Developing property – whether that’s refurbishing a single house, or building a brand-new block of apartments – is an attractive income stream for many people. There are, however, a number of things to consider as a developer to make sure your properties are as attractive as possible to the people who will be purchasing it. It’s common for developers to build projects based on their personal preferences, whether that’s in the space provided for each unit, or in the finishing interior design touches. Our top tips will allow you to look at your development projects from a buyer and tenants perspective to ensure that your development is as attractive as possible to potential investors.
1. Know your rental yield and make sure it’s attractive
While it’s important as a developer to look for a good capital return on your properties, you won’t be able to sell them if your yields are too low. The property market, especially with Brexit coming ever closer, can be volatile and it’s important to have a clear rental yield strategy to ensure that you are getting enough back from your development, and setting out an attractive offer for investors. Most investors will be looking for a net rental yield of 6-7% for their investment (more for accommodation of multiple occupancy). Rental yield is calculated by measuring annual rental income against the value of the property, so it’s important to consider how much you plan on selling your units for in comparison to how much they will cost to build and how this will affect the rental yields you can offer.
2. Location, location, location…
This is a common phrase used in the property industry – and something that applies not only to home buyers looking to move, but also to developers looking to refurbish or build something new. Not only do you need to consider as a developer the locations that will be attractive to investors based on the current market, but also locations that will be attractive for the prospective tenants for your investors. A good developer can spot areas that are up-and-coming; these are commonly areas that have a number of developments planned or looking for permissions, or areas that will be seeing regeneration projects from government bodies in the future.
3. Tailor your development to the demand of the market
What was attractive a few years ago property wise is not necessarily attractive to investors and tenants today. It’s imperative as a developer to tailor your properties for the tenant market, not to what you want, or even to the preferences of your investors. It’s a common mistake made by inexperienced investors to buy what they like and not necessarily what will be desirable to their tenants, so making sure that your properties are tenant ready will make it easier to sell to good quality investors.
4. Consider where your funds will be coming from, and how much you need to put aside
While your development is being built, all of your allocated funds will be tied up in paying for your workforce until buyer’s deposits (if necessary) help to fund the build. It’s important, therefore, to make sure that you have allocated enough of your budget to the build, and are not forced to postpone the build while you wait for buyers. There are a number of ways to do this: either by saving enough money to fund the build yourself; by investing in a REIT; or by joining forces with other developers to sub-develop the properties. There are a number of outlets that can support you with advice on how to best fund your development and it’s important to get as much information and advice as possible before you start. Investors are more attracted to properties where they have to pay less deposit on exchange, and to developers who they have the confidence in that the build will be completed on time.