Is Property Development Still Profitable?

building_a_house_on_woodend_lane_-_geograph.org.uk_-_1130664We’re a nation who loves our homes, and owning a property is far more important to people in the UK than in other countries in Europe. Our television screens are filled with shows about how to buy property cheaply, do it up and sell it again at a profit. Until the property crash of 2008, it seemed that every year property prices were going up by as much as 15% or 20% in a single year and making money buying and selling houses was easy. Many developers became millionaires, and many others had extensive buy-to-let portfolios of dozens of properties. However, times are hard and the property market has changed considerably.

Mortgaging

Banks have become very reluctant to lend to developers, and unless you’re in the fortunate position of being able to finance the purchase of a property with cash, getting a mortgage can be tricky. At the very least you will need a large deposit of 40% of the purchase price, along with whatever money you need to spend to bring the property up to scratch. As the average house price in the UK is around £250k, would be developers will need to have around £100k just to get started. This rules many property developers out of the market completely.

House Prices

The housing market is showing signs of recovery, but in many areas people are staying put in their homes and are just not selling up. This means that there are not as many properties on the sale to be bought and done up. However, on the flip side there are an increasing number of repossessed properties which can mean the opportunity to get flats or houses at below market value, if you can hold your nerve at the auction.

Doing the Work

A canny developer will take on a property which is dated, but structurally sound. If the roof is intact with no loose ties or leaks, replacing the roofline soffit boards and sealants will make the exterior appearance far better and the house more sellable. Similarly, ripping out an avocado green bathroom suite and replacing it with a cheap white one will not cost huge amounts but will increase the value considerably. The difference between making money and losing money is knowing how much work will cost when you look around a property, and have a mental shopping list for new bathroom suites, kitchen tiles, emulsion paint, roofline soffit products, timber and everything else you will need to work out how much potential profit there is in the job.

Selling

As anyone who has ever watched programmes like Homes Under the Hammer will know, the key to a profitable development is sticking to your budget and schedule for the project. Getting things finished quickly means you will get your money back more quickly too. Pitch your house at a realistic selling price, accept any good offer and then assess whether it is time to stop or whether to reinvest the money into another project.

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Morag Peers writes on a large range of subjects including home improvement and travel. Read more on Morag’s Google+ profile page.

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