How to Become a Property Developer with Edward Sykes from Renovate Alerts
For today's article, Edward Sykes from Renovate Alerts gives his thoughts on how to become a property developer. It's not rocket science, but the phrase "fail to plan and you plan to fail" applies more to development and renovation projects than perhaps any other area in the property investment industry.
Introducing Edward Sykes from Renovate Alerts
There are many ways to make money in property and many different investment strategies you could follow.
We at Property Investments UK get emails all the time from investors asking for advice on which investment strategy to go for, or which to try first. After all, when it comes to strategy there are a lot of strategies to choose from - from serviced accommodation, buy-to-let, HMOs, property sourcing and below-market value property through to repossessions and property joint ventures.
And of course, the location is of paramount importance as well. People ask me Where should they invest (to which my answer, invariably, is that they should invest in Manchester and the North West).
One of my favourite investment strategies, however, is the classic buy-refurbish-sell strategy (better known as flipping). Flipping property is a great way for you to build up a healthy pot of funds and move up the property ladder. It is also one of the main entry points into working in property development.
But, it's not quite as simple as many of the TV programmes dedicated to it make it out to be and there are often pitfalls with this strategy that get overlooked. Becoming a successful property developer involves finding the right property deal, securing it at the right price and then project managing renovation work to keep the project on budget.
It's a lot of work and there is plenty that can go wrong if you aren't organised but don't fret, this is where we can help.
If you are looking to get into property development or want to know more about how to start property developing and flipping properties as soon as possible - or, if you just want to know a little bit more about the world of property renovations - then we hope we can help you on your way.
And to that end, I am very pleased to introduce to you Ed Sykes, co-founder of Renovate Alerts, who has kindly agreed to give us his candid take on getting started in property by becoming a property developer.
An Introduction to Property Development
- by Edward Sykes
Allow me to introduce myself. I’m Edward Sykes, one of the founders of Renovate Alerts, where we specialise in finding properties needing renovation for our subscribers.
At Renovate Alerts, we have recently celebrated our 10th anniversary, so we must be doing something right!
Our website has grown, simply because there is a scarcity of resources for people who are interested in finding properties that are suitable for renovation.
There are three of us who founded the company and we are all keen renovators. This really, is what inspired us to create our company.
How to Become a Property Developer
If you are prepared to put in the work, being a property developer can be very rewarding and can enable you to jump up the property ladder, a couple of rungs at a time. I have been doing this since 2000 and with my next purchase, I aim to be in the family house of my dreams, with no mortgage. Property nirvana indeed!
Being a property developer is a perfectly attainable goal for anyone with a bit of get up and go.
It is not rocket science but it does require resolve, perseverance, hard work and other boring but important qualities. Oh, and a bit of luck doesn’t go amiss.
So, the four things we are going to talk about in the first part of this guide are finance, understanding the local housing market, refurbishment costs and negotiation.
The first thing you have to do is work out your budget. How are you going to raise finance for the property? How much money can you get together for a deposit? How big a mortgage can you sustain?
You need to work out your budget for the renovation.
If you are anticipating knocking down walls and adding extensions, then you need to find a friendly builder and ask him for estimates.
Understanding the Local Housing Market
Next, you need to get to grips with the local housing market by researching market prices for your chosen area and you want to be getting to grips with local property styles, as well.
Zoopla is pretty much the king for pricing information, valuations and house price estimates, although there are other websites that will do just as well. However, nothing quite beats talking to local estate agents (on the ground). Their information could be more up-to-date and accurate than anything on the web and they will have personal insights into the market.
Use the web and use local knowledge TOGETHER to turbo-charge your search.
Time and effort are very worthwhile at this stage, so be sure to do your due diligence and remember, taking your time with research could save you from making a costly mistake.
You need to think hard about your estimated, renovation costs. Remember, these are more likely than not to increase.
I have hardly ever heard of anyone coming in under budget and it is wishful thinking if you think that you might. On my first renovation, I budgeted for £30,000 and ended up spending £80,000.
A hard lesson to learn!
Negotiating with Estate Agents
There is a lot involved when you're buying a house and have to deal with an estate agent. More than I can go into here. But, be aware that agents take a buyer with prepared finances more seriously than they do with buyers, who haven't got their finances in order, yet.
Even in a quiet market, they will have a list of people they will pick up the phone to first when a property comes on the market. They have their “hot buyers”. And this is what you want to be.
In all of this, the golden rule to remember is that your purchase price, plus renovation costs, should not exceed the ceiling price for the street. The ceiling price is the most any given property will ever sell for on a particular street, even with an amazing interior.
Finding A Property
There are many ways of finding a property and you need to deploy as many of them as you are able, to be sure of success. A handful, to get you started, are:
Love ‘em or hate ‘em, they are an indispensable part of the property buying process, and you would be a fool to ignore them entirely.
Local agents have supreme knowledge of the area and it is well worth getting them onside. Indeed, Kirsty and Phil (of Location, Location, Location TV fame) reckon that 50% of a successful property purchase is down to having friendly relations with the relevant estate agent.
They Hold The Power.
In truth, I have not tried using property auctions myself and have always been a bit scared of the bidding process. Also, you stand to get your fingers burnt, say, if you manage to buy a property with serious structural problems because you have not surveyed it beforehand. However, there are undoubted bargains to be found at property auctions, if you know what you are doing.
One tactic is to wait towards the end of an auction when most serious buyers will have already spent their money.
Of course, the Internet is a useful tool. Use it wisely and it is a massively powerful source of information that would otherwise be closed off to you.
Our website finds renovation opportunities across the UK at the rate of about 500 per day. We then collate this information and send it to our subscribers in a daily email.
To achieve the same results, manually, would take hours, so it is a useful timesaving device.
Private Sale Websites
Private sales websites are becoming increasingly prevalent and we run this function ourselves. However, they have yet to take off in a big way.
Property sourcing with leaflets is something my wife and I are considering ourselves.
Essentially, if you are particularly keen on a certain area with a few streets and there is nothing on the market, you can leaflet buildings you are interested in.
However, you may end up paying more as a result.
The Buying Process
Negotiating the right price for the house is key to the buying process and anyone who has watched The Apprentice will know that one of the core lessons is that it is easier to buy than it is to sell.
But in a rising market, the 'rulebook' seems to go out of the window and it’s easy to get carried away on price.
To counter this, have a clear idea of your budget – how much will everything cost? And, having added the value to the property, how much do you hope to sell for at the end of the project?
Build in a profit margin for accidents and do not exceed your buying budget unless you can afford to sit on the property until it is back in profit, should the market goes pear-shaped. And most importantly, make sure you commission a survey of the house you are buying.
The Three Types of Home Survey
From the cheapest and simplest to the more expensive and comprehensive, the three types of survey are:
- The Condition Report
- The Homebuyer Report
- The Building Survey Report
Money well spent if you do not want to be hit by any hidden surprises. Once you have found the right property for you, then take the leap of faith and JUMP!
The Renovation Process
The old saying “Fail to plan and you plan to fail” rings true here.
Do you know where each light switch is going to be placed? Do you know which lights it turns on? Do you know what the lights are (halogens / LEDs etc)? Do you know how much the switches cost and when they will arrive? You need to be on top of the project to this level of detail.
If you keep changing or adding to the plan, then the tradesmen will inevitably, and not unreasonably, keep adding to the price for the extra work involved.
The greatest amount of profit in a renovation is where you can add extra space to an existing house.
For example, converting a loft into an extra bedroom with an en-suite is one of the most cost-effective ways of making money out of a house. However, if you are carrying out structural work then you need to consider whether you are going to hire a project manager and/or an architect to supervise the works.
Or maybe, you are capable of carrying out this task yourself because, obviously, if you hire extra people, this represents an extra cost too. But one advantage of finding a project manager is that he will usually come with a roster of reliable tradesmen that he has used in the past. If not, you need to find this workforce for yourself.
There are now several “trusted tradesmen” type websites in existence (eg ratedpeople.com). Word to the wise, however, these websites can be far from foolproof. Before starting work you need to check you are complying with the relevant building and planning regulations and It is always worth a visit to your local council planning department.
My project manager was ex-army. His view was that once the plans are in place, there is no alternative but to “attack, attack, attack!” and stick at it until you’re done.
Sarah Beeny, the queen of renovators (bring back Property Ladder!), once said, “there are no guarantees in the property business. It’s not always a win-win situation, and I’m not sure it ever was.” Sage words, and worth bearing in mind to keep the cold towel of reality wrapped around your head. However, if you do your research properly, keep a tight grip on the finances, and put your heart and soul into the project, then you should come up smiling.
Good Luck And Just Go For It!