How to get into property development

Most people arrive at development from property investment. They have bought a buy-to-let, perhaps refurbished one, and building something from scratch feels like the obvious next step. It is a good instinct — but the jump is bigger than it looks, and what catches people out is rarely what they were worried about. Here is how the route usually works, and what to get right.

The natural progression is buy-to-let, then light refurbishment, then heavier work, then ground-up. Each stage teaches you something the next one assumes you already know.

A light refurbishment — a kitchen and bathroom, perhaps a loft conversion — is where you learn to price work, manage a trade, and discover that everything takes a third longer than you were told. It is a cheap education. A ground-up scheme is an expensive one.

You do not need a decade of it. Two completed projects of your own, properly documented, are usually enough to have a serious conversation.

The most common reason a first development disappoints is not the build. It is the purchase.

Three rules worth holding to:

• Only buy with detailed planning already granted. Outline consent is not fundable, and a site with ‘potential’ is a gamble rather than a development.
• Check the pre-commencement conditions before you exchange. A permission that was implemented without discharging every condition first may not be valid at all — and that is discovered far too late, far too often.
• Understand what you are inheriting. Community infrastructure levy, section 106 obligations and overage on the title can run to six figures, and none of it appears on the sales particulars.

The appraisal decides whether the scheme is worth doing at all. Two figures matter more than the rest.

The two numbers to get right Insight

• Profit. We look for at least 15% profit against gross development value after finance costs. Treat that as a floor, not a target — anything thinner leaves no room for the thing that always happens.
• Build costs. Your build cost is not the builder’s quote. It has to include professional fees, warranties, community infrastructure levy and section 106, and a contingency of at least 10%. If those are not in your figure, your figure is wrong.

A development runs on four relationships: a broker who genuinely knows development lenders, a solicitor who does construction work rather than conveyancing, a monitoring surveyor, and a contractor you have checked out properly.

Line them up before you exchange. Every one of them takes longer to appoint than you expect, and a delay at the start compounds all the way through the programme.

This surprises first-time developers more than anything else.

You will get funding for the site on day one. The build money works differently — it is drawn in arrears, in stages, as work is completed and signed off. You pay for the work, then get reimbursed.

That means you need working capital of your own to carry each stage. A developer who has put every last pound into the site purchase will stall at the first drawdown. Plan for it, and borrow slightly less on day one if that is what it takes.

Sell or refinance — decide which, and stress-test it. If you are selling, what is the realistic sales period for that type of stock in that location? If refinancing, will the completed units actually support a term loan on the rent they will achieve?

An exit you have not tested is not an exit. It is a hope.

We fund ground-up development and heavy refurbishment from £50,000, with 100% of build costs alongside your own contribution, up to 70% of gross development value. We are comfortable looking at a first scheme where the site is right, the numbers stand up, and there is real experience behind you.

If you are weighing up a first project, speak to us before you exchange on a site. We would far rather tell you early that something does not work than watch you find out after you own it.

01244 565095 · underwriting@breezecapital.co.uk