What is property development?

What does a property developer do?

Why would a property renovator become a property developer?

 Lately We’ve had a lot of people ask about property seminars and seminars and why the “discount property investment companies” that runs them have become so popular for buying undermarket value houses and building a property portfolio’s for subscribers.

Let’s sit down for a cup of coffee?    

It seems there are many more ways of making money out of property than actually owning it. Talking is one such way. The popular property investment seminar circuit provides proof that talking about property is just another one of the many lucrative opportunities available to be exploited.

The companies that run property seminars and seminars make you pay through the nose for a dubious property education and it’s important to understand how they work and how they can possibly benefit you. A discount property investment company they say can help you in three ways.

    * They will save you time by sourcing off plan properties across the UK and in the process they will negotiate discounts of between 10% and 15% for you ( Its foolish to buy property out of your area and your estate agent can source local property and  do that)

    * They will then manage the process of buying the property for you, from reservation through to completion and letting. (Your Estate Agent and solicitor can do that)

    * Finally, they will help you to create a portfolio of properties. (It’s best to be hands on)

What they don't mention is that they charge for everything and get commission from everyone!!

Developers pass on discounts for a number of reasons.

1. Developers often need to secure seed capital

When a developer wants to begin a development they will normally require funding and their bankers will require they show a certain amount of sales ‘off the plan’. The developer can either invest in marketing directly to the general public or offer a discount to a property investment company. For this they have to pass on a discount that they would normally lose to marketing.

2. Developers need to achieve year-end sales targets

They have a sales target to achieve and may pass a number of plots to a property investment company to sell quickly. In return for the short timeframe they’ll offer great discounts. You will normally find that between 5-25% of plots in any given development are offered in this way and normally present a great short term return on capital.

3. Developers need to sell the final few plots

The developer will normally have sold most of the plots and has only a few left which are eating into their precious profits through their onerous holding costs. They’ll pass these to a property investment company to sell quickly and allow the developer to close the sales office and complete the entire project. These offer a quick turnaround to completion and make “flipping” easy as you are selling on a completed property.

Beware!!

Before you get too excited about any 10-15% discount, you need to understand what an “inflated valuation” is.

In some cases, in fact a lot of cases, property investment clubs will inflate the actual true valuation of the property in order to advertise discounts off this valuation. In some cases the inflation can be 10-15% higher than the true valuation.

Luckily, there’s a simple way to protect yourself. Every valuation you’re given must be backed up with a written valuation from a surveyor registered with the Royal Institute of Chartered Surveyors (RICS). Additionally, the valuer should also be on the panel of lenders that you wish to choose for your mortgage.

Property investment companies will sometimes try and convince you that it’s not a problem since “you’ll be using their solicitors and mortgage brokers”. This is a tell-tale sign of price inflation. Be very wary since you may not discover that you’ve been the victim of an inflated valuation until you attempt to re-mortgage the property after completion! It’s best to walk away.

So now that we have looked at the 3 major reasons why a developer will offer a discount lets answer the most commonly asked question.

So why can’t you go to the developer and get these discounts directly?

The Property Club will tell you that you can't, you need them. No. You don't

This answer is quite simple: You can!  Investor Finance

Now is a good time to look at the present property situation and plan a strategies for the new cycle

A good barometer of property movement are auction sales, this is where the professional buy their stock.

Auction clearance rates are hovering about 60%, down from last year's highs of 90%-plus and vendors are being counselled to be realistic. But property experts say the lights haven't gone out of the UK market - it's just that buyers and vendors need to change tactics to maximise their opportunities in the new environment.

  For the true professional the market slowdown is a welcome part of the property market's natural ebb and flow. The only people in pain are those who bought at the top of the market. The professionals did not. They eased of in September 2007.

 Property is a cyclical process, what we are seeing is a correction; 2007 was an abnormal year, there was incredible growth and it was the end of a boom cycle - it was unsustainable. It has now brought conditions back to being a normal market.

  The change has been dramatic. From the start of the calendar year, buyers weren't coming out as quickly as they had been. The interest rate has had its desired effect:  combined with volatility in the stock market, combined with a slightly more pessimistic business outlook has led to buyers adopting a wait-and-see attitude. This will continue for a few more months before things settle down.

"The buyers out there definitely feel it has swung in their favour and has become a buyers' market. The buyers are still there at a price, but they are not willing to be so carefree with their money. Last year people were acting out of desperation." last year's heated market was problematic for everyone. "It was very difficult for buyers to buy into it, it was difficult for agents to give realistic buying prices and every seller was expecting 20% more than everyone else."

  Estate agents now need to ensure their vendors have realistic expectations and change their marketing to ensure they maximise their client's ability to sell at a good price, they should encouraging buyers to make offers.

  Using the internet to "float" properties is the way to increase buyer interest, with the current conditions making it even more important that vendors present their property well.

"In 2007, to some extent, it was fairly straightforward for auction buyers; you would go to an auction and put your hand up and you either bought it or you didn't. The rules have changed in 2008; sometimes a buyer can turn up to put up their hand and they might be the only one there. In a changing market its important buyers are more prepared in relation to recent comparable sales.

Make a pre-auction offer to capitalise on the nervousness of the vendor - most vendors last year wanted their day in the sun. If you do go to the auction, be prepared to put in an opening bid below the quoted price range. Last year they would have said 'thank you, you have just bought the letterbox’ Not know!!

And, with a large amount of stock on the market, be prepared to walk away.

  Last year's prices encouraged more people to renovate their house rather than take a punt on paying a premium to buy a larger one.

With the heat gone, more people are taking their chances at buying and selling, leading to an increase in the properties for sale.

 Some vendors still unrealistically cling to the idea of the premium prices paid last year, as shown by the poor clearance rates. "A reserve shouldn't be their dream price."

 Estate agents have an increased responsibility to pass on feedback, both positive and negative, during the campaign to allow the reserve to be constantly re-evaluated,  

"It's not just a case of set and forget their price."

Becoming a successful property Renovator

  I've been carefully studying the wide range of seminars on offer around the country at which self-described property millionaires will generously share their tips on making lots of money by snapping up a poorly maintained home on the cheap, renovating it - and then selling for a huge profit.

Renovating looks all too easy on the lifestyle programs, where cheerful builders, plumbers and electricians all turn up as planned, unwanted walls simply disappear out of shot (along with accompanying rubble), the music is upbeat and the sun always shines.

But, with the property market shakier than it has been in years and global economic gloom predicted by many - is it still possible (or even sensible) to try to renovate for profit?

"All those renovation TV shows have a lot to answer for," says Martin Williamson, Property Analyst for Profitdata.co.uk

"The reality is that in a tight property market there really isn't that much of a difference in price between renovated and unrenovated properties.

"Any estate agent will tell you the banner 'Deceased Estate' will attract a bunch of hopeful 20-somethings looking for a toehold in the market. People also love a blank canvas, and unrenovated properties will actually attract more competition."

Don't get too emotional

With interest rates rising, the cost of building materials soaring and the property boom a distant memory, is there any money to be made in property investment at all? Property Pro's thinks so. They see a credit squeeze can be an opportunity for people who are "cashed up".

"There's a lot of truth in the old saying, buy in gloom and sell in boom,"

 What to look for in renovation properties

If you're a budding developer, the most common strategy is to buy a property cheap, renovate it and sell it for profit. Follow our tips for a successful project.

 Uncover the lucrative new trend for unlocking the inner beauty of the downright dreary properties that have been overlooked by other buyers

Ugliness is bliss. Growing numbers of house hunters are forgetting aesthetics and seeking the plainest of properties that more myopic buyers would never consider.

Although strictly for the brave of heart, buying and doing up an unlovely house in a stunning location is a way of unlocking genuine property value in the current slowing market.

Ugly – estate agents prefer "quirky" or "unusual" – is rarely terminal. In some cases, simply ignore the bricks and mortar because what you are buying could be a building plot.

Do your research

Check how long the property has been up for sale. A property that's been on the market for more than a few months suggests there isn't a great deal of profit to be made

What should I look out for?

Ensure you're not buying a money pit. In an older property you should be prepared for anything, right down to half the wall staying on the wallpaper when stripping or great holes behind the panelling. Don't be afraid to make umpteen visits with every type of tradesman in order to know what you're letting yourself in for!

Ask the experts

Roofers, timber and damp specialists and electricians will charge nothing or very little to engage their services for estimates and will be more beneficial to you than a surveyor in the initial stages.

 The romantic visions of flying off to some foreign land and beating the locals at their own game by buying up all their properties cheaply is fraught with unexpected problems & costs.

I have dealt in many parts of the world and have definitely come to the conclusion (with 28 years behind me) that if you can not make money where you currently are you will not make it anywhere - this is not to say money is not being made by people investing in overseas properties but there is a lot to learn about UK dealing & trading without the problems of language, strange laws and eagle eyed con-men on the look out for "fresh meat".

It is not my place to tell you what to do but try learning about your local area before chasing the exotic money, if you are prepared to solve problems and/or add value in property trading & investing you will make money in good times & bad – in your own town!

Providing the planners agree, you may be able to erase the existing blot from the landscape and replace it with a home that is easier on the eye. You may at least be able to convert, alter or extend a home so, again, the look of a place can be improved and its value hugely increased.

Transformation tips

1. If the property is not listed, it may be possible to demolish it.

2. Keep the planners on side. Ask them what is possible.

3. Do not overdevelop. You don’t want the best house in the worst road.

4. Find a well-recommended local architect and builder.

5. set aside 20 per cent of your budget for unknown problems.

6. Change the roofing from, say, slate to reclaimed tiles.

7. Change the windows from plastic to wood.

8. Redesign the front garden with a path, pond and trees.

9. Consider removing external render.

10. If you live in a special place, ask yourself if your ugly house will grow on you.

  There are still plenty of good buys to be had. "You can certainly renovate and make a profit, providing you don't over-buy in the first place," 

"If it's an investment property, the biggest mistake you can make is getting too emotional and too fussy with it."

  There are some very simple and cheap renovation techniques that will lift the value of a property enormously, such as replacing old carpet and blinds, polishing floorboards and cutting back overgrown gardens.

"And the best pound spent in renovating, without a shadow of a doubt, is paint," 

  Would-be property investors to get a valuation of a property before they start renovating, to make sure they don't over-spend.

  "Another side-effect of the high interest rates is a tighter rental market."

Borrow to buy again

 Renovators should plan to keep their spruced-up property, raise the rent, get a new valuation from the bank - and then borrow against the increased value to fund another property purchase.

But while most people with a finely balanced mortgage are looking to reduce their loans, in the property investment world, debt is good and more debt is better, the common wisdom being that property, once bought, should never be sold; it just becomes another asset which can be borrowed against.

Add 10 – 30% value to any property

  Put £10,000 to renovate a property and increase the valuation by about £30,000. 

"The main thing people need to learn is you don't get rich by saving money, you get rich by spending money and using that money to make more money."

The ability to spent money well is the main skill needed,

It can be best to outsource everything because the average person with a job does not have time to look at 40 properties and go and renovate a property."

Not everything adds value

People get into trouble when they become emotional about property, often thinking everything they do is going to add value.

Knocking down a wall might make a place look nicer inside, but if it doesn't increase the square footage it might not increase the value of the property, he explains.

"There is always money to be made in any market, but the key is to buy well and renovate sensibly."

Budget renovating:

8 golden rules of renovating for big profit

The ground rules

* Plan the project before you start - what has to be done, what needs to be done and, last, what would be nice to do.

* Set the budget - never spend more than 5% of the purchase price of the property.

* Set a completion date or you will never finish.

* Quick kitchen makeovers can be done by replacing handles, worktops and tiles, and painting cupboards.

* For a quick bathroom makeover, replace tiles; shower screen, vanity and towel rails.

* Use the 'power of paint' - neutral tones with no more than two colours.

* Do it yourself wherever you can.

* If your funds are running low, cut the renovation back to the bare minimum.

Don't be put off by rising interest rates, to a point “do your sums and calculations and factored in a rise up to 10%."

Don’t forget to put into your calculations:

Reduced VAT rates for owner/developers renovating an empty property:

In an attempt to encourage the reoccupation of empty properties the

VAT. These include:-

• A reduction in VAT from 17.5% to 5% on the cost of renovating single house dwellings that have been empty for 2 years:

• zero rating the sale of renovated buildings that have not been used for 10 years.

Flat Rate Tax!   Get the government to pay YOU to convert your investment flat

5th July 2006

It is estimated that in England there are about 250,000 homes that have been empty for over six months.

To help solve this problem, the government has now given powers to local authorities to effectively seize control and manage homes that have been left empty for more than 6 months, under what are called "Empty Dwelling Management Orders"

However, on the subject of getting empty homes back into use, the government has not been so keen to publicise the fact that investors can actually get income tax relief on the cost of converting or renovating vacant property above shops and offices into residential flats.

Spend £60,000 and write off the full amount against tax

So, if you spend say £60,000 on the conversion you could write that full amount off against your income tax bill for that year.

The key to renovations is buying at the right price, keeping renovation costs low by doing most of it yourselves, and making sure you have researched their purchases thoroughly.

Now you have renovated your property it’s time to managing it in the best possible way

Landlords may be sitting pretty with rents on the rise and a tighter supply of rental properties but that's no excuse to take their investment income - and their tenants - for granted.

Putting up the rent too much, taking shortcuts with rental agreements or failure to keep up to date with paperwork are all common mistakes that can hold back your investment.

Follow our six-point checklist as a starting point to making sure you're managing your property in the best way.

1 Find the best

  Managing the property yourself is an option. It will cost you less but will require your time and you'll need to be prepared for unexpected problems.

Some DIY landlords find it best to find tenants through an agent and then take on the day-to-day leasing themselves.

Landlords who self-manage their properties clearly have the objective of saving money, but in the process they may take short cuts and be unaware of property management procedures.

2 Know the market

When it's time to find tenants, make sure you know what other similar properties are getting in rent. Go to other open houses to see what else is on offer and whether there are many people looking to rent in the area.

Be very price-sensitive - if you struggle to find a tenant, dropping the price by a little may mean the property is vacant for as short a time as possible.

Weigh up the cost of, say, £5 less over 52 weeks versus having the property void for four weeks.

3 Regular Inspections

Whether you are managing the property with the help of an agent or by yourself, keep a regular eye on the state of the home.

DIY landlords don't always have the time to do this,  By conducting regular property inspections, a letting agent or  property manager is able to alert the landlord to any maintenance requirements and tenant issues

4 Keep your tenants

Good tenants are too good to lose, which is why in this high-inflation environment landlords should be careful of increasing the rent too much.

"It's understandable that landlords may need to raise their rents to keep pace with rising costs. However, financial considerations should be balanced against the importance of keeping good tenants in a property."

Increases that are too high may result in your property generating no income for weeks as you look for new tenants. If you do increase the rent, don't forget about topping up the mortgage as it may no longer cover the original number of weeks' rent.

5 Insurance

   Someone familiar with DIY may be comfortable not having landlord insurance - rather saving on the premiums and tackle repairs when they are needed.

For other landlords who are short on time and expertise in this area, it's probably worth thinking about. Look for a policy that covers malicious damage as well as accidental damage.

And make sure you are covered for loss of rental income if a tenant absconds or leaves your property damaged so you're unable to lease it for a while.

Also be aware of the difference between accidental damage and normal wear and tear.

The former - which can include foot traffic on carpets, scuff marks on floor coverings, minor scratches and scuff marks on paintwork and dirty hand marks on curtains and blinds - will not be covered by insurance.

The latter - accidental breaking of a window, red wine spilled on a carpet, a hole in the wall caused by a tenant moving furniture or cracked floor tiles after a heavy saucepan is dropped - will.

6 Stay up-to-date

Don't leave all your paperwork until the last minute - keep up to date as you go along and you'll be much more organised.

If filing doesn't work for you, use a diary instead and use it to file receipts or paperwork. Make sure you claim depreciation on your investment property before the end of your tax period and that you're working from an accurate depreciation schedule.

Also ensure you are claiming your full depreciation entitlements.

Often investors depreciate expenses such as carpets, light fittings and blinds, but fail to depreciate property owned by the body corporate that they have a part-share in,

And differentiate between depreciable assets and capital works. "While a worktop, stove and dishwasher are depreciable, kitchen cupboards and sinks are not, and only eligible for the 2.5 per cent building allowance,"  

To use or not to use real estate agents

For:

They charge anything between 8 -15%   plus VAT for rental management. When new tenants have to be found, the agent should pay for the first month advertising

The agents should know what they are doing; they've usually got prospective tenants on their books and it's nice to have the leasing off our hands and not be involved with the tenants, A local tradesman could adequately handle any damages to the properties.

Against:
 It's too easy to do on your own and agents take too much of a cut you may have a large mortgage on the property so needs as much income as possible to cover the interest payments. You can use a standard rental agreement down loaded from the net whereas a letting agent will make you use theirs which of course they charge for.

When assessing prospective tenants, always contact their employers and previous landlords but credit checks maybe unnecessary. They are just a way for Estate Agents to charge an extra fee. Often agents won't consider contract or freelance workers but    they're high-earning professional people so they're reliable tenants.

Ten things to watch out for when buying a house

  For those in a position to buy, it may be a good time to take stock and start looking for those bargains that are no doubt out there."

Along with the need to factor in more interest rises, buyers need to consider carefully whether or not the house is right for them. Here are some tips to get you started.

CLOSE INSPECTION

A building inspection may cost about £350 for a four-bedroom home but could save you thousands. This type of inspection is a visual assessment of the condition of the property,  

 A building inspection can highlight illegal or dodgy renovations, leaking bathrooms, rising damp and problems concealed by paint or render.

Remember damage and structural problems are not covered by insurance and are expensive to repair, something worth considering if you are wavering on the inspection cost.

Also, when the market is running strongly and you're missing out on properties, the cost of several building inspections may seem excessive.

  It is always worth it when buying a home. Along with the building   inspection, don't forget to organise a solicitor to inspect the contract and carry out the necessary checks.

GOOD VIBRATIONS

Some people like their home to have the right feng shui for health, wealth and sound personal relationships.  . If you're not a feng shui fan, check the property is not overlooked and there are no privacy issues.

RESEARCH, RESEARCH

A lot of buyers are still uncertain of the value of the area where they are house hunting, Check them out on the net and look at price movements over a year to see if they are accelerating or slowing.

RIGHT ASPECT

The right aspect can enhance your enjoyment of your property: it can be warmer in winter, cooler in summer and the garden, decking or patio may be a place to retreat to rather than withdraw from,  

DUE DILIGENCE

You may be tired of pounding pavements every weekend but don't let that fatigue affect your due diligence, you must be sure you buy what you think you are buying.

Check surrounding properties, possibly that the vacant plot opposite could be owned by the electricity board and it will shortly become the area's newest electricity substation. It definitely pays to do your homework. It helps you to make an informed decision and puts you in a stronger bargaining position when it comes time to negotiate."

SOUND CHECK

  Visit the local council to check whether there are plans to widen roads, redirect traffic or build large developments that may create more sound. Also, visit the property at different times and talk to neighbours about noise issues. Find out if there are rowdy parties at nearby apartment blocks or if there are drag races on Friday nights.

CIRCLE THE PROPERTY

Start with a broader area then tighten the search circle. Look at transport options and community infrastructure such as medical facilities and access to schools then turn your attention to green spaces within a convenient walking distance where people can cycle or stroll, then seek galleries and libraries that add to the cultural capital of the area. As you close in on your search, check the streetscape: are houses set back at odd levels giving "a jagged-tooth effect" or are all the properties stepped back into a pleasing common line? "At any point where the property doesn't measure up, you move on," he says. "If you do it the other way around and fall in love with the house first, you may only make the occasional foray outward to look at things."