Since my article about new build developing last time, I’ve received a huge amount of feedback from people that are interested in finding out more about what’s involved in the developing process. However, it seems that quite a lot of people out there still think you need to have construction knowledge to become a developer…
Well, let me dispel that myth once for all: you don’t need ANY construction knowledge to become a new build developer.
Let me explain…
I think one of the most common misconceptions amongst property folk is the distinction between a Residential Property Developer and a House Builder. Now, major House Builders, such as Barratt, handle the entire process in-house, from sourcing the land and obtaining planning, to construction and sales.
Now many people presume that new build developers do the same. In fact, when I tell people I’m a property developer they automatically presume that I actually build the houses myself!
However, many residential property developers large and small dont do any of the construction work themselves. Instead, we outsource that work to a specialist main contractor, who essentially does all the hard work on our behalf.
This leaves me free to concentrate on the “business” side of things, such as sourcing the land, negotiating its purchase, arranging finance, employing the contractor, then selling or renting out the finished houses.
What is a main contractor?
In simple terms, main contractors are companies who typically manage the whole construction phase of the project from start to finish. They employ all the labour and various trades like ground workers, bricklayers, plumbers, plasterers and joiners directly on our behalf and make sure the right people and materials are on site at the right time.
One of the benefits of using a main contractor is that they have a great deal of experience in construction – not just on the technical side but also how to project manage the entire process from start to finish. More importantly, they’re also able to comply with the huge raft of health and safety legislation that you need to adhere to.
A good contractor will have your whole project meticulously planned from beginning to end. They will know – to the day – when a particular trade or materials need to be on site – many months in advance.
In general whether you employ a main contractor to handle the construction element of the deal depends on:
- How much time you have available.
- Your project management skills.
- Your experience of construction and home improvement projects.
If you are working full time and don’t have any experience of major works, such as new build construction, or even house extensions and conversions, then it’s much better and more cost effective to leave it to the experts.
Yes it’s true, it’s often said that you pay a premium to a main contractor for their skills and expertise and all the hassle of juggling subcontractors that they will save you. Yet, providing you get the right contractor, the extra cost can be far outweighed by the savings.
Why? Well, by using a main contractor you are very likely to find that your project will be completed much quicker, potentially saving you many thousands of pounds in interest costs.
Comparing the development process to managing a BTL portfolio
If you’re already involved in BTL, you’ll be very pleased to know that making the leap to new build developing is a fairly natural progression. Believe it or not, there are many similarities between being a property developer and managing a buy to let portfolio. The main one being that both businesses involve employing experts to carry out particular tasks.
For example, just as you wouldn’t attempt to fit a new combi boiler yourself or re-plaster the lounge (well I certainly wouldn’t!) with a BTL property, you won’t attempt to build a house from scratch when developing.
Plus, just like new build property developers, most BTL landlords concentrate on the “business” side of things: sourcing properties, negotiating its purchase, arranging finance, employing a builder or maintenance contractor to carry out refurbishments, then renting out the finished houses. Sound familiar!?!
The main difference with BTL is that when you need to source construction, renovation or maintenance work for your property, Bob the Builder will give you a quote for a job… Unfortunately, that price will often start to escalate as all the extras begin to mount.
Hell also tell you that he’ll be done by next Friday. Inevitably, the job then turns out to be a long drawn out process taking weeks. At the end of the day, youre left frustrated and out of pocket.
Thankfully, with developing you dont get any of that. We tend to employ main contractors on a fixed price contract. That means that you know exactly how much the build is going to cost and when it will be finished.
Plus, with new build developing, once youre out of the ground, there are very few nasty surprises because you are starting with a blank canvas. However, with renovations to existing buildings, youre never quite sure whats going to be involved until the work is well underway.
So as you can see, developing is strikingly similar to BTL investing – just on a larger scale. But that said, developing neednt necessarily demand any more capital investment than a BTL property…its all about structuring the deal in the right way.
So what does the development process involve?
Obviously every development is different but, broadly speaking, a typical project can be broken down into the following key stages:
- Source and appraise your plot.
- Secure funding.
- Secure plot and agree terms.
- Appoint your architect and design team to oversee the planning application (if your site doesn’t already have planning consent).
- Acquire land and remediate the site as necessary.
- Tender for construction contracts.
- Appoint contractors.
- Begin construction.
- Appoint sales agents.
- Complete construction.
- Sell the houses and bank the profits!
Sounds like a lot to sort out doesn’t it? Well don’t panic – remember, you won’t be building the properties yourself! Really, your role is that of facilitator. In fact, most lenders will insist on it…
All today’s lenders will insist on you having an experienced team of professionals behind you if you don’t have any experience yourself. They will rely on the experience of the team and in particular your main contractor to deliver the project on time and on budget. So to help you complete each of the stages I’ve mentioned above and satisfy your lender, you’ll be enlisting the help of a number of professionals. Your team is likely to include:
- Main Contractor.
- Structural Engineer.
- Employers Agent.
- Planning Consultant (if your site doesn’t have planning).
- Finance Broker.
- Monitoring Surveyor.
Really, the key to successful developing is really about working smarter not harder. By leveraging the expertise of key professionals you could soon gain life changing returns from just one or two development projects per year!
If you would like to ask Lyndon a question click here.