Strategy: Land & Development
Article 2 – March 2010
Lyndon Forshaw
Lyndon Forshaw has been actively involved in property for over 15 years. He’s built a wealth of experience in all sectors. To contact Lyndon email lyndon.forshaw@justdoproperty.com Resources |
Is now a good time to begin developing for profit?
As we begin this new decade, many of you out there will be looking for ways to maximise your income and broaden your approach to property.
For many BTL and land investors, developing for profit is a very natural progression. In fact, it was the path I took – and I’m sure glad that I did. The potential profits can be truly staggering…
“How much experience do I need?”
The surprising thing about developing for profit is that you don’t need to know very much about construction at all! In fact, I didn’t know anything about construction when I started out… and I still wouldn’t know how to place one brick on top of another!
If you have the right team around you, including a good architect and a quality single main contractor, you can leave them to worry about all the hard work and specialist construction knowledge. You can use industry standard ‘fixed priced’ contracts – so the contractor handles all the construction work within an up-front agreed price. This means that you won’t be landed with any nasty surprises and you can minimise the associated risks.
“What about the finance?”
As market conditions improve, more lenders are returning to the market with new development finance products. Better still, loan-to-value ratios are increasing all the time. 65% loan-to-value is now once again achievable for certain deals.
Of course, the most critical element of the deal is securing the land at the right price. If there’s enough capital tied up in the land, then it’s possible to fund the deal with little (or possibly no) money down…
“What about the state of the market?”
Increasingly positive news reports seem to suggest that we may be slowly emerging from the recent property crash. For example, last month, Barratt announced that forward sales are 43% ahead of a year ago. Plus, recent RICS figures show that house price rises are likely as demand for available property outstrips the supply.
Signs are that things should be more stable in 2010, hopefully preparing the way for increased recovery later in the year.
That’s why I recently took my first steps back into developing. Although I’m only developing a very small site of two semi-detached houses, the project should return a healthy profit for very little “work”.
“How much work is required?”
My method of new build development involves very little work by me at all – no more than two or three hours per month from start to finish!
However, I know I’ll spend more time on site than I need to as I find the whole process so exciting! Basically, I’m buying a piece of dirt and turning it into two fantastic brand new houses worth £160,000 each.
The return on my time from a small project like this is significant – hopefully around £70k. I anticipate that this development will take around six months to complete. I’ll be keeping an online diary of the progress of this project, so if you’re interested to see how it’s coming along, keep an eye on my blog at www.ukpropertyexpert.com.
“Can I reduce the amount of up-front capital needed?”
A great way to reduce the amount of upfront capital needed is by entering into a joint venture (JV) with a landowner.
I recently agreed a JV deal on a site for 16 houses. Essentially the landowner will be putting his land into the deal and I’ll be arranging the development. The deal should clear £400,000 for my company. Sound easy? Well, when you get to know the ropes, it is!
So will 2010 be the year you take the next logical step in your property career with comparatively quick, life changing profits from developing? It really isn’t as difficult as it sounds. If I can do it, anyone can!
If you would like to ask Lyndon a question click here.
