Do you have what it takes to go into property development?

Last updated: 26 August 2020

How to become a property developer

Property development is expensive, and unless you have money saved to cover all your costs, you'll need to borrow to pay for it. If you are thinking about how to get into property development, you could raise the money you need using:

• Bridging loans: This a loan you can use to buy a new property while you're waiting for other funds to come through, e.g. the sale of another property.

• Residential mortgages: If you're planning to live in the property you're developing, or want to sell it on, you can raise funds using a residential mortgage.

• Buy to let mortgages: If you're developing a property with the intention of renting it out when it's complete you'll need a buy to let mortgage.

• Commercial mortgages: You'll need a commercial mortgage if you're going to use the property for business purposes, e.g. as a shop.

• Unsecured loans: If you need extra funds you could use a personal loan, but only borrow what you need and always compare deals to find the best rate.

• Secured loans: If you need to borrow a large amount of money you could secure a loan against your home, but this can be expensive and your property is at risk if you can't keep up with repayments.

What does property development involve?

Property development means buying a property, developing it through renovation, then either selling it on for a profit or renting it out to tenants.

This can often involve buying a property that is cheap because it needs to be updated and renovated through new furnishings, repairs and maintenance.

Buying a property cheaply means that once you have injected new life into it, you should hopefully be able to sell it on for much more than you originally paid.

Why be a property developer?

One of the most appealing things about property development is that anyone can do it. You do not need any qualifications or training to get started. Anyone can become a property developer simply by buying a house then selling it on for a profit.

Plus if you get it right the financial rewards can be substantial, particularly when you start to build a portfolio of renovated property that has been sold on or rented out.

Read our guide on property investment to find out more about how to become a property developer.

What are the risks of property development?

It is not worth even considering how to get into property development unless you are in a very stable financial position.

Taking on a property to develop is a serious commitment, and if you get it wrong, you could end up in a lot of debt with a property you cannot shift, and even face losing your home.

What extra expenses should you expect?

Property development will almost always incur unforeseen costs, so you will need to set aside cash to make sure you are able to cope with them.

Simply buying a few furnishings from IKEA will not be enough to add much value to a property. You will also need to budget for:

• Hiring contractors

• Having a structural survey done

• Fees you may have to pay to external agents

• Structural issues like subsidence or even asbestos

• Maintenance and repairs

What if you have existing debt?

Property development involves the initial outlay of buying the property, then the significant expense of doing up that property and arranging for it to be sold or rented out.

If you have any debts or your daily finances are being squeezed, now is not the time to start thinking about how to be a property developer, as you will only plunge yourself into further debt.

Research properties before you buy

To give yourself the best chance of success at property development, you would have to know the market inside-out:

• Find out how much other properties go for in the area

• Decide on who your target buyer or tenant might be

• Find out about stamp duty

Buying an already built property is not the only way forward; here's how to work out whether building your own property could be a better option for you.

Alternatively, buying a repossessed property and renovating it could be your cheapest option.

What else should you consider?

Property development involves a significant amount of research and capital before you can get started, and will require a huge investment of both time and money.

If you decide it is for you, start off small with your first property, and only move on to bigger projects as you gain experience and confidence.

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