You think You’re Ready? You’re Probably Not – The Best Way to Grow!
For many people being a Property Developer is a way of achieving financial freedom. It is the route to success. When you are at a party and you tell someone that you work in property or real estate they automatically associate it with making ‘big’ money, especially if you follow up the answer more specifically identifying yourself as a ‘Property Developer’. In most instances one feels the confidence of making the claim because they have a buy-to-let portfolio of 3 or more properties having refurbished a few of them and have possibly bolstered their fearlessness having signed up to a property education course.
For many SME developers that are starting out the temptation of beginning your career with a 100+ unit £10million scheme is too great to turn down. The numbers on the spreadsheet are exhilarating. Trying to chase down a giant whale of a deal before you have grasped the small intricacies of what it means to be a fully-fledged property developer. The truth is approximately one third of developers go bankrupt at some time or other. The time, effort and expertise that most successful developers have invested in their own career path cannot be emulated in 1, 2 or even 3 property deals. The most successful developers will admit that each deal is slightly different, and you learn something new on each one. So starting small and gradually doing larger and larger deals/projects allows one to get the basics right each time. This will save you time, effort and money in the long run.
If you are passionate about making a career out of anything it is usually advisable to start at the bottom and work your way up. This enables you to learn the fundamentals, doing the smaller more (seemingly) menial tasks before you are forced to make the ‘big’ life changing decisions.
A number of successful developers we have come across over the decades have had a background in property through careers as an Estate Agent, Land Surveyor, Contractor, Architect, Property Lawyer, Finance Broker etc. Having a background in one or more of these closely associated fields can be part of that solid foundation. Combining that with relevant experience working with/alongside active developers will expose you to the right frame of mind and skillsets required as you embark upon your career as a developer.
Of course, even with zero experience you can always build an experienced team around you. This will usually be expensive as you need to share more of the pie with your colleagues and partners incentivising them to get the best result at each stage over the duration of the project. If you are realistic and willing to share the pie in the early stages and especially if you do not have any previous relevant experience to draw upon, this is a very sensible tactic to achieve faster progression in this industry. Word of warning though, with this route, the importance of sharing trust is at an all-time high. In Property Development there are daily decisions, assumptions and conclusions to be reached. Ultimately you will be required to rely on other people at all times to make big business decisions for you as you will not know the difference between what is right and what is wrong.
From identifying a potential site, to securing it with a land owner, to establishing the optimum planning permission and then orchestrating the actual construction followed by arguably the most important part, the exit whether you decide to sell it or keep it and rent it out, the process can be stressful and fraught with complications as you juggle the numerous variables and personalities involved along the way.
Underlying that whole process with lining up the correct and appropriate finance in conjunction is a tricky business. If you speak with enough honest successful developers, they will tell you they spent/wasted a lot of money in that journey along the way. Starting out small means the potential losses will be relatively microscopic rather than catastrophic.
Having said all this, I would encourage any developers that have invested the time doing smaller deals with GDVs closer to £1m and £2m to think slightly bigger and perhaps look at taking on a £3m maybe £4m or £6m projects. Once you have the foundations and experience, scaling up is a reasonable next step to take. If you are good at finding sites or have one that has fallen into your lap but need someone to help you unlock its real value, finding trustworthy established property professionals will be the key.
Overall, a shrewd and prudent approach should pay dividends in the long run. The Property business is commonly referred to as “a marathon, not a sprint”. If you are truly passionate about making it in the property industry as a property developer, the steady progression in most cases is the best way to grow.
This article was written by one of the attendees for the National Development Summit 2020