The YPN Guide To Small-Scale Property Development – Part 5 of 6
Many people have been attracted to small-scale property development by the prospect of six-figure returns, the low cost of entry, and the highly leveraged model that makes these projects a spare time enterprise.
In this fifth article in a series of six, Ritchie Clapson CEngMStructE, veteran property developer, industry author, commentator, and co-founder of the development training company propertyCEO, talks about how you can find a great first development project.
Property development is a highly leveraged business, but one critical job falls fairly and squarely on the developer’s shoulders: finding a deal. Let’s run through the key places where you should be looking.
Online property portals:
Modern property development can be a spare-time enterprise. Deal searching on Rightmove, Zoopla, Estates Gazette, and your local estate agents’ websites can be undertaken any time, day or night. Enter your search criteria, scan thousands of properties and plots, and register for free to save your searches and get alerts. On the downside, you’ll see the same opportunities as your competitors, plus the portals contain less than half of what’s actually for sale – and the best deals never appear, as I’ll explain.
Commercial agents:
These are your best bet for finding a project. Agents usually try to sell new deals to their list of ‘hot buyers’ first – people they know who are a good fit for the property. If the hot buyers don’t want it, the property will end up on the portals. So if you’re only looking at the portals, you’ll miss out on the best half of the deals. You need to create strong agent relationships so you get an early call. Systemise your engagement strategy, as it quickly becomes messy without a system. Don’t drop by the agent’s office unannounced; make an appointment.
And never arrange a viewing as an excuse to meet an agent – you’ll be wasting their time and denting your credibility too. Simply being on an agent’s database won’t secure you a hot buyer call. You’ll need to build rapport with them to be front of mind when an opportunity arises. Stay in touch regularly and cherry-pick agents you have the best connection with – don’t try to get on everyone’s hot buyer list.
Auctioneers:
Get yourself on local auctioneers’ mailing lists, so you receive a catalogue. Become familiar with the auction buying process using their online guides, and always have a dry-run visit before bidding in anger. Introduce yourself to the auctioneer, and never pay more than the ceiling price you’ve set yourself; it’s easy to get carried away. Sit on your hands if you have to.
Networking:
Tell everyone what you do and put yourself out there. Business networking can be particularly profitable as you’ll be in a room of business owners who will know other business owners – and most will own commercial property AND could have money to invest. Reaching ‘friends of friends’ gives you an exponential increase in your contacts, but be aware that people will also want to see your website to make sure you’re the real deal.
Direct to vendor:
This involves buying a property that isn’t currently on the market. Why would someone sell you a property that’s not for sale? Usually, it’s because you can offer them more money than their property is worth on the open market. A tired shop or office building might be worth £200k to someone looking to house their business. But because you can convert it into flats using permitted development rights, you can afford to pay them £300k. From their perspective, it’s a one-off opportunity for a cash windfall. There’s a knack to finding these properties and their owners and persuading them to sell. And you’ll have zero competition as it’s just you and the vendor.
Deal sourcers:
These people find you deals, with a fee payable if you buy. It’s like ‘direct to vendor’ but with someone else finding the vendor. A good sourcer will have fixed the price with the vendor and done some due diligence on the opportunity. You’ve no obligation to buy what they’re selling, but I wouldn’t make them your only deal-finding strategy.
So, how can you win a deal using these routes? You first need to look proceedable, where the vendor/agent has confidence that your sale will go through.
Look professional and get your branding/credibility sorted first. The second is to offer more than every other proceedable buyer looking at it. How can you do this?
- Find an off-market deal where you have an exclusive relationship with the vendor;
- Learn how to make more from developing the property than the other people looking at it so that you can pay more; or
- Be able to develop as cheaply as possible or reduce your target profit. You can then outbid your competitors, although any unexpected costs could leave you facing a loss.
Points one and two are great ways to secure deals, while the third should be avoided. Off-market deals include direct-to-vendor and the estate agent’s black book. To make more profit from a deal, get yourself educated. A commercial property’s value isn’t fixed; it depends on what the buyer can do with it. Get taught how to see the hidden opportunity in sites – there’s no rocket science involved and you won’t know what you don’t know. Finding deals involves hard work. Great deals don’t grow on trees – good news since it deters a lot of have-a-go developers.
So, that’s a few thoughts on where to find deals, and we’re now very much in the home straight. Next month, in the final article in this series, I’ll tell you some of the critical things you need to know to deliver your project successfully, on time, and on budget.