Property development is an industry that appeals to many people. This is because property development can be highly profitable if done right, but is also very interesting and highly rewarding.
It is also an area where there are many myths and misconceptions to be aware of. It is important to understand the reality, if you have plans on becoming a property developer, so that you are clear on what you can do and so you avoid falling into some of the traps that new developers often find themselves in.
So, if you are new to the world of property development, be sure to keep reading to discover the biggest myths to be aware of.
You need to be an expert
Perhaps the biggest myth about property development is that you need to be an expert to start with.
The reality is, everyone has to start somewhere. So, while you should certainly educate yourself on the subject and learn as you go along, you do not need to have expertise to get your first project underway.
Property development involves enlisting experts to help with each stage, such as architects, builders, and legal experts, so it is important that you know how to go about finding experts who can contribute to your project’s success.
Where you are new to property development, lenders may require you to work with professionals with experience to minimise the risk to them of lending you money for your project.
A good starting approach is to begin with a small project that you can learn from, which carries lower risks.
You need to be wealthy to start
Many people are interested in property development, but believe that you need vast amounts of personal wealth to get started. This is not true, as you can secure property development finance to fund your project.
You will need an amount of capital as a deposit, and if you don’t have this in cash but you own other property (e.g. your house or a rental property), you may be able to generate a deposit by borrowing against them.
You can borrow up to 70% of the gross development value (what the property will be worth at the end of the build) in the form of a secured loan against your property, which will cover the costs of buying the land and/or building the property. It is smart to use a specialist mortgage broker like commercialtrust.co.uk for this, as they will be able to find the best deals, but keep in mind that there are fees involved.
You should also bear in mind that if you do borrow money to fund your project, development finance products are not regulated by the Financial Conduct Authority. This is because they are not products expected to be used by consumers – it is expected that if you take out finance of this type you understand the pros and cons. This is where a broker can also be helpful, as you can ask them any questions you may have.
Think carefully before securing other debts against your property. Your property may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
Success is guaranteed
Perhaps the most dangerous misconception about property development is that success is guaranteed and that it is an easy way to make money.
While these projects can certainly be lucrative and give you a significant return on investment (ROI), there is a huge amount of work that goes into a successful project, and there is a lot that can go wrong. This is why strategic planning is so key, as well as hiring the best professionals for the job.
City developments are best
Many believe that you need to find a city development to have the highest levels of success, but this is not always the case. City developments can be highly profitable as areas that are always in demand, but land can also be expensive.
Suburban and rural areas are often more affordable and can provide higher returns (particularly with a growing need for affordable housing). Therefore, you must always conduct thorough market research to identify the best area for your property development.
These are the main myths to be aware of in the property development industry. Knowledge is power when it comes to property development, so it is helpful to understand these misconceptions so that you can make informed decisions and achieve success with your projects.
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