How Do Property Developers Make Money?

Buying a residential property for renovation and disposal or sale is the most common form of property development undertaken by individuals. And when properly designed and implemented with the right property development finance in place, it can produce an amazing income!

The key to this, of course, is to ensure that the total amount you pay to purchase and improve the property (for example, making smart layout changes, updating fixtures and fittings, and restoring outdoor areas) is significantly lower than the figure you expect to receive when your fully renovated property is sold.

Within this, property developers make their money if they have the following basics covered: 

• The location of a property is everything – you can absolutely find the worst house possible on the best street possible, and if this is the case, then get those renovations started!
• Each property has a ceiling value (a maximum amount that is likely to be on the market) it’s a good idea to stick with renovating what you need to, try not to get carried away with over the top luxury upgrades.
• Cheaper materials are unlikely to add value, particularly in kitchens and bathrooms.
• If you are developing a variety of properties you can call on contacts and reliable bulk purchase discounts.

Boosting Your Development Profits

When you’re a veteran developer, you’re already ticking most of the boxes. Take a look at these six additional profit-enhancing tactics:

Be Smart About Development Finance

careful financial management is the key to making a profit, so a comprehensive development assessment (by working out how profitable the opportunity is and also how much you can afford to pay for the development site) is a key starting point. From here, choosing the right lender is vital – the wrong rate might see your profits plummet. High street banks generally mean high-interest rates, while real estate-focused lenders offer excellent flexibility and development finance rates. These can be difficult to locate, so let the construction finance broker handle complicated financial arrangements, land loans, and so on.

Capitalise on Commercial

Commercial properties typically provide greater square footage than their residential equivalent. They obviously provide more profit opportunity – the more units you fit into space, the more income you create. Can a factory in the up-and-coming area be converted into an industrial-style apartment for trendy tenants? Or the office building to student’s lodgings? Such conversions are often viewed favourably when it comes to planning permission, particularly if the property has been vacant for some time.

Be Creative

What about absolutely avoiding planning permission? If you already have a few properties, take a closer look at them. Could successful changes be made? Perhaps a layout could be reworked to fit in an extra rental space, or a garden could be landscaped to improve the appeal of a family home. A property loan will theoretically be needed so you can get in contact with your construction finance broker.

Build on What You Have – Literally

Looking at your current portfolio – or your own house – is there an additional property capacity? Securing planning permission on your own land might save you hundreds of thousands of pounds to make your project as successful as possible. You ‘re also likely to save time and money when it comes to connecting the new property. Don’t you know if you have space? A garden about three times the size of the property inside it could be built on without reducing its value.

Sell To The Big Players

High-profile developers are also searching for sites with planning approval, ready for potential development. But a seasoned property investor could beat them to sell them to them. Of course, you ‘re going to have to fall on an untapped opportunity or convince a landowner to sell to you. And it’s all about the long game, so you’ll need patience while you’re waiting for planning permission. It’s a risky strategy, but it might reap real benefits – selling land with planning permission is more lucrative than without it.

Get Ahead With Data Analysis

The property market is unpredictable and complicated – not suitable for making investment decisions that maximise profits. However, the data-driven market analysis gives you the ability to critically analyse where and when you can invest, as well as to forecast the accurate value of the assets. But, instead of relying on intuition or gut instinct, this advanced programme will evaluate locations based on crime rates, school scores or traffic congestion, for example. Predictive modelling also helps developers to predict potential tenants so that upgrades can be done with the target market in mind.

We hope you found this post useful, if you have specific questions leave them in a comment below or if you think we’ve missed anything tell us about it and we’ll try and add those things into the blog for you. If you would like to read more on property development then take a look at the rest of our property blogs.