Given that a small development scheme might still produce a six-figure profit, it’s an easy assumption. After all, surely developers need to sink some big bucks into their projects to get these sparkling returns? Surprisingly, small-scale property developers typically need a lot less cash behind them than other property investors such as landlords or flippers. And that’s because of two key reasons. Firstly, there’s a whole market of commercial lenders out there who specialise in development finance. They will typically lend developers (including first-time developers) up to 70% of the land/property purchase price, and then the same lender will also fund 100% of the development costs. The second reason is that these lenders allow developers to borrow much of their deposit from private investors (who are paid a handsome return for doing so). Lenders usually like the developer to have some skin in the game, but it’s typically a small fraction of the overall total. Compared to the average buy-to-let deposit, which is currently around £70k, small-scale developers are usually required to put in a far smaller amount of their own funds. So, yes, you need money to fund a development project, but most of it is someone else’s.
Now we come on to the property developer themselves. What sort of individual is likely to thrive in this domain? Only four fundamental skills are required in my opinion, and you must have all of them. But before I reveal what they are, it’s worth looking at the environment that small-scale developers have to operate in, as, again, it’s different from many people’s expectations. I mentioned that people who flip, refurbish, or otherwise do up a property inevitably manage those projects personally, if not get their hands dirty to keep down costs. With small-scale development, the development budget will be at least six figures which allows you to afford a professional project manager to oversee things on-site on your behalf. So, if you relished the thought of traipsing around your site every other day barking orders at tradespeople and taking your contractor to task about shoddy brickwork or wonky finials, then I’m afraid that a) you’ll be disappointed and b) you’re in the minority. Most people would reasonably prefer to be well out of the firing line when it comes to on-site critiquing simply because it’s an alien environment. How much more pleasant to have a project manager who knows all the tricks of the trade do your critiquing for you and to represent your interests. You’ll simply chat with them weekly, and they’ll bring you up to speed on progress and get any necessary input from you that they need. It’s a lot more civilised.