Top 10 Mistakes To Avoid As A Property Developer
As I continue my journey into property development, I’ve been looking into both successful (and unsuccessful) strategies to take. As far as the unsuccessful ones go, here is my own personal list of top 10 mistakes to avoid as a property developer.
Mistake 1) Making no plans to be tax efficient.
Tax can be a bit of minefield when it comes to being an amateur property developer. It’s very easy to fall into the trap of “just getting on with it”. Whilst the spirit is admirable. It can end up costing you thousands of pounds more than you need to be spending in unwanted tax bills.
Spend a bit of time getting familiar with the different types of tax that you need to consider in property (I have a helpful guide for beginners right here).
From there, you’ll need to think about what the best way to buy your houses are – under your own name, or as a limited company. I’m personally going for the limited company approach – I’ve outlined the reasons for this in my article: pros & cons, buying through a limited company. But, that doesn’t necessarily mean that’s the best option for you. Before making that decision I suggest speaking with a tax specialist. (I’ve got a few on my Twitter Account if you want some advice)
Finally, once you’ve made that decision.. Be tax efficient in your decisions, again – your tax specialist or accountant should be able to help you with that, but if you want a bit of reading material on the subject see my guide for minimising property tax implications.
Mistake 2) Not accounting for all the costs.
At first glance, most property opportunities can appear like a cash cow. Especially when you’re doing “back of a fag packet” calculations.
Come on, you all know you’ve done it at one point in time… “Right, if I buy this house for £150k, spend £10k renovating it, it’ll probably be worth £180k when I’m done… £20k profit right there.”
There’s a number of key figures missing from this calculation….
- Stamp duty
- Finance costs (interest)
- Broker fees
- Solicitor fees (buying & selling)
- Estate agent fees (selling)
- Utility bills for the duration
- Contingency money if something doesn’t quite go as planned
- Capital Gains / Corporation tax (depending on how you buy the property)
Each one of these things come with an additional cost you need to account for weighing up whether or not something will be a good investment. What if all these costs add up to an extra £15k for example? Well, suddenly that deal doesn’t sound as attractive does it?
Mistake 3) Buying in the wrong area.
Make sure you do your research into the area you’re buying in. Even if it’s the next town along and you’re fairly familiar with it. It’s always worth researching to find out if there’s something going on you don’t know about. Some examples of things to think about are listed below, but this list is far from exhaustive! Getting something on this list wrong can hit your margins, or in some instances – wipe them out completely! Do your research.
- Is the area at risk of flooding? With global warming we’re looking to be getting wetter winters increasing the risk factor tenfold.
- Are there any up and coming developments in the area?
- What are the local schools like?
- What about commuter links?
- Does the area fit your target market?
Mistake 4) No due diligence on your purchase.
Make sure you know what you’re buying and the work involved. Too many people end up buying properties they aren’t budgeted or resourced to handle. If you buy something like this you may end up costing yourself a fortune in additional bills that will eat into your margin. Worse than that, you might even run out of money completely!
Some common things to check for:
- Structural Issues
- Windows / Doors
- Water & Piping
- Utility Supply
- Japanese Knotweed
What you’re prepared to tackle is completely up to you. And just because a property has say for example, structural issues doesn’t mean you should avoid it entirely. Just make sure you know about it, you’re prepared, resourced and budgeted to handle it. Keep any hidden surprises to a minimum!
Mistake 5) Underestimating your timings.
How many property programmes do you watch on the TV where the investor waltzes into a property with a big cocky smile on his face… “Yeah we’ll be done in 3 months, then back on the market”.
If you pay close enough attention you can actually feel the camera man roll his eyes through the TV.
What always tends to happen?
“We returned to see this house a year later, so Mr. X, what happened to your original 3 month timescale?”
Don’t be one of those investors.
Mistake 6) Cutting too many corners.
This one tends to get done by your amateur DIY-ers. Not to say there’s anything wrong with doing it yourself. Heck, that’s exactly what I’ll be doing.
Just make sure that if you are doing the work yourself you know what you’re doing and most importantly – do it properly.
If in doubt, budget for some tradesman and hand the job over to a professional.
If you find yourself cutting corners at any point, stop there and grab yourself a cuppa. Give yourself a long hard look in the mirror, then get back to work. Properly.
You may think buyers won’t notice but trust me, they will.
Mistake 7) Spending money where you don’t have to.
In kind of the opposite point to the last one, a lot of investors take perfection to the nth degree. They spend far too much time (and money) getting everything perfect. Forking out for a £600 toilet where a £40 toilet would do.
Shop around and get a good deal, don’t just buy the first thing you see or speak to. An hour or so spent on Google should give you a good feel for the market, but it’s time worth spent as all the pounds and pennies will add up when it comes to selling.
Tiles – a great example of this. I’ll have to link out with pictures of my bathroom when I finish doing it. But I recently managed to save myself hundreds of pounds from about 30 minutes spent shopping around for tiles. And the one’s I’ve ended up buying? Look really smart and comparable to to the really premium up-market brands. (Although I’ll let you be the judge of that when I post up photos!)
Mistake 8) Renovating for yourself rather than your target market.
Put yourself in the shoes of your target market. What is it they would want from a house they’re buying? Consider this carefully before you make your renovation decisions.
Whatever you do, don’t fall into the trap of renovating to your own tastes. A lot of people think “Well, I like it… So everyone else should to”. Yes, there is some element of truth to that, but do yourself a favour and keep the garish extravagances to a minimum (I hate to say it, but they may be an acquired taste 😉 )
It’s not all about decor though. Consider fixtures and fittings for your target market to. So if for example you’re renovating a 3 bed semi, aimed at young families. Make sure you include a bathtub with overhead shower. Whilst you may prefer a walk in shower, young families with a baby won’t.
Mistake 9) Being afraid to ask for help.
Even experienced developers need help sometimes. Don’t be afraid to reach out and ask. Developing a property can be a bit of a minefield sometimes, it’s easy to fall into the trap of doing things in the wrong order, or spending too much time doing something wrong only to have to go back and undo it later.
I’m a firm believer that people are the most valuable resource someone can have. Everyone has a lesson to teach in one form or another – you just need to be able to put your pride aside and listen.
A helping hand here or there can really make all the difference to making property a success – or colossal failure. If you’ve read this far, I’m quite certain of which camp you’d rather fall in.
Mistake 10) Not “staging” your house.
Here we have it, the last, but not least of the top 10 mistakes to avoid as a property developer…. (Drum roll please)
There’s a reason why show homes have baskets of fake fruit in them. That’s because dressing your house ready to live in can really help buyers see themselves living there. It’s quite difficult to visualise your stuff in an empty room. But put some furniture in there ready? It makes it 10x easier. All the buyer needs to do is imagine their stuff in place of yours.
The jury is out on whether or not this makes a difference to prices, but it definitely helps with sale-ability.
Word of warning though, don’t overdo it. Make a place feel homely and not cluttered. Going too far the other way can have a negative impact.
And that’s your lot!
So there you have it, your top 10 mistakes to avoid as a property developer. Do your best to avoid them and I hope your next property ventures become successful ones!