Property Development

In a housing market that is beginning to show signs of growth there are new opportunities for property developers. If you are thinking of renovating for profit, make sure that you consider the following:

Know The Market

Before you begin life as a property developer you should consider whether this kind of investment suits your needs. What kind of yield do you expect from your investment? Do you know the risks as well as the benefits? Remember that the value of property can go down as well as up, and that it is possible to lose money.

If you need to take out a mortgage in order to buy property for development you will increase the amount of risk that you are exposed to. For example, if you take out a mortgage for a property and the property sells at a loss, you are still liable to pay back the mortgage. This means that you could lose your original investment plus any additional shortfall. It is possible that you could end up with thousands of pounds worth of debt.

While there are risks, there is also money to be made in property development. If you are prepared to do careful research into the market it is possible to get a good return on your investment.

Location, Location, Location

The location of your property is one of the most important factors in successful property development. To maximise the profit from your renovation you should aim to find a property in an attractive location. Attractive doesn’t have to mean an expensive location with high-end developments, but simply means an area where property is in demand. Consider areas near popular or expensive locations that also benefit from good transport links, properties in the commuter belt, properties in the catchment areas for good schools, or properties near a lot of amenities.

Properties on the fringes of a popular location, sometimes called ‘up and coming’ areas could prove to be a good investment. These properties are more likely to keep or increase their value in a changeable market. Former council properties that have been bought by tenants can be a great opportunity to secure a cheaper property in a good location. It may be worthwhile driving round suitable areas looking for possible properties for sale. Even if a property isn’t for sale yet, it may be worth knocking on doors in ‘up and coming’ areas to see whether owners might be willing to sell. You might be lucky and pick up a bargain.

Buy Low to Sell For a Profit

When you are searching for properties to renovate, remember that developers make money when they buy a property. This means securing the best possible asking price. When viewing properties it is a good idea to bring tradesmen with you to give you an insight into the costs involved in renovating the property. Many tradesmen will offer this service free of charge or for a small fee, and their advice can also help in deciding what type of survey is required before putting in an offer.

Take the opportunity to have several viewings of the property so that you can identify any issues that you could use to negotiate a lower asking price. It is also a good idea to look out for properties where planning applications have been submitted to the local authority. The agent may accept a lower offer subject to planning permission and if the planning permission is granted later you can benefit.

Bear in mind that developers often have the same advantage as first time buyers; they aren’t part of a chain. Take advantage of this situation to make the lowest offer that will reasonably be expected.

Overall, remember the golden rule: you will be able to make a profit if the final value of the property is equal to the purchase price plus the cost of renovation plus 20%. If that doesn’t look possible based on the asking price, walk away.

Buying at Auction

Many of the best property deals can be found at auction and you can pick up a bargain provided you stick to an upper bidding limit. In the case of auctioned properties it is important to do your homework before the auction, making sure that you visit the property with tradesmen to get a clear idea of the costs involved in renovation.

Get an appropriate survey of the building to make sure there are no expensive structural problems, such as damp, dry rot or a leaking roof.  Also make sure that there are no legal issues and that you are sure what is included with the property. For example, does the property include access to a garden?

At the auction, try not to bid first, and wait to see what others are prepared to offer before you show your hand. To avoid overpaying for the property, be sure that you stick to the limit that you have set yourself. If the bidding does not reach the reserve price, try to speak to the seller after the auction to see whether you might be able to negotiate a deal.

Remember that if you are going to need a mortgage to buy the property you should have your finance in place before the auction. Contracts are exchanged on the, so there is no room to change your mind. Careful research in the days before the auction could turn to profits later on.

Renovations

When choosing your first renovation project, is it probably a good idea to choose a modern property that needs updating rather than major renovation. For example, pick a property that needs new interiors, such as paint, wallpaper and carpets as well as a new bathroom and kitchen. Consider who your buyer will be; if you are aiming for the top end of the market you may have to budget a little more for fixtures and fittings. If you haven’t already done so, put together a budget for the renovation works, allowing at least 15% contingency for unexpected issues.

Make sure that you obtain quotes from a range of tradesmen and get recommendations of good workmen from anyone that you know. Choose the firms that you think will do the best job within your budget and liaise closely with tradesmen and suppliers to ensure that you receive the quality you expect. This can be especially important because you are liable for poor quality workmanship, meaning that you may have to pay later to correct defects in the property. Also, poor quality fixtures and fittings may reduce the selling price of the property.

Once you have successfully completed your first renovation project you can decide whether or not you wish to take on a more involved property development, including building extensions or remodelling the interior of a property.

Hiring a Project Manager

Consider whether you will oversee the renovation yourself or will employ a project manager to look after the day-to-day issues. If you are able to do the job yourself you may save money during the renovation, but it may not be possible to manage another job alongside the project.

An experienced project manager may help you to negotiate any tricky issues with tradesmen or suppliers that arise during renovation. He or she can also ensure that the renovation work is completed within the agreed budget.

It is important to bear in mind that developers are liable for poor quality workmanship after the property has been sold, and so it is important to ensure that defects are avoided where possible. An experienced project manager may pick up on problems quickly and ensure they are fixed on the spot, avoiding costly legal issues.

Know Your Buyer

When renovating your property think about who will buy it once the work is completed. Consider the size of the property and the likely demand for the location. A one or two-bedroom flat with great transport connections may be ideal for young professionals, who would expect a modern, well-designed space. Families would look for larger properties within the catchment of good schools, with at least one large communal room, a modern kitchen and bathroom and at least three bedrooms.

Remember that you aren’t renovating your own home, so it is appropriate not to personalise fixtures and fittings, but keep them smart and practical to suit the needs of the eventual owners. These considerations also apply for properties that you intend to let after the renovation is completed. To maximise the profit for your renovation, keep costs to a minimum and target every aspect of the renovation to suit the needs of your intended buyer/ tenant.

Once your renovation is complete, contact a number of estate agents to get the property valued and ensure that attractive photographs are taken to show the property to advantage. Make sure that living areas are clean and clutter-free and that all work is completed to a high standard. If you have done your research well and the renovation work has added value, you should make a profit on your investment.

When you decide to become a property developer one of the biggest decisions you will make is whether you decide to manage your developments yourself, or whether you employ a property developer. Both options have advantages: managing your developments yourself gives you hands on experience of the project, and you will know exactly what’s happening and where you are spending your money; employing a project manager means that you will be able to focus on other important tasks (such as your family or day job) and will not need to concern yourself with the details of the development.

If you do decide to employ a project manager for your property development, it will be very important to find an experienced and qualified professional who understands how to ensure your development is completed on time and on budget. To find out how to find the right person for the job, keep reading…

Be Clear On Your Goals

From the beginning it is very important to know what you expect from your property development project, how long you expect the project to take, and what the budget for the project will be. If you have bought a plot of land on which you are going to build a residential apartment block, for example, you will require a project manager who has experience of similar property developments and who understands the process involved to ensure a successful project.

Find Someone with the Knowledge You Need

A good project manager is someone who possesses the right knowledge to successfully complete his or her project. A property developer needs a project manager with specialist knowledge, such as the rules for obtaining planning permission, the technical details of building control, the sequence of construction procurement, the environmental impact of construction materials and the implications of waste management. The Association of Project Managers (APM) offers a range of certificates for UK project managers, starting with the APMP that certifies that individuals have some level of project management experience. The APM also provides a registration of accredited project managers which can be accessed via their website. (http://www.apm.org.uk)

Employ a Skilled Professional

The most important quality that any project manager can possess is leadership, because he or she will have to motivate a team of diverse people and ensure that they work together to achieve an agreed outcome. At the same time, your project manager will need to be able to work independently, stick to a budget, drive the work schedule and manage difficulties and problems that arise along the way. To do this, he or she will have to be disciplined, flexible and approachable, good with people and have a proven track record of success.

A Good Communicator is Essential

Project Managers should be good communicators. This is because good communication lies at the heart of a successful property development. Your project manager should be able to communicate well with local planning authorities, a wide range of contractors, neighbours and you, their employer. A good communicator will smooth the planning and construction process, manage relationships between tradesmen on the building site and keep you up to date with regular progress reports. Finding the right person will save you stress, time and a great deal of money.

Find Someone with Experience of Managing Complex Budgets

Property developments are complex projects that involve several different stages. At the beginning of the project, the project manager can be responsible for finding the right development site at the right price. He or she will have to ensure due diligence and other legal checks are done, ensuring that solicitors fees, banking charges and associated taxes are paid on time. He or she may then be responsible for creating a work schedule and a budget for the building work, monitoring construction as it is scheduled, meeting regularly with all stakeholders and arranging progress payments as milestones are achieved. A project manager with experience of financial management is essential when managing property developments, because the right candidate will have to ensure that a project comes in on time and on budget.

Agree a Realistic Development Plan

Before you embark on any property development it is very important to agree a property development plan, which includes detailed information on all stages on construction and an agreed schedule for completion. This plan is essential, because it enables the different stages of construction to flow smoothly from one stage to the next without unnecessary interruption and costly delays. An experienced project manager can anticipate and prevent problems and delays that could otherwise sink a project, and a well-managed project can ensure a healthy yield from your property investment.

Pay By Results

When you have found the right project manager, agree their fees by multiplying their daily rate by the length of your proposed project. Payments can be made at agreed intervals, linking payment to the completion of milestones in the project. You can negotiate that your project manager will work a preliminary trial period or you can insert a break clause for situations where work has not been completed by an agreed time. As part of their contractual responsibilities, your project manager should be required to submit progress reports to you at regular interests.

The Advantages of Employing a Project Manager

A successful project manager will take responsibility for the overall completion of the property development and will arrange the final aspects of the project. If you do not have the time or expertise to manage your property development, a project manager can ensure that your results can be achieved on time and on budget. He or she can make the best use of all the available resources, whether these are people, money or material goods. Your project manager can take on the stresses and strains of the project on your behalf, satisfying the different needs of all stakeholders and will keep you informed of progress until the project reaches completion.

If you are thinking of renovating your property it likely that you would like to improve your living space and add value to your home. Planning permission is the consent from your local planning authority to allow extensive changes to your house, and the system has been put in place to ensure that all major development is safe and appropriate.

The regulations around planning permission are broadly the same across England and Wales, but there are variations depending on where you live, so it is important to check the planning rules before starting any renovation work. This is particularly important if you live in a listed building, in an Area of Outstanding Natural Beauty or in a National Park, all of which have stricter planning rules and often require planning permission for more minor developments.

Ways to Improve Your Home Without Planning Permission

There are a number of different that you can do to improve your living space, some which do not require planning permission. Renovations that don’t require local authority consent are called ‘permitted development’ and include:

• Installing or replacing windows and doors throughout your property.
• Renovating your kitchen and bathroom.
• Incorporating an integral garage into the main house space.
• Building a single storey conservatory no higher than 3 metres high.
• Building a loft conversion with dormer windows no higher than the roof slope.
• Adding a two-story extension to the rear of the property, no more than 3 metres in depth.
• Building a basement conversion, as long as no engineering works are required.
• Building an outbuilding, as long as it is not used as a separate residence.
• Building a porch at the front of your home.
• Constructing decking less than 30cm from the ground.
• Building a swimming pool that is no larger than 50% of the area surrounding your house.
• Adding solar panels to your roof, as long as they do not project 20cm from the roof slope. 

Make a Big Difference to Your Living Space

Updating rooms such as the kitchen and bathroom of your home can make a big difference to your living conditions, as well as adding value and appeal to your home. If you are trying to sell your home, it can also be important to replace any windows and doors that have become damaged or rotten. You can usually replace these without planning permission, but if you live in a listed building or conservation area you may have obtain planning permission and replace these fixtures like for like so that you don’t change the overall look of the building.

Check the Building Regulations

With any renovation project that you decide to undertake it will be important to check the building regulations associated with it. The building regulations are there to make sure that the finished work is structurally sound, complies with energy conservation laws and is safe to use. This is particularly important in renovation work that changes the weight that is placed on load-bearing walls and upper floors, such as when removing internal walls or creating a loft conversion. For example, if you remove an internal wall to create an open-plan living area, this could affect the structural integrity of the house, so you will need to take that into account in your renovation plans.

Building a Conservatory or Outbuilding

If you are planning to create a conservatory or erect an outbuilding at the back of your home you will have to ensure that it is at least 2 metres from the property boundary and that it is built from fire safe materials. You will be unable to build an outbuilding or extend your home towards the front, including the addition of a veranda, balcony or raised platform without planning permission.

Obtaining Planning Permission

If your renovation does require planning permission, you should find out as much about the relevant building regulations and planning rules as you can before you make an application to the local planning authority. Once you have a good idea about what you are planning to do, you should speak to your neighbours about your plans, as they are likely to be concerned about developments that might affect them. Any renovations should be in keeping with the design and building materials used in your property and should take into account fire safety, environmental health and any nature and wildlife in the area. When you are ready, you can apply online for planning permission.

Getting Additional Insurance

If your planning renovation work does not require planning permission, it is unlikely that you will need additional building insurance. However, if you are undertaking building work that will involve changes to the foundations, structure or load-bearing walls, you should obtain insurance that covers the work that will be done. This will give you some protection in the (hopefully unlikely) case of shoddy workmanship.

Planning Rules for Flats and Maisonettes

The rules for ‘permitted developments’ for houses are different than those for flats and maisonettes. In many cases where a renovation is permitted without planning permission in a house, the owner of a flat or maisonette will have to apply for planning permission. This means that changing the windows of a flat may require planning permission, as will extending a ground floor flat into the garden, or even (in some cases) installing a satellite dish.  You will have to contact your local planning authority to check what will be permitted in you area. If you are a leaseholder, you may also have to get the permission of the owner of the freehold before you can carry out renovation in your flat.

If you plan to convert a house into separate flats, planning permission will be required even if this does not substantially change the exterior of the building. However, it may be possible to convert a space above a shop into flats without planning permission, as long as this space is not already classified as an office or shop and you will not change the exterior appearance of the building.

It is very important that you know the planning rules and adhere to them, because carrying out renovation work without the required local authority permission is a criminal offence.

Major life changes can have unforeseen effects on your living arrangements: whether because of a growing family, a change in working patterns or a family member moving in. What once was spacious may now be a home that feels small or unsuitable for your lifestyle. While many people in this situation simply decide to move, for others this is not an option. A popular solution for those homeowners reluctant or unable to move is to convert an existing outbuilding into a new living space.

While most people associate outbuildings with stables and barns in rural locations, outbuildings actually include garages, outside toilets and coal sheds that can be found in many smaller urban properties. Since the Government relaxed some aspects of local planning regulations in 2008, it is now possible to convert an outbuilding in your garden into a residential annexe without planning permission, as long as the building does not become an independent residence. This means that you can build a guest room, garden room, home office, greenhouse or children’s playroom without planning permission, although you will have to make sure you comply with building control regulations. This law only applies if the outbuilding has been on the land for at least four years and has not been used as a residence during that time.

While you can use your outbuilding for many purposes, if you intend to convert it into a habitable room it must be upgraded to meet the building regulations requirements for ‘a material change of use’. This means that you will have to insulate the building structure, and that doors and windows will have to be double-glazed. If you intend to install heating, plumbing or electrics all of these will also have to comply with building regulations. In order to make sure this is the case, you will have to inform the local authority, complete some paperwork and pay a fee.

Types of Conversion

The amount of time, money and effort that you will need to convert your outbuilding will depend on the type of building that you hope to convert and what you intend to use it for. The cheapest options can be a summer garden room or a greenhouse (which would not need heating, plumbing or electrics). In these cases the existing fabric of the building will need to be structurally secure and have proper ventilation.

If you plan on using the outbuilding all year round the building may also need to have a functioning heating and lighting system. If the outbuilding will be used as a guest annexe or as a home office, artist’s studio or children’s playroom you might also want to install electric sockets, internet access and running water, so that you can make a cup of tea and use computer equipment or other electrical goods.

You should make a careful assessment of what amenities you think you will need before you proceed. Calculate the costs of buying and installing all of the services you will require, including the cost of qualified tradesmen to install electric sockets, plumbing and drainage systems if required. Be aware that extending heating and electrical systems are likely to require earthworks through your garden and will cause disruption.

If you would like to convert your outbuilding into an independent residence (with a proper kitchen and bathroom) you should be aware that you will have to apply for planning permission. Once the conversion is completed you will have to pay separate council tax bills for it (at the lowest band). The bills are payable even when the building is empty, although they drop to 50% of a full bill once the property has been empty for more than 6 months.

Insulation and Damp-Proofing

The more you insulate a building the easier and cheaper it is to heat, so investing in good insulation will save costs in the future. Insulation should be added to the interior of a single-skinned building between the original structure and the plasterboard interior. Although this can reduce the living space slightly, it will make the new room much more pleasant to spend time in, making it warmer in winter and cooler on hot summer days.

Damp-proofing will also make the room or building much more pleasant to spend time in, and will help to stop problems such as mould and rising damp developing inside the building. A damp course should be installed during the construction of the inner layer of the building. For timber structures a concrete base with a damp proof membrane can be used, or perhaps the wooden structure can be raised off the ground on blocks with a slate barrier in between the two materials.

Water and Plumbing

If you are planning to use your converted outbuilding as an annexe, studio or home office it will be very useful to have running water or a bathroom. This means plumbing into the drainage and sewerage system, a job that is better left to professionals unless you know what you are doing.

You will need to use a blue plastic water pipe buried under ground, and it will have to be connected to the mains supply somewhere near the stopcock for the main property and have a separate isolating tap. It will be important to install the drainage pipes at the right gradient and connect pipes properly to the correct system.

If you are installing a sink for occasional use you might be able to send the wastewater away with the downpipes the gutters feed into, but in that case you will have to be very careful only to use organic biodegradable soaps and detergents.

Whatever you decide to do will have to comply with building regulations, so check the rules before you install your plumbing.

Electricity

Installing electricity and heating can make a big difference to ways you can use your conversion. In most parts of the UK you will have to employ a qualified electrician to do the work. Before you start, think about the lighting and electrical needs might be (depending on how the building will be used) and estimate the socket points and lighting that you think you will need. Your electrician will estimate the cost of wiring and installation of the system.

You can choose to do the preliminary wiring etc. yourself, locating the sockets and switches where you think you will need them, but if your electrician disagrees with the location of power points or objects to the quality of your work you could waste time and money getting it fixed.

If you don’t want to connect your electricity supply to the grid, you could use solar panels to power lighting and small electrical goods. Whether you choose to use systems like these depends on how much electricity you will need and whether you will need to use the system all the year round. Solar panels may not be as reliable for producing long hours of electricity and lighting in the winter months, but they may provide all that is needed during the summer.

Heating

Unless your outbuilding is next to your house, you will be unable to extend your central heating system to include your conversion. In this case you could choose to have a portable heater to top up in the winter months, such as a fan heater or an oil-filled radiator. It might be possible to install a wood-burning stove, but you will have to consider the fire risk, especially if the building has a wooden structure. The better insulated your building is, the easier it will be to heat and keep warm.

If you are considering using solar panels to provide heating in your outbuilding, remember that light can only provide heat during the day. This kind of system will work well during the long days of late spring to early autumn, but will not work during the winter months. If you do want to use a solar panel-based system, the best way is to use fluid-filled solar panels that circulate heated water through under floor heating pipes. If the floor is thick and well insulated it will retain the heat well and provide heat for an extended period of time during daylight hours. No matter how you decide to heat your conversion, remember it will have to comply with local building regulations.