The economic downturn has burnt the fingers of thousands of property developers up and down the land. When researchers from zoopla.co.uk compiled a national house price survey in June 2011, they found that 80% of houses purchased since 2006 had fallen below the value of their purchase price. Some developers who built their portfolio before the recession have recorded losses of up to 30%, as prices have fallen far below their original predictions.
This bitter experience demonstrates the value of forward planning; although few could have predicted the onset of such a deep recession back in the boom years, many developers would have saved a fortune had they been more prudent, and accepted that the rise in house prices wouldn’t continue forever.
If you want to make money in this business, you have to take a pragmatic view, understanding that this is an industry acutely prone to boom and bust. And, because both house prices and rental values have stagnated, it’s more important than ever to get maximum value for your property.
You need to check out what is on offer, what you can afford, and the old adage still rings true – it really is about location, location, location. Like any new venture, you need to think of your property as a product – who’s going to be attracted to it, where will they want to be situated and what will they expect, whether it’s first time buyers or retiring couples.
You also need to consider the long-term prospects of the area. If companies have gone to the wall and jobs have been slashed during the downturn, you may struggle to sell housing because local residents aren’t willing to spend money, and outsiders aren’t prepared to move there. On the other hand, if you look around you and see new businesses, new jobs and new families, there’s every chance that the local property market is buoyant.
In addition, make sure you don’t pay over-the-odds when you come to buy. Sites such as Right Move allow you to compare the prices of properties in your chosen area, so you should get a good idea of what your target dwelling is worth.
“You have to keep in mind that profit is in the purchase price,” says Brian Steel, an innovation advisor with Enterprise Europe who commands extensive personal experience of buying and selling commercial and domestic property.
“You buy as low as you can in order to achieve a profit, but you also have to be aware of the prices in that area, and find out what other developers are doing nearby.”
Again it all comes down a good knowledge of the market, which can only be achieved by research. Find out as much as you can from the internet, newspapers and estate agents themselves – don’t just rely on watching the plethora of property programmes that currently appear to have a monopoly on daytime TV scheduling.
“You just cannot overemphasise the importance of research”, says Nicholas Leeming, business development director at zoopla.co.uk. “You need to know what the demand is and don’t think that the first property you see is the one you’ve got to have – being impulsive is one of the biggest pitfalls and that’s why research is so vital.”
Leeming adds that it comes down to two very specific qualities: an understanding of the market and good judgement. “Don’t let your heart rule your head – be practical and don’t let yourself be rushed into a snap decision,” he says.
Steel is keen to point out the importance of tailoring your development to the demand in that area. “You’ve got to be sure of who you can sell the property to. There’s no point buying a five-bedroom house to convert into a student let if the nearest college is 20 miles away.
“In the same respect, there is little point in developing a very high spec property in a run down area because you aren’t going to attract the right kind of buyer.”
Steel also advises getting a structural survey. “A buyer’s survey isn’t worth the paper it’s written on. Some people buy property blind, then end up making a loss if there are serious problems with it.”
But probably the most important thing to remember to make sure your eyes aren’t too big for your wallet. It might seem like an obvious suggestion, but it is all too easy to go over budget chasing that ideal property and if the housing market were to change you might find yourself without a roof over your own head.
Start small and move forward by building up experience from each project, and by learning from your mistakes you will be able to take on more and more properties with confidence.