5 Tips Property Developers Need To Know About – Part 1

Starting this week, I’m giving some tips that I’ve picked up over the years as I’ve helped property developers arrange the finance they needed to carry out their projects.

These tips have been gleaned from working with 1000’s of property developers at ‘close hand’ and will not only help you secure the best funding solution for your next development but will also help you to negotiate the best possible deal.

This week, I’m giving you the first two tips and next week the other three, so here goes.

Tip 1:

Make valuation the ‘last piece of the jigsaw’.

Very often developers need to move quickly to secure a deal. However, in the rush to get finance, all too often, one of the first things they do is carry out a valuation.

Whilst valuations are an important component of any funding application, I usually make it one of the last things I do. Why?

Because lenders all have different requirements. They may want to instruct the valuation themselves, they will want to use a valuer from their own panel, and they may require certain additional information on which they will want the valuer to comment.

The result? If you’re not careful, you can spend time and money carrying out a valuation which you then aren’t able to use.

My advice? Get your funding arranged first, get a formal agreement from a lender. Then do the valuation.

Tip 2:

Always remember: ‘the profit is in the purchase price’.

What do I mean by that?

Developers often think that if they finish their development to a really high spec this enable them to get a better price when they come to sell.

Developers also think that if they save on build costs, often by ‘cutting corners’ then they will save money on development costs, thereby giving them a better profit when they eventually sell.

Whilst both of these assumptions are true, the reality is that the sale price is the sale price and tends to be driven by market forces. As a result, you’re not going to fundamentally sell the property for more than the market will allow.

Similarly, with build costs – they are what they are! Rates for contractors and sub-contractors don’t vary massively and the costs of materials are pretty much set.

However, the one thing you can control is how much you pay for the property. If you can negotiate a good purchase price – say £150,000 below the asking price – that £150,000 goes straight to the bottom line.

Now, I’m not saying don’t get the best possible sale price, or don’t negotiate a great deal on the development costs. But remember, on the purchase price – negotiate hard, get the best possible price and be prepared to walk away if you don’t get the price you’re looking for.

Three more property development tips next week.

In the meantime, if you need to raise finance for your next development project, and would like to speak to an expert to find out more, please give us a call on 020 8949 2122 or email us at keith.park@fundingtrack.com