If you’d like to try doing something with your savings beyond extracting a small rate of interest from the bank, one of the best places to put your money is in property. There are a number of schemes set up by lenders to help people purchase second, buy-to-let properties, so you can experiment in that way before taking on a more ambitious deal. Property development can generate an additional income strand for you and, if you are good at it, it could become a full-time business. You can use skills you’ve already developed when fixing up your own home to help you refurbish others. However, if you’re serious about making it work as more than just a hobby, you’ll need to know exactly what you’re doing before you commit a lot of money or take on debt.
There’s no point in looking for a mortgage on an investment property before you’ve got a deposit in place. Banks and building societies will require it before granting a loan. The first thing to consider is a buy-to-let scheme. These tend to require a bigger deposit, and you’ll be limited to properties in fairly good condition.
If you don’t feel that this would be suitable for what you want to do, you’ll have to look at alternatives. If you have some experience at refurbishing properties, then you could apply for a mortgage to buy a property that required major refurbishment work to make it habitable.
There are two main things to bear in mind when choosing what to buy: what type of property you want, and where it’s located. The two factors are interlinked and require a knowledge of markets in the area that you should spend some months acquiring before you take the plunge. You will also have to factor in the type of work you will have do over the long term – for instance, whether you intend to sell, rent to a single tenant or rent out rooms to different tenants. The value of each available property type varies by area. For instance, two and three-bedroom family houses are popular in the outer areas of Manchester where many people settle with their families, while apartments designed for single people or couples are popular in Central London. Wherever demand for a particular property type outstrips supply, prices will rise. Look out for properties the value of which is likely to increase due to local changes, for example, because the area where they’re situated is about to have a new transport infrastructure created.
When you’re looking for good deals, it can be very tempting to take on a property in a poor state of repair which you plan to fix up, so you can sell it for a lot more upon completion. Be wary about this. There are obvious traps to watch out for, such as rotten window frames, leaking roofs, dangerous electrics and defective plumbing that can cost a great deal of money to remedy. However, many inexperienced developers run into trouble because of something much simpler: failing to budget properly for the little things. Preparing a property for rental requires replacing carpets (or stripping, sealing and waxing floors, which is expensive); painting or wallpapering walls (often with a bit of plastering needed as well); hanging new curtains or blinds and, if you intend to rent as furnished, buying some furniture. Thorough research can establish lots of low cost ways of doing this, but these things still add up to a considerable outlay. Unless you can go on to sell the property at a high enough value or, within ten years, make enough money back from renting to cover the purchase price, any mortgage interest, the fees involved, the cost of these extras and the cost of your labour, it might not be a profitable enterprise.
Keep on learning
There’s a lot to learn about property development and successful developers keep on learning throughout their careers. Check out local colleges to see if they offer useful courses that could boost your practical skills and learn from people who have already succeeded at what you hope to achieve. Adnan Imam began his career in investment banking and went on to develop the IPE group, which is extensively involved in property development. Its work in Tower Hamlets illustrates the value of anticipating growing demand.
Although it’s not as simple as some people assume, property development can be very lucrative, and it offers the satisfaction inherent in improving a community.