you may struggle with securing this type of loan, but there’s no harm in enquiring.

Bridging Loan

If you don’t want to use a mortgage for property development, bridging loans work similarly to a buy-to-sell mortgage.

With this type of loan, you can use the money to purchase a property, refurbish it, and sell it.

The money you make through the property sale will hopefully cover the cost of the loan and its interest.

To be accepted for a bridging loan, you need to already own a property or some land.

You also need a clear exit plan to show how you expect the loan to be paid off once the property development is complete.

Personal Loan

A personal loan could be your best bet if you don’t think the above options will work for you.

However, keep in mind that it may only be possible to use a personal loan to fund a property with a much lower price than average.

This may mean exploring areas with the most affordable properties or purchasing properties that need a lot more work before they’re ready to go back on the market.

Any property-related venture requires in-depth knowledge of the housing market.

Without this knowledge, you risk purchasing the wrong property that won’t bring you the returns needed to succeed, and making money in property can be difficult.

Say, for instance, you purchase a property in an area you’re unfamiliar with.

The property may have been cheap, and the development work may have been completed effectively and on budget.

However, once the project is complete, you could find that you struggle when it comes to selling the property or finding tenants.

By the time you’ve managed to sell the development, you could see that the value of the property is not what you’d hoped. In line with local capital growth, you’ve made little to no return on your investment.

This is a nightmare scenario for any developer, so here are the ways you should carry out market research as part of your property development business plan in the UK.

Look at Past and Future Capital Growth

The number one rule for property development for beginners is that it’s so crucial to research and understand capital growth.

Capital growth is when a property or property market grows in value over time, causing house prices to rise.

Making a significant profit from your real estate development venture can be tricky or impossible without capital growth.

Be sure to look at both past and future capital growth statistics found through reports by companies like JLL and Savills.

Savills has recently published a helpful residential market forecast with growth predictions up to 2028. You can also check past property prices with the Land Registry House Price Index.

Look at the Rental Market

For those learning how to be a property developer for buy-to-let projects, the rental market is another area to include in your research.

The rental market is a significant indicator of the possible rental returns that can be expected from letting your development out to tenants, as well as levels of tenant demand.

Rental market research can be carried out using Zoopla’s area guide for details on current asking rents in a specific area.

Know Your Target Market

As a property developer, your target market is the group of people you’ll be either renting your property to or selling to, depending on whether you opt for a buy-to-let or buy-to-sell business model.

Say, for instance, you’ve chosen to become a property developer by renovating a house and turning it into student accommodation in the form of an HMO. You would need to research student tenants and find out what they want from a rental property.

Once you have a better idea of your target tenant/buyer, you’ll be able to tailor the renovation to better suit your target market and boost your chances of property development success.

Average predicted growth (North West): 20.2% by 2028

Average property price: £196,258

Average rental yield: 7.00% (2023) 

Liverpool is a city that’s definitely not short of new property developments.

Widely considered one of the best places to find investment property UK due to its affordability, the city is on the rise.

Liverpool is such a big focus for UK property development because of the high demand levels paired with affordable and growing property prices.

This Northern city is considered one of the most affordable in the country. The Land Registry House Price Index currently lists the average house price at around £196,258.

If you’re carrying out a buy-to-let or buy-to-sell redevelopment project, however, you’re likely to find properties that are priced even lower than this.

Property prices in Liverpool grew by a value of 7.19% in the year to March 2023 (the latest available data). Predictions reveal that the North West region is in for some strong future growth of 20.2% by 2028.

Manchester

Average predicted growth (North West): 20.2% by 2028

Average property price: £252,605  

Average rental yield: 7.62% (2023) 

If you want to make money from property development projects, Manchester is a city that should definitely be on your radar.

Manchester offers tonnes of potential for anyone looking to buy and sell houses for profit or pursue a buy-to-let property development opportunity.

Much like Liverpool, Manchester is a crucial area for regeneration right now in the UK.

Whether your main focus is becoming a property developer for buy-to-let or buy-to-sell purposes, both routes will bring you a lot of success in Manchester.

In 2023, Manchester boasts average yields of almost 8%, while property price growth is some of the highest in the country.

Over the 12 months between 2022 and 2023, property prices in the city grew by 5.72%, with 11.7% average capital growth expected.

Birmingham

Average predicted growth (West Midlands): 20.2% by 2028

Average property price: £252,817 

Average rental yield: 7.94% (2023)

Birmingham is another city that is becoming more and more popular for both property investors and property developers.

With an average property price of £252,817, Birmingham allows investors and developers to find some great deals.

Those who purchase a property development project in Birmingham should see significant market growth, with 20.2% growth expected for the region by 2028.

After reading tips and advice on how to become a successful property developer, you may be left wondering whether property development is the right choice for you.

After all, being a property developer or owning a property development business isn’t the only way to make money from property.

If you’re looking to get involved with the property world but you’re not sure whether becoming a property developer or investing in buy-to-let property is right for you, here are some factors to consider.

What’s Your Budget?

While finance options are available for both property developers and property investors, there can still be a noticeable cost difference between the two ventures.

When investing in buy-to-let property, the property is usually ready for tenancy without a need for refurbishments or renovations.

On the other hand, with residential property development, you’ll need to pay for renovation costs on top of the cost of the property itself and the fees included.

If you have a lower budget and want to make money from property, off-plan buy-to-let purchases are ideal. With this, you can buy properties priced below-market value already developed to a high standard by some top UK property development companies.

What’s Your Availability?

Are you looking to make money from property alongside your usual day-to-day commitments, or are you planning to dedicate hours and days of your time to your new venture?

One of the most appealing factors of buy-to-let property investment is the ability to make a hands-off investment by hiring a rental management company.

While this is possible with buy-to-let development strategies, standard buy-to-let is a lot more hands-off as you don’t have to worry about the property’s actual renovation/development side.