Property development is a high-risk business. You must be confident that you can buy property below market rates and sell it at a time when demand is high and interest rates are low. To start a property development company, you must have the funds to invest in suitable property, good knowledge of the property market and the resources to develop properties.
Funding is essential to property development, according to research firm IBISWorld. Your initial capital requirements will depend on the area you plan to operate in, the level of work you plan to carry out and your target market. You will also require funds to open an office and hire any full- or part-time employees. To begin operations, you will need funds to buy properties when they become available, pay builders and contractors to carry out work, and cover insurance costs and interest payments until you can resell a property.
Unless you have the skills, knowledge and confidence to operate as a sole trader, you must build a team to support the business. Financial management skills are essential to your team. You need a professional with accounting or estimating experience in the construction industry to plan and control the costs of developing specific properties, including legal fees for buying and selling, labor, materials, professional services, and interest charges. A team member with real estate experience will help you identify development opportunities. A project manager or site manager with construction industry experience will help you plan developments and keep them on track.
Property development companies require insurance to cover a range of situations. Some developers may take out insurance to cover construction risks during redevelopment while others may require contractors to provide their own cover. Insurers that offer products for property developers may offer protection against loss of income or unforeseen costs due to delays in development or subsequent sale of the property.
To improve chances of success in property development, you must have a deep understanding of the sectors you operate in. You may choose to specialize in commercial or residential property or build a portfolio of properties for rent. Review research reports to identify growth sectors. A report such as PricewaterhouseCooper’s “Emerging Trends in Real Estate,” for example, highlights the changing housing preferences of the millennial generation or the growing importance of downtown developments that combine housing, retail, leisure and walk-to-work offices.
Before searching for properties and planning developments, you must have a clear picture of potential buyers. If you plan to develop residential properties, you may choose to focus on apartments for singles or homes for young married professionals, families or retired couples. If you are developing commercial property, you may focus on low-cost premises for start-ups, managed offices for small businesses or accommodation for companies in specific sectors such as technology or financial services. Those choices influence the locations you target and the level of development you carry out.
To carry out development, identify suppliers that can provide essential services. Depending on the level of development, you may need the services of architects or interior designers. Identify builders, plumbers, electricians and decorators who can deliver the quality of work you need. If you plan to furnish properties before a sale, look for furnishing companies that can offer quality and value.