Research the market
A good starting point is to make contacts with local estate agents and talk to them to acquire some of the knowledge you'll need. These are some of the factors you should consider to find out information about the area you're buying in:
- Look at social demographics. Due to an increased divorce rate and an ageing population, the number of single people wanting homes is rising rapidly.
- Consider the supply and demand factors. The UK planning system has failed to deliver the amount of homes that people seem to want. This is arguably the main, long-term factor behind price increases in housing in the UK. Low interest rates and low unemployment have exacerbated this trend.
- Understand the local economy. Get figures from your local authority planning department for the number of new houses built as a percentage of existing stock. Growth in business sectors is a good indicator of an up-and-coming area.
- Don't go too far afield. Stick to the areas you know and research them thoroughly.
- Target your development. Ask yourself, does your idea really fit the market? Does it fit into the locality you have chosen? More importantly, does it fit the basic ways in which people aspire to live in that locality?
- Look at what your customer wants. Young professionals and affluent older couples without children or dependants seem to like stylish, city centre apartments near the places they want to spend their money. Look at current fashions and consider the type of accommodation that will maintain its value because of its quality and location. Families need successful neighbourhoods, where there are good schools, good transport, safe environments and sufficient parking. They need more space, inside and out, and lower running costs, but they still want good design.
Choosing a property
The fundamental principal of property development is to buy low and sell high. Look for properties that, with the right approach, can be resold for a profit. Buy well and you limit your risk. Before you buy, explore different ways of achieving that all-important profit:
- Minor improvements. A general decorative overhaul can push up the value of a property, without involving planners, architects and a big investment.
- Converting a property. At its most simple you might take a house and turn it into flats, but this still involves complex budgeting and financing. A professional developer would avoid using their own money to fund a major conversion and this is worth remembering if you're considering investing all your own funds. There's often a large gap between the value of a house and what it might fetch converted to flats - but there are also a lot of costs involved, and often a lot of pitfalls. Sometimes it's more profitable to convert flats back into a single house. Planning consent will normally be required in both scenarios. See Renovating section.
- Change of use. The conversion of a building from one of business use into housing is a more complex proposition. For example, when turning a pub into flats, the big, initial risk is trying to buy the property without first applying for planning consent for 'change of use'.
You should never buy on the assumption that 'change of use' is possible without serious research into the planning issues and a detailed conversation with planning officers. Many sales like this are achieved only when they are 'subject to planning', that is, the deal will only be completed, and the full purchase price paid, when planning permission is granted.
Tip: If a vendor will only sell on an 'unconditional' basis, that is, you pay the full asking price whether or not consent is in place, then it's advisable to leave this deal to the professionals.
- The practicalities. With any prospective conversion, you'll need to have a good understanding of building regulations and of the architectural possibilities of your property. When converting anything more substantial than a house, you'll probably need a professional team and you'll need to budget for their services.
The team should include:
- a quantity surveyor to ascertain costs
- an architect to design the scheme, help secure planning consent, and possibly project manage it
- an engineer to ensure you have a safe, structural solution
- an estate agent to help you sell the finished product