Borrower Tips
The freedom to be your own boss, no qualifications required and potential for impressive returns – it’s no wonder you’re wondering how to start property development.
Whether you want to ditch the day job and become a full-time property developer or simply want to test the waters with a quick fix and flip project, getting started is always the most daunting part.
This article outlines a step-by-step guide for beginning your first development project, from initial research to construction. We also cover how much money you might need, some development finance basics, and, most crucially, the common pitfalls to avoid for a successful outcome.
As with everything in life, the more information you’re armed with, the more chance of success you have, and starting property development is the same.
Which means research and plenty of it. This includes getting to know the market inside out, ascertaining construction and material costs, comparing all finance options and borrowing costs, and studying the professionals to work with those who best fit your project.
Then, it comes down to hard-core number crunching before creating a pitch-perfect presentation for lenders in order to secure funding.
We’ve laid out the phases involved, from property development to completion.
Let’s explore each in more detail.
Dig into your target property market. Some essentials to get to grips with include:
You’ll quickly ascertain what’s in demand and what’s in short supply. There’s no point in converting an old commercial premises into a luxury 5-bed home when the local market needs 1-bed flats.
Speaking to agents in your area is a great way to discover what’s most sought-after. They are the most accurate bell-weather for the current property market.
When you’ve got an idea of what you want to develop, it’s time to research development costs. That’s tricky when you don’t know your specific project, so now is the time to search for properties.
When starting property development with zero experience, sourcing the right property/site at the right price is no easy feat.
Savvy investors check the market daily and might have fostered relationships and networks that help them seize good opportunities before they come to market.
Property development for beginners is a bit different; typically, first-time developers cut their teeth on a run-down house or flat with a below-market value that reflects the work needed. It’s a great place to start, and crucially, it builds your CV to help convince lenders you’re a good fit for larger-scale development finance loans later down the track.
Your market research will have uncovered the ceiling price (maximum achievable price, regardless of quality fixtures and fittings) for the type of property you intend to develop.
Profit = GDV (Gross Development Value) - purchase price - finance costs - cost of works.
Always keep the ceiling price in mind when sourcing properties for development, don’t over-egg your GDV and eliminate any properties that don’t have at least a 20% profit margin. If you stray from your calculations, you will likely end up overpaying for your property/site
It’s always good to keep an eye out for areas under rejuvenation. Look out for government grants, new transport links, big investors coming in, and other signs of gentrification (a disconcerting word for some), such as new independent shops, cafes, and restaurants opening.
If you think you’ve found a viable property or site, it’s time to start number-crunching and bring all the elements of your development together.
At this point, you need to check your finance options and find out exactly how much you can borrow, how much it will cost, and if your deal still stacks against an actual development loan.
Brickflow enables you to do this in seconds. You can search for and compare loans from banks, non-banks, and specialist lenders, see exactly how much money you need to start your property development and avoid pursuing unviable projects. As a property development beginner, this is golden.
If the numbers stack up, outline your development plan in acute detail. A successful property developer will know their costs, more or less down to the last brick.
Once you’ve nailed down the details, start preparing your application to lenders. Consider it as a marketing brochure to sell your project. It should make lenders feel confident enough to lend to you (i.e. invest in your project), so it needs to be professional and comprehensive.
As a minimum, it should include:
Brickflow’s online Smart Appraisal(™) covers everything lenders need to know.
Property Schedule: A list of all properties being developed, including sq ft, no. bedrooms & bathrooms, sales prices, etc. Property development for beginners generally won’t involve multiple houses or units, but the same details for single units/houses should be presented.
Comparables: Include everything you learned during your market research.
Your Team: To become a property developer, you have to start somewhere. Working with the right team on your first project is key, and bringing in a team of professionals with relevant experience will help your application.
As mentioned, knowing your finances before committing to any site is key for any successful project.
The most common project for people starting in property development is a single property renovation or new build. For example, it might include an HMO conversion or dividing a property into flats.
These smaller types of development can be funded with either a refurbishment bridging loan or development finance.
Development finance is tailored specifically for ground-up developments, heavy refurbishment works and property conversions. The application process is complex, and if you submit your application to 10x lenders, you will receive 10x different loan offers back, with different rates, fees and maximum net loans.
All of which can have a HUGE impact on your deposit requirements.
On Brickflow, you can instantly compare live loans from 100+ lenders, including banks, non-banks and specialist lenders, to help you understand the variations.
A refurbishment bridging loan can fund smaller-scale projects that can be turned around in a short timeframe (typically within 12 months) and mostly no planning permission is required. They are also tailored to your project but can be arranged significantly quicker than development finance.
With both finance options, the overall funding of your project will typically include three elements:
A refurbishment bridging loan can be up to 75% LTV (loan to value) of the purchase price and up to 100% of the cost of the works. Development finance is structured similarly, though slightly more nuanced in how lenders calculate their maximum lending. However, with a good broker and the right lender, it is possible to secure 90% or more of the total project costs (LTC - loan to cost).
But here’s what you need to know - the cheapest rates don’t always equal the best deal. Sounds contrary, we know, but one of our core missions at Brickflow is to help borrowers understand that cheap development finance can be a false economy.
Capital is the lifeblood for anyone becoming a property developer, and if you can reduce your deposit input by tens or hundreds of thousands of pounds, you significantly increase your Return on Capital Employed (ROCE) and are free to invest elsewhere simultaneously.
When you’re simply wondering how to start in property development, understanding property development finance can seem impossibly difficult, but Brickflow is the quickest, most efficient way to get to grips with it.
Find out more about How to finance your property development.
If you’re opting for a ground-up build, conversion or other heavy refurbishment that involves structural changes, you will need to apply for planning permission. Even for experienced developers, this can be a long and arduous process. Bring in planning consultants to help you navigate the system.
A land bridging loan can help you maintain cash flow throughout.
With funding in place, you can start bringing your project to life. If you’re not working with a project manager, you must fulfil this role yourself.
Know the costs laid out in your development appraisal to ensure you stick to the budget. Likewise, know your build schedule and keep contractors on track to complete each phase as planned.
Lenders will monitor your progress, and funding can be withheld if construction isn’t progressing according to what was set out in your loan application.
For your first development, regular site visits are key. With more experience, you’ll gain more knowledge of your construction team.
This is a bit like asking how long is a piece of string? The cost of starting a property development project varies enormously depending on the scale and type of development.
You will almost always require a deposit, typically starting at 25% of the total project cost, but it can be less. You can supplement your deposit by taking additional mezzanine finance or partnering with investors.
As mentioned, development finance can be up to 90% loan to cost (LTC), depending on GDV, costs and day one lending caps. This varies with every lender and every project.
You can read more about how lenders determine their lending caps on our dedicated development finance page.
You will also have to factor in additional costs like legal fees, surveyor fees, and the interest on the loan.
Running your project numbers through Brickflow’s instant development finance calculator or bridging loan calculator is the fastest and most accurate way to know exactly how much money you will need to start your project.
Starting property development is different for everyone. It may be a strategic career move, or it may occur out of necessity. Due to affordability, many homeowners become property developers by buying a run-down property (below market value) in the area they want to live in.
A common way of starting property development is with a joint venture. This is where you partner with experienced developers and investors, sharing the risks and resources of the project.
The next logical step for property development for beginners is their own investment, taking hands-on involvement, relying on savings and navigating personal risk.
Brickflow’s key tips for succeeding in property development:
In our experience, the single biggest pitfall inexperienced (and experienced) property developers make is committing to a property or site before knowing their finances.
People typically underestimate the cost of their property development loan by tens of thousands of pounds, which can be the difference between a successful outcome and a failed project.
Underestimating finance costs means overestimating profit and consequently overpaying for the site. When you overpay for the land/property, making the project viable is very difficult.
Brickflow enables you to check your finances on every project before you commit. Model your deals against live loan options and instantly see what you can borrow and at what cost.
Compare rates, fees and deposit requirements from over 100 specialist lenders to find the best-fit loan for your project.
When you find the right deal, you can apply directly from the platform through your intermediary or a Brickflow broker partner and have a DIP back within minutes.
Becoming a property developer can offer plenty of rewards, but as we’ve discussed, it takes thorough research and careful planning, from understanding your target market to calculating development finance costs.
Knowing how to start property development and what’s involved at the initial stages can help you achieve your property investment goals.
Always model your deals against actual development finance refurbishment bridging loans to ensure they stack before taking the plunge. It’s the surest way to eliminate duff deals.
Run your numbers through Brickflow now.
Property development can be very profitable, but success depends on factors like location, market trends, and your ability to manage costs and timelines. While there's no guaranteed profit, careful planning, risk management, and expert advice can significantly increase your chances of achieving substantial returns.
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