Many of us are tempted by the idea of buying a property, doing it up and selling it for a huge profit. Unfortunately, only a handful of property developers will ever get past their first investment and even less will create a successful career out of it.
Even in a rising market, it’s possible to lose large sums of money by falling into one of the many development traps. Here we explore some of the property pitfalls that can cost developers their life savings…
1. HEART OVER HEAD
Generally speaking, when buying a home for yourself, around 90% of your purchasing decision will be lead by your heart, and the rest by your head. However, when it comes to buying an investment property, it’s important to reverse this and lead with logic and analytical research, perhaps allowing only 10% of your decision to be driven by emotion.
Emotional connections can cloud your judgement and means you are more likely to over-capitalise on your purchase rather than negotiating the best possible price and outcome for your investment goals.
2. NOT KNOWING YOUR TARGET MARKET
You should consider your target buyers before you purchase the property.
As part of the assessment process, you need to think about who buys in the area – families, retired couples, first-time buyers, young professionals. These buyers all have very different needs when it comes to the fundamentals of the property – space, layout, design, location, levels of maintenance and so on.
You then need to ensure that you keep the target audience and their requirements at the forefront of your decision making throughout the project.
3. BUYING IN THE WRONG AREA
A great property in an undesirable area is unlikely to sell for a huge profit, no matter how much time, effort and money you invest in the quality of the renovation.
Property developers need to spend time analysing and researching potential development areas – amenities and schools, transport links and historical sale values. It’s then a case of waiting for properties in your target location to come to market (if they ever do).
It’s often considered to be easy to find high-rewarding development opportunities yourself; however you will be in competition with professionals whose job it is to hunt for profitable projects, day-in, day-out.
4. IMPULSIVE DECISION MAKING OR DITHERING
Property developers can be so keen to start making money that they often jump into a project, acting purely on impulse without a properly thought-out plan. They are in too much of a hurry to get started and so they neglect the preparation and planning stage – the most important stage of any property development. Timescales and budgets need to thoroughly mapped out to ensure the project stays on track and within the set budget at all times.
In contrast to this, there are also the over-cautious developers who read every book and attend every seminar, only to end up with information overload, unable or too afraid to act.
5. LACK OF CASH-FLOW MANAGEMENT
Understanding all of the costs involved in acquiring and holding property can be complicated, and specialist financial experts may need to review the anticipated costs to ensure the project is viable.
It’s easy to underestimate project costs and to only hold back minimal contingency funds, but by underestimating your expenses and overestimating your income, you’re like to come up against some nasty surprises. It’s important to examine each potential investment analytically and ensure you make adequate and realistic allowances for not only the costs, but also the time it will take to complete the project.
Costs will change as a project progresses, so set aside regular time to recalculate.
6. SELECTING THE WRONG CONTRACTORS
Choosing your contractors can be a tricky decision with significant consequences if you get it wrong.
To reduce exposure to risks and to try to prevent your costs from spiralling out of control, you’ll need a thorough grasp of the quote details – understand the terminology, request a complete breakdown of costs and establish what’s not included. Remember, the cheapest quote isn’t always the cheapest in the long-run, especially if there are hidden or extra costs involved.
7. POOR SPACE PLANNING
Adding bedrooms can add value to a property, but only when the quality of the space has been carefully considered. Buyers will be looking for quality, usable space rather than irrelevant box rooms. Time should be spent planning the space and the flow of rooms to create balance between the living and sleeping space.
Getting this right takes time, and getting it wrong could leave you with a house that simply isn’t right for your target audience.
8. CUTTING CORNERS
As tempting as it may be to buy the cheapest of everything, potential buyers will notice immediately if you’ve cut corners. Even if your budget is small, choose fixtures and fittings that will stand the test of time, because long term potential is a key factor in property selection and prospective purchasers will be put off by poor quality fittings and finishes.
9. GETTING PERSONAL
Over-the-top designs and inflicting your personal taste on a project can discourage potential buyers. You should aim for a clean, fresh finish keeping rooms as bright and light as possible. Whilst neutral may seem boring, it will allow potential buyers to see an opportunity to put their own mark on the design of the house.
10. SEEKING IMMEDIATE RESULTS
Understanding the property market takes time, yet property development is often regarded as a means to make money fast; a quick-fix to financial problems and a sure-fire route to early retirement. It’s most certainly not always that quick and easy to buy and sell property, especially if you are new to the industry.
Securing proven, high-potential property in the right area is the only way to ensure you make it to the top of the property ladder.
11. UNREALISTIC VALUATIONS
The standard advice to seek valuations from at least three estate agents. Out of the three, there’s likely to be one agent who values the property much higher than the others, and it’s probably just to win the instruction.
However, property developers often price their properties based on the amount they have spent on the refurbishment – and if costs have exceeded the budget, they will want to recoup as much as possible. But just because you have spent thousands, it doesn’t mean it’s added the same amount to the value of the house.
An unrealistic asking price will leave your home sitting unsold and this could cost you more money in the long-run as you continue to pay out holding costs until the sale completes.
At Hubb Property Group, we offer simple, hassle-free investment opportunities creating a unique opportunity to invest in property whilst taking advantage of our skills and experience to generate significant return on investments.
Investment opportunities start from just £10,000 for periods as short as six months up to five years.
If you’re interested in finding out more, contact us for an initial chat on +44 (0)117 422 0122 or email email@example.com