What does a property developer do, and how much do they make?
Bridging Finance 4U is a buy-to-let mortgage and bridge loan provider. We are not financial advisors. Investors should seek professional advice. This content contains information that is accurate at the time of writing.
Property development projects, overseen by property developers, are the backbone of our built environment. They are the creative minds responsible for crafting everything from residential apartments to bustling office spaces. Yet, many are unfamiliar with these developers’ pivotal role in shaping our surroundings.
We have created this blog to help you learn everything about property development. We will examine the financial options available to prospective developers and the risks associated with property development.
What is a real estate developer, and what do they do?
What is a real estate developer? Property developers renovate existing homes or build new ones to sell for profit.
Most developers concentrate on one real estate market area when developing properties. It could be residential or commercial homes.
It’s not uncommon for these focus areas to overlap. For example, developers in the residential sector may add more commercial features, such as a shop, to their properties.
Why become a property developer?
What is a property developer? Before focusing on how to become a developer, buyers need to consider why they want to invest.
There are many reasons to become a property developer. The UK has a chronic shortage of residential property. Estimates place the required number of new homes to correct the undersupply at 500,000 annually until 2031.
In this way, property developers can help solve the housing crisis and ease the affordability crisis. According to Indeed, the average salary of a UK property developer is just below £40,000 per annum.
Anyone looking to enter the property development industry can do so, regardless of their experience. However, certain skills will be helpful.
What makes a property developer suitable?
For those wondering what a property developer is and how to get into this field, it is essential to look at the skills that may help them.
Property developers must be able to think creatively and outside the box. Proactivity and creativity are required to take a property project from conception through all stages of the process: design, approvals, financing, construction, marketing, and finally, the sale or letting of the project.
Furthermore, a property developer must possess a sound understanding of finance. The ability to secure funds for a project is paramount. Equally important is the skill to set property prices for either renting or selling, which necessitates financial acumen.
Developers can also benefit from legal knowledge of property and town planning laws.
As explained below, developers must coordinate with many people to ensure their development is successful. Therefore, project management and team leadership skills are essential.
Any property project, regardless of its scale, requires a healthy dose of patience and hard work. From the initial planning stages to the final sale or letting of the project, developers must be prepared to invest time and effort. This resilience is a key attribute for anyone considering a career in property development.
What projects would a property developer work on, and how can they add value to land and property?
What are property developers? Property developers can work on various projects, each adding value to the property or land.
A developer can renovate, redecorate, or extend a property to add value. This type of project is best suited to older, rundown properties that can be resold or used for buy-to-let.
A developer could also purchase undeveloped land and decide to build a residential or commercial building on it. The new property would add value when rented or sold. The developer could then refinance the land and recoup the initial investment with the value added by the new building.
Conversions of property are also a way to add value to your property. A large house, for example, could be divided into several flats to increase the number of homes that can be rented or sold. It could also happen in former commercial properties such as office buildings.
A developer could also buy the land for a property and then demolish it to make way for a new building. Thus, unsafe or ugly properties could be demolished to make way for more valuable new ones.
Who is a property developer likely to work with?
Recognizing the various skills required to be a successful property developer involves a variety of knowledge. For success, developers should consider assembling a team with the following individuals to design, manage, and coordinate the project, depending on the developer’s strengths and weaknesses.
• Planning consultant: Planning and permission application assistance.
• Architect: The responsibility for designing and planning the development construction.
• CGI Company: Visualizing the architects’ exterior and interior ideas.
• Quantity Surveyor: Quantity surveyors are key team members who calculate the costs and materials required to complete a project.
• Contractors: They are all involved in the construction of the house, from the plumbers to the builders.
• Accountant: Analyzing financial reports, tax returns, and budgets ensures efficient practices.
• Solicitor: It also provides legal advice. Helps with the sale of the projects.
• Professional snagging company: The development will be checked for errors before it is released to the market.
• Cleaning Company: Cleaning the property to prepare it for sale or rental.
• Estate Agent: Organises viewings, offers, and other potential buyer or tenant inquiries, as well as marketing the project.
This long list shows that project management and team coordination skills are essential for developers.
Does it pose a risk?
Assessing the associated risks before venturing into property development is crucial. These risks are particularly pronounced when property prices are directly tied to demand, as they fluctuate unpredictably.
Increases in interest rates, for example, can lead to an increase in holding costs. There is the risk that a developer will take out a low-interest loan and then be unable to meet their obligations if interest rates increase before they repay the loan.
The cost of materials or labor can also affect the construction price, putting a developer’s budget at risk.
A downturn in the property market is a significant risk to developers. Markets are cyclical, so even though they may have thrived at the beginning of a project, economic instabilities could have led to a decline or depressed prices.
What are the funding options for a property developer?
The financial market is flooded with a variety of financial products and loans. Knowing all available funding options is essential when deciding how to enter the property development industry.
• Bridge loans: Bridging loans are alternative financing that allows property investors to quickly and easily fund their residential or commercial investments. These short-term loans help bridge the gap in payments. Developers can use them to finance property purchases or renovations.
• Secured and unsecured loans: Secured loans allow developers to borrow funds while using their house as collateral. The lender can sell the home if the loan cannot be paid back. A secured loan is similar but does not use collateral. These loans usually have higher interest rates, and late payments can result in additional fees or damage the developer’s credit score.
• Loans for development exit: Developers can use development exit loans to pay back a loan to finance a project. This unique bridging product gives property developers the breathing room to find buyers or complete minor development work such as interior refurbishments.
How property developers can use bridging finance to their advantage
These finance products can be used to the advantage of developers. Developers can, for example, repay their loans as they sell each unit in a large development project, giving them greater control over their finances.
Bridging Loans London also allows developers to find buyers and acquire a long-term financial solution.
Developers can also wait for the perfect buyer to avoid lowering the property’s price and risk losing money. A bridging loan will allow you to avoid the rush to find a purchaser to meet an important deadline.
Developers do not need to pay for expensive finance extensions. They can take a second loan to avoid extending their original financial option.
Bridging Finance Solutions is proud to be able to assist developers and their brokers in making the most out of these bridging loans. To learn more about our expertise and products.