The economic downturn hasn’t been kind to a lot of industries, but few have seen such negative impact as property development. After a decade or more of unchecked growth, housing values have been declining since 2010. Despite that bad news, there’s plenty of room in the real estate market for property developers. Here, you’ll learn more on what it takes to get started.
Before you Begin
Before you ever buy your first property, you should decide which part of property development you’re going to focus on (are you going to be a developer or an investor?). Developers look for properties in need of repair, often bought through agents, at auction or from an owner. Renovations occur over a period of six to 18 months, and the property is (hopefully) sold for a profit. Despite the high cost of materials such as roofing supplies, becoming a developer is the quickest way to make money in the industry.
Investors often buy properties which already have tenants. To be a property investor, you’ll buy properties not in need of renovation; you’re just looking to get a tenant in as soon as possible. Such situations aren’t all that common, as most potential landlords know that almost every property has room for improvement. Property investors often don’t realize a profit for years; some barely make enough to cover taxes, mortgage and other fees.
Take an Honest Look at Your Finances
Buying property isn’t cheap, and unless you’re independently wealthy you’ll likely need a mortgage. Most lenders require a deposit of up to 25% of the purchase or development price, and once you buy you’ll still have to make mortgage payments while work is going on.
Many investors choose interest-only mortgages, which require repayment at the end of the term (often, the property must be sold). The difference between the mortgage amount and the selling price is the investor’s profit.
Decide Who You’re Going to Sell to
On reality TV’s property shows, developers are always focusing on “yuppies”, or young professionals. The market is so large that it can be further subdivided, but smaller markets such as students and retirees should not be overlooked. Consider your market before buying- it’s much easier to fulfill a need than it is to build without one.
Once you’ve decided on a target market, you should become more acquainted with it. Do they use public transportation, bike to work, or own a car? Are they looking for environmentally friendly home features like Velux windows? These factors will largely determine where you make your first buy. There are many places online where you can find demographic information for your chosen area, or you could talk to a local rental or real estate agent.
When you’re looking for your first development property, choose one close to your current home. Doing so will leave you with a better knowledge of property values, and it makes traveling to the home site to deal with project managers and builders much simpler.
This article was written by James Harper on behalf of Ashbrook Roofing, retailers of velux windows and roofing supplies. Visit their site to see their range of roofing supplies or to find out more about velux windows.
We have a fixed rate mortgage and when we got it 3 1/2 yrs ago, we ddceeid that the best thing for us (not for everyone, obviously) was to lock in for a 10-yr term at 5.5%. Yes, the variable rates are super low and have been for the last 2 yrs or so, but we sleep well at night knowing we calculated what we could afford monthly for a 10 yr period and we have no worries about what the rates will do for the remaining 6.5 yrs left on our term. We can afford 5.5% and probably upwards of 7-8% if necessary and we also have some wiggle room to temporarily extend the amortization from the current 16 yrs back up to 20-25 or even 30 yrs if we are suddenly down a significant amount of income. We’d hate to do that, but it’s an option in the case of a sudden temporary income loss.