Here’s why small-scale property development shouldn’t scare you

Truth is, the world of ‘property development’ is a broader church than many might imagine. Sure, building a new housing estate may be beyond you, but could you manage a doer-upper, finding a tired two-up-two-down and giving it a new lease of life? In fact, many buy-to-let landlords do this by default. And then there are ‘flips’ – small projects where savvy DIYers and bargain hunters freshen up run-down homes and flip them on for a profit. That doesn’t sound too daunting, does it? Nothing like the same scale as your Barratts or Persimmons. Yet, interestingly, it all falls into the category of ‘property development’.

What is ‘small-scale’ property development?

So what exactly do we mean when we say ‘small-scale’? Well, typically, you’d be building somewhere between four and 20 flats and planning to make a minimum 20% margin on what you sell them for. As an example, let’s assume you started small and converted a small shop, office, or commercial building into four flats, which you then sold for £150,000 each – then you would expect to make a profit of £120,000. Not a bad return, and significantly more than you’d make from most flips. And if you did 12 flats based on the same numbers, you’d make £360,000, which, let’s face it, is probably a life-changing sum for most people.

How much work is involved?

That’s all very interesting, but how much work is involved? Surely small-scale developments must be more difficult than flips if they make more profit? Well, here’s where, to a large extent, the magic happens. As we’re going up a notch in terms of scale compared to flips, so there is more money involved. And because there’s more money involved, we as developers can afford two things that make it possible for many small-scale developers to oversee their projects in their spare time.

But surely it can’t be that easy? Well, consider the following statement: ‘Property developers don’t build houses’. On one level, it sounds ridiculous – surely only property developers build houses? But, of course, from a practical point of view, it’s entirely true. Architects, contractors, structural engineers and project managers build houses, along with a whole host of other sub-contractors and professionals. But the developer doesn’t lay a single brick or plumb in a single basin, personally. You don’t even have to choose the curtains. You simply appoint a team of professionals to work for you that already has years of experience and has built thousands of homes between them. Property development has to be one of the most highly leveraged professions in the world.

But there’s a reason why property developers take the lion’s share of the profit while everyone else gets a fee, and it’s primarily all about risk. There’s no getting away from it – property development has many moving parts and is inherently risky. But, if you get yourself educated, it’s possible to de-risk the development process significantly. It’s the people who ‘jump in and go for it’ who tend to come a-cropper. I’ve certainly trained many developers who had learned the hard way that they didn’t know what they didn’t know. But then, if you’re about to embark on an enterprise that can generate life-changing sums of money, you might think that getting educated first could be quite a good idea.

ABOUT THE AUTHOR

 Ritchie Clapson CEng MIStructE is co-founder of propertyCEO, a nationwide property development and training company that helps people create a successful property development business in their spare time. It makes use of students’ existing life skills while teaching them the property, business, and mindset knowledge they need to undertake small scale developments successfully, with the emphasis on utilising existing permitted development rights to minimise risk and maximise returns.

To find out more about propertyCEO, visit their website, Facebook page or Instagram