6 Tips on How to Become a Property Developer

Tip 2: Creating a Business Plan 

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. 

What Are the Different Property Development Business Strategies? 

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. 
• If 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. 

Developing a New Building 

Another route you can take when establishing your property development business plan in the UK is to focus on developing a completely new building. 

This strategy is what property development companies tend to opt for and involves the planning and constructing an entirely new residential or commercial property. 

When being led by an individual rather than an established property development company, this is usually referred to as a self-build project. 

Working on a self-build project is many people’s ideal business plan for property development. 

Often, this type of strategy will involve buying land to build a new property on. 

To do this, you would need to find out about plots of land currently for sale. This can be done by browsing listings on sites such as Zoopla or contacting estate agents in your area who can tell you about available land. 

The Pros 

• Unlike renovating an existing property, developing an entirely new building allows total freedom over how the development will look. You can create a property that perfectly appeals to your target tenant/buyer.
• The process of developing a completely new building can be fulfilling for those with a passion for property development. 

The Cons 

• A lot of hard work, knowledge, planning, and dedication is required. 
• You could end up under or over budget if you haven’t done the proper preparation before the project begins. 
• You risk delays in the construction of the development if the timing isn’t right or unexpected issues occur. 

Selling the Planning of Land Permission to a Developer 

This is another possible property development strategy that isn’t necessarily focused on becoming a property developer but allows participants to be involved in the property development process in some way. 

Buying land and selling the planning permission of the land to an external property developer, or selling planning permission of land you already own, would fall into the buy to sell side of property development. This is because you’re purchasing land solely to sell it. 

The Pros 

• Not as hands-on as other strategies but still earns a profit and allows exploration of the property development process. 

The Cons 

• The biggest downside to this strategy is the difficulty of acquiring planning permission, which can often take a long time to obtain. 
• Your returns may also be limited if the value of your land is lower than expected, so it’s important to do in-depth research and seek professional advice if you’re interested in taking this route. 

Converting Commercial Property Into Residential 

If you currently own a commercial property, or you have your eye on a commercial property that’s for sale, another property development idea is to convert commercial property into residential. 

This type of property development business idea tends to be more popular within a vacant or disused commercial building. 

For example, a developer may purchase a disused factory and transform it into a block of flats. 

This can be a suitable strategy for those who wish to become a property developer, especially for those looking to focus on buy to let as a method of generating returns. 

The Pros 

• By purchasing a large commercial building, a property developer can create multiple residential units which can bring in regular rental income. 

The Cons 

• The process can be costly due to the cost of renovations on top of the usual costs of buying a property.  

What Is the Best Property Development Business Plan in the UK? 

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. 

Tip 3: Researching Finance Options 

Once you’ve created a business plan for your property development journey, it’s time to get started with becoming a property developer. 

Every first-time property developer has to start somewhere. As with any major business venture, the best place to start is with research. 

In this section, we’ll explore some property development finance options that may be suitable for your venture. 

How to Become a Property Developer With No Money

Realistically, you can’t get into property development without any money at all. You can, however, launch your property development career with a smaller sum of cash than you might think, which we’ll cover in this section of our guide. 

How Can I Finance a Property Development Project? 

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 a regular residential mortgage 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. 

Can a Mortgage Include Renovation Costs in the UK? 

Most mortgages only cover the cost of the property itself and not the cost of any renovations. 

If you need to know how to finance property development without having any cash available for the refurbishment of the property, you should look into using a renovation mortgage. 

How Much Money Do I Need to Become a Property Developer?  

To become a property developer, the lowest amount of money needed depends on the overall cost of your project.  

For example, if you choose to use a buy to let mortgage to finance your development project, you will need at least 25% of your properties purchase price for a deposit. 

Once you’ve selected your ideal financing option, speak to a financial advisor to find out the minimum amount of money you’ll need to get started. 

Tip 4: Researching the Housing 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 2027. 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 developing success. 

Tip 6: Calculate Your Return on Investment  

Once you’ve researched the property market, chosen a possible finance option, and created a business plan for property development, you need to think about your potential return on investment. 

With traditional buy to let property investment, it’s easier to work out rental returns. Often, these will be offered to you by the company you’re investing with. 

With property development, you need to consider things like refurbishment costs and any other fees and bills you’ll need to pay. 

Here are some tips on how to calculate your potential buy to let or buy to sell return on investment. 

Buy to Let ROI (Rental Yields) 

Rental yields are vital to any property venture, and calculating a rental yield is simple. 

• Take your expected rental returns per month and multiply them by 12. 
• Divide this figure by your property purchase price and then multiply by 100 to generate a percentage. 

With development projects, you also need to consider the money you’ll spend on refurbishment costs and factor this into your rental yield calculation. 

You also won’t have a clear idea of the rental value of your property until the redevelopment or development is complete. 

To calculate the most accurate rental yield for your property development project, you should make a list of all your expected costs, including your property price budget. 

Then, to get a better idea of how much your rental costs may be, you should research the current rental market value in the area you’re interested in. 

You can also look online for properties similar to your project and check their rental costs. 

Once you’ve done this, you should calculate your full property costs with your estimated rental costs to generate a predicted yield. 

Buy to Sell ROI 

If you’re focusing on how to make money in property development with a buy to sell strategy, you’ll want to work out your expected return on investment before you get started. 

In a similar way to working out rental yields for a property development project, calculating a buy to sell return on investment can be tricky. 

Buy to sell returns are calculated by taking the sale price away from the purchase price. 

If you bought a property for £120,000, for example, and then sold it for £190,000, you will have made a profit of £70,000. 

Of course, this doesn’t consider any additional costs that come with property development in the UK. 

To find an estimate of your ROI on a buy to sell property development, you should: 

• Think about how much renovation will cost and factor in additional fees like mortgage payments, solicitors fees, and taxes. 
• Find out how much similar properties sell for in the area you’re investing in and calculate how much these may be worth by the time your project will have completed. 
• Subtract your predicted sale price from your updated purchase price (with additional costs included) to reveal your estimated return. 

Property Development vs Property Investment: Which Route Should I Take? 

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 a 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.