Preparedness is key in the quest for profitable housing development

There seems to be no end to the appetite for housing. The pandemic lockdowns have triggered an historic fall in GDP but the demand for housing has increased dramatically, alongside house prices.

Ironically, the pandemic has induced a price bubble, with a dramatic surge in buyers looking for larger homes.  The latest data sees house prices growing at their fastest annual rate in 17 years.

So, in a market where buyers outnumber sellers, and prices continue to rise, what does this mean for developers looking to achieve a profit from ‘do-er upper’ properties? 

For developers, the issue is that all properties are in hot demand, which currently includes those requiring renovation, and would normally have limited market appeal. This has buoyed their prices, leaving developers struggling to find properties at the right price.

The first hint of good news is that like all price bubbles, this one has to end, and there are signs that, following the removal of the stamp duty relief, the market has begun to calm down.

Despite this, it’s important to have a clear plan of action when finding the right property at the right price, for profitable development.

Here are some top tips to whet your appetite:

Understand your local market.

Map out the areas that are of interest to you from a property purchase perspective. Drive – and more importantly – walk around the areas to learn more about the mix of property and see what developments have already taken place, such as extensions, loft conversions, and so on.

Make notes on target streets so that you have a clear focus on the specifics of your search.

Line up your funding.

As a buyer the first thing an estate agent wants to know is your ability to proceed. Your conversations with agents will always be taken more seriously if you have evidence of available funds, or documentation showing a lender’s funding in principle.

Make friends with local agents.

With your funding established, develop credible relationships with local agents. Their purpose is to sell houses to serious purchasers, so be clear about the type of properties and locations you are looking for.

It’s easy to believe that many other developers will be ahead of you, but like all buyers, there is a wide range of developers in the market, with a broad spread of properties they need. So be specific and earn the attention of agents.

Understand how to add value.

The key to profitable development is to know where to spend money, and, of course, where not to.

Classically, when you create space, you create value. As you study the history of property sales in your target districts, you will begin to discover the elements of property development that convert in higher re-sale prices and a better margin. 

In some locations this will be wraparound ground floor extensions, in others it will be two-storey additions; converted lofts or basements, or perhaps outdoor amenities such as landscaping and decking.

Think wide.

Consider auctions and the private market as well as the internet-based estate agencies.  Understand the risks of buying at auction as well as the potential benefits. If in doubt seek professional advice.

Preparedness is key.

Readiness to purchase is critical. Line up your finance, do your market-place homework and do all you can to become a savvy buyer and a credible bidder.

Good luck with your development plans!

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