5 Ways To Get Into UK Property Development For The First Time

20-April-2018
20-April-2018 12:28
in General
by Admin

More and more people are considering property development as a viable and predictable short- and long-term investment in their future.

Property development offers two distinct advantages to investors.

  • First, you benefit from capital appreciation - the value of your property holdings rising over time. You can then sell your properties individually or as a whole at a later point and realise a substantial capital gain.
  • Second, if you choose to hold onto the property and rent it out, you’ll gain a regular and steady income from tenants.

In this article, Clifton Private Finance looks at the five most popular types of property development investment that we assist our clients with.

1. Buying residential property to renovate and let out or sell

If planned and executed correctly, purchasing residential property which is run-down or in need of modernisation with the purpose of renovation can lead to an appreciable gain in the value of the property and its desirability for potential purchasers or tenants.

A typical renovation project can involve substantial repairs to the property to bring it up to modern standards, changes to the internal layout, replacements or upgrades to fixtures and fittings, and the improvement of external areas.

The capital gain in buying residential property to renovate and let out or sell comes from finding a home or apartment where the price you to pay purchase and renovate the property is less than the price you could expect to receive when you take the fully-renovated property to the market.

The first question you should ask if you are planning on buying a property to renovate is “What am I going to do with the property once the work has been done?” You can either realise your capital gain straight away by putting the property on the market or delay taking the capital gain by seeking tenants to live in the property to provide a rental income.

Letting out the property

If you choose to let out your property, there are two main ways in which you can do this.

They are:

  • Letting it out to a tenant - This is the most popular choice among investors. A tenant pays you a sum every month which is greater than your mortgage repayment and the other fixed costs you incur by owning the property.
  • House of Multiple Occupancy (HMO) - This is when you let out individual rooms in a house and the living room, bathroom, and kitchen are all shared by the occupants. If you create an HMO with five rooms in it, you could derive five separate sources of income from the one property.

While letting out the whole property to a tenant is a viable and proven way of gaining monthly rental income, there is more risk attached as when the property is empty, you receive no money from it.

However, with an HMO, even if the house does not enjoy full occupancy, you will receive some income from the people who are renting the rooms from you. A fully-occupied HMO may also generate revenue in excess of a property that is let to one tenant (and the co-habitees).

Short Term Finance To Purchase And Renovate A Buy to Let Property In London

Selling the renovated property

If you choose to sell a renovated property, you need to make sure that, when it is the time to sell the property, the price you achieve for it is more than the price you paid for the property, the money you spent on renovation and on other fees to make a profit.

Every property has a what is called a “ceiling value”. This is the highest amount that the property can be sold for on the open market – its maximum price. You need to be careful with your budget for the renovation as overspending will either reduce your profit, wipe it out, or cause you to make a loss on your investment.

The most successful technique used by property investors renovating with the intention to sell is to buy the worst house on the best street. This is because the biggest potential rises in value can be made with a successful renovation in a popular residential area.

If you want to obtain funding for a property in need of renovation, we suggest that you stay away from high street banks. They are not set up to finance this type of project. On any projects of this type they do provide backing to, you would be charged significantly higher interest rates and you will not enjoy the flexibility that specialist lenders provide.

2. Buying commercial property to convert to residential property

Commercial property is any kind of building that is being used or has been used for business purposes. Commercial property can be anything from office spaces to factories.

If you buy an old factory for £1,250,000, you could potentially convert it to 10 residential apartments valued at £300,000 each. Commercial property conversions generally offer investors the opportunity to create a much larger number of residential properties because of the sizes of the buildings involved.

The larger the number of properties created, the better chance you have of creating a substantial profit from a conversion if the property is in a popular or up-and-coming area in demand from buyers or renters. Look out for opportunities in city centres to create build-to-rent or student accommodation from unused office or warehouse property.

Conversions of commercial property to residential use, particularly when the property has lain idle for a while, are popular with both central and local government. They are less likely to face planning permission hurdles than other types of conversion.

Property Development Finance For Office to Residential Flats Conversion

3. Building a second home on your property

If you have the space available, you may be able to build an additional property on your own land.

If you have a larger than average garden, building another property in it should not have a significant adverse effect on the price of your existing home. A general rule of thumb to consider is that your initial property should have a garden roughly three times the size of your home if you wish to erect a new structure on it.

You may be able to avoid some of the costs when connecting your second home to the services, as utility companies will not have won’t to pay to open up the roads for access to water and gas pipes.

If you can secure planning permission in your own garden, you can save up to £100,000 on the price of purchasing land. This is money that you can spend on developing your second home instead.

Take advice from your solicitor about any extant “covenants” on your existing property before embarking on any project though.

4. Buying land to do a ground-up development

Land that has already been granted planning permission is generally more expensive than those without it. However, it will often be worth the increased price as it means you don’t have to take the risk of buying the land and attempting to obtain the planning permission yourself.

Once you have acquired the land, you will then need to find somebody to construct the property or properties for you. If you have little or no experience of construction project management, you may wish to employ the services of a project manager who will coordinate the build from start to finish. A project manager can also prove their worth by making sure that your budget does not overrun on the building of your property or properties.

You can secure a property finance facility to buy the land and to pay for the construction of the property or properties. As with a build on your spare land on your own property, the best way to obtain the necessary finance is to engage a private finance specialist.

Property Development For 3 New Build Homes In Dorset

5. Buying land to get planning permission to sell to a developer

The price of land without any attached planning permission is significantly lower than one where permission has already been granted.

First, you acquire the land and second you start the process of obtaining planning permission. This may take some time and, during this time, you will be making repayments to the finance company on the land.

However, from our experience, you have the potential to create a significant capital gain when permission is finally granted because developers are continually building up their “land bank” – land they own on which they have planning permission that they will build housing on in the future.

There is risk in this investment approach because planning permission can be difficult to obtain. Local authorities’ willingness to grant planning permission varies across the country. This is because this issue is strongly influenced by local politicians who feel they must react to their constituents’ wishes and demands.

Property Development with Clifton Private Finance

Property development and buy-to-let have proven to be profitable investments for the past 20 years. There are now over 2.5 million property investors in the UK.

Their presence in the marketplace and their easier access to finance are expected to push up prices in most parts of the country. Even with government promises of increased levels of housebuilding in the next decade, demand from would-be homeowners and property investors seems likely to outstrip even enhanced supply for some time yet.

With offices in Bristol and London, Clifton Private Finance has expertise in sourcing and securing finance facilities for investors interested in pursuing any of the five property development investment options listed in this article. We work with all the leading banks, private lenders, and specialist institutions in the UK meaning that clients benefit from whole-of-market access.

To find out more call Bristol 0117 959 5094 or London 0203 900 4322.

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