Speak to any experienced property developer and they will tell you the same thing; they made a host of mistakes when starting out. Property development is not an easy career, as there are simply so many tasks to keep on top of at any one time that it’s easy for one small oversight to snowball into a disaster.
It’s one of the reasons we set up the LendInvest Property Development Academy, to help would-be developers build the skillsets they need to ensure their projects are always a success, and to dodge some of the more common mistakes made by those looking to deliver the homes this nation needs.
These are some of the most common mistakes that the developers we deal with have made in the past, and which any would-be developer must strive to avoid.
Rushing into full development
This is a significant one for many potential developers, who don’t take their time to learn the ropes on smaller projects, instead trying to rush into their first full development project.
If you are serious about pursuing a career in property development, then it’s much better to go out and do a few refurbishment projects. Pick up a bargain property, perhaps at an auction, fix it up and then put it back out onto the market.
It’s a fantastic starting block, getting you into the habit of knowing precisely when to book traders in, how to manage your workforce, understanding budgets and cashflow. These are all fundamental skills for any developer, but it’s much easier – and cheaper – to develop them on a refurbishment project.
Once you have a few of those successfully under your belt, then you can start thinking about taking on a larger project.
But it is vital that you build those fundamental skills first.
Trying to go it alone
Even after you have built that experience with refurbishment projects, it may be a good idea to hold off going solo on your projects.
Instead, find a joint venture developer to run the project alongside you. It means that when you are making decisions on costing and the timetable for the project, you are not doing so alone; you can tap into your partner’s experience and so make more informed decisions.
Again, it’s about building your knowledge about the development process in practice, ensuring that when it is time for you to tackle a project alone, you are in a better position to make it a success.
Get your budgets right
Budgeting a property development is a complex job, but getting it wrong can lead to disaster.
Don’t just work out what the project will cost if everything goes completely to plan; what could go wrong, and how will that affect your cashflow?
Make sure you have some contingency funds in your budget to cover you if and when the project experiences the odd hiccup. No development project ever goes entirely to plan.
It can be tempting to cut a few corners here and there, whether for budgetary or time issues. But if this year has taught us anything, it’s that such shortcuts are a false economy. We have seen a number of large developers forced to hand out compensation after pushing homebuyers to complete on homes that weren’t really ready.
If you are going to build a strong reputation and develop excellent homes, then shortcuts are not the way to go.
Who will run the project?
Another big mistake many developers make is over who will manage the project. If you are just starting out, then trying to run the project yourself may be a tall order.
Take your time to find a project manager that knows what they are doing and that you can trust. Speak to your contacts in the industry to see if they have anyone they can recommend, who has experience with similar jobs.
Getting this decision wrong can be the difference between a profitable project and a money-losing one.
Less can mean more
It’s important to take your time when working out the exact space layout for the units in your development. A common complaint among buyers is that they expected a three-bedroom house with three bedrooms of at least a similar size, only to find two workable bedrooms and one tiny boxroom that barely fits a single bed.
You don’t ever want a potential buyer to feel disappointed with what they are presented with, so if you want to market the property as a three-bedroom home, make sure there are three genuine bedroom-sized rooms in there. If you can’t manage that, then you may be better off sticking with it as a two-bedroom property.
Get your timing right
Who is your target market? And when are they most likely to be in the market for a property like yours?
Timing can make all the difference; if you are aiming to build properties for student landlords, then you need them to be ready to go in advance of the academic year; there’s no point trying to sell them in September, as any potential buyer will have to wait to the following year to bring in tenants, leaving them with some serious void periods on their hands.
Steve Larkin is director of development finance at LendInvest