Truth is the world of ‘property development’ is a somewhat broader church than many might think. Sure, building a new housing estate may be beyond you, but could you manage a doer-upper, finding a tired two-up-two-down and giving it a new lease of life? Well, that might be a rather different kettle of fish. In fact, many buy-to-let landlords do this by default. And then there are ‘flips’; small projects where savvy DIYers and bargain hunters freshen up run-down homes and flip them on for a profit. That doesn’t sound too daunting, does it? Nothing like the same scale as your Barratts or Persimmons, yet interestingly it all falls into the category of ‘property development’.
The reality is that when it comes to being a property developer, the smaller end of the scale is a lot less scary than most people think. But here’s the thing; the absolute sweet spot in development is only one small step up from your flips and doer-uppers, and it’s an area that an increasing number of investors and landlords are moving into. Does it have a name? Welcome to the rather lucrative world of ‘small-scale property development’.
So what exactly do we mean when we say ‘small-scale’? Well, typically, you’d be building somewhere between 4 and 20 flats and planning to make a minimum 20% margin on what you sell them for. As an example, let’s assume you started small and converted a small shop, office, or commercial building into four flats which you then sold for £150,000 each, then you would expect to make a profit of £120,000. Not a bad return, and significantly more than you’d make from most flips. And if you did 12 flats based on the same numbers, you’d make £360,000, which, let’s face it, is probably a life-changing sum for most people. But in development terms, it’s relatively small beer. And where you’re building cheaper flats that cost only £75,000, then you’ll make half as much (or you could build twice as many) – you can do the math for wherever you live. Why is it so lucrative? Converting unloved commercial property into attractive residential units generates a significant premium, particularly in a market where so many owners of commercial properties are financially challenged. And in my 40 years’ experience, relatively few developers know how to convert properties well.