How to become a property developer in Exeter

With economic growth in Exeter increasing significantly in the last few years, supply and demand for housing has become unbalanced. While 76.87% of the required housing was built in 2022, Exeter is becoming one of the fastest-growing economies and could further reduce the amount of available housing. Could 1st-time property developers solve the problem?

Exeter's property market has grown notably, attracting developers and investors alike. With house prices increasing by 12.8% over the past year and rental values soaring by 85.6%, Exeter presents lucrative opportunities for those seeking high returns. This offers a promising opportunity for aspiring property developers in Exeter to enter the property market.

According to government calculations, 650 new homes must be built annually in Exeter to meet the current demand. Despite being further ahead than many other cities, it still fell short of this figure by 140 dwellings, 24.13% less than the required number. Also, out of the 510 built, only six were considered affordable housing, highlighting a potential area investors could explore.

Exeter has experienced a remarkable surge in its property market, with house prices witnessing a notable increase of 12.8%, over the past year, potentially indicating a robust upward trend.

Simultaneously, rental values have soared by a staggering 85.6%, presenting lucrative opportunities for investors and property developers seeking a good ROI. This strong growth trajectory in both house prices and rental values demonstrates the promising potential and attractiveness of Exeter's property market.

Exeter's impressive surge in house prices and rental values can be attributed to two key factors bolstering its property market. Firstly, Exeter has experienced robust economic growth, propelling it to the esteemed third position in PwC's Good Growth For Cities Index 2022.

Additionally, Exeter's reputation as a top-tier educational destination has contributed to the surge, with Exeter University being ranked as the second-best university in the UK in January 2023. The allure of quality education has drawn a significant number of students to the city, fueling demand for student accommodation and driving rental values higher.

The city's increase in young professionals has also sparked two new BTL (Build-To-Rent) ventures. Eutopia Homes and Housing Growth Partnership (HGP) have recently unveiled an exciting joint venture that marks a significant milestone in the build-to-rent market of Exeter. The collaboration between these entities will see the completion of two neighbouring build-to-rent schemes, boasting 144 units in the city.

New builds are necessary, and property flips could also solve the housing deficit. A recent survey conducted by Finbri, a UK bridging loan specialist, revealed that although 45% of property investors expressed an interest in investing in property in 2023, 12.99% of property flips occurred in the South West, compared to a higher percentage of 17.98 % in the South East, where properties were renovated and resold. Both seasoned and novice investors can pursue property flipping, an effective method of reintroducing housing stock into the market.

Essex offers a promising opportunity to meet the growing demand for housing by exploring Build-to-Rent developments or engaging in property flips.

Investing in property offers two key advantages that make it an appealing choice for investors looking to build wealth and generate consistent income. Firstly, there is the potential for capital appreciation. Over time, the value of your property assets can increase, resulting in significant financial gains. By adopting a property development strategy that involves acquiring properties for renovation or refurbishment and selling them at a profit, you can experience rapid capital appreciation. Property flipping, as it is commonly known, has proven to be a profitable practice. Bridging Market's 2022 survey shows over 50% of property flippers reported profits ranging from £10K to £50K, with only 1% experiencing losses.

Furthermore, investing in property offers the opportunity to generate rental income. By owning properties and renting them out to tenants, you can establish a reliable source of income. Recent research by Finbri indicates an increase in rental rates across the United Kingdom, with certain regions experiencing a significant upswing of 14.6% before September 2022. This trend is particularly evident outside of London, with Northern Ireland as a prime example. The data suggest a promising market for generating rental income and highlight potential opportunities beyond the metropolitan areas.

In summary, property investment provides the potential for capital appreciation and income generation, making it an attractive choice for investors looking to accumulate wealth and establish a consistent revenue stream.

How do you get started in property development for the first time?

Keeping things simple is the most effective way to achieve a substantial profit margin on your first property development project.

Taking up a simple property development project has various advantages:

Reduced Risk: It is less risky than complex projects.
Profitability: It still has the potential to make a good profit.
Manageable Learning Curve: It makes learning easier for newbies.
Convenient Financing: Financing is easier to obtain for simple projects.
Additional Opportunities: There are other opportunities in this space.
Cost Savings: If you have trade skills, you can save money by doing some work yourself.

Purchasing a property for renovation, either for sale or rental, is one of the most basic forms of property development.

First-time investors are sometimes drawn to run-down properties that require minor repairs and cosmetic improvements.

Residential homes are an excellent place to begin if you are new to property development. They capitalise on your existing home-buying and renovation expertise without requiring a particular understanding of the commercial, storage, office, or student housing markets.

Aim for a profit margin of at least 20% when embarking on a fix-and-flip project. Prepare to walk away if the margin falls short. Your purchase price determines your initial profit because you decide how much you pay, whereas the market controls the sale price.

Experts advise beginning developers on the following topics:

Every asset in real estate development has a "ceiling value," representing the highest price it can achieve in an open market sale.

Emerging Neighbourhoods: Instead of buying the worst property on the nicest street, look into the next emerging neighbourhood or street with promise.

Features that add value: According to estate agents, open-plan living areas generally raise property value more than adding extra rooms.

Planning for the Unexpected: Decide whether you want to sell or rent out your investment property right now, but also consider the alternative as a backup plan if your initial strategy fails.

If your investment property is being rented out

There are various techniques to consider when researching rental alternatives for your investment property. If you do not intend to keep the property, a buy-to-let mortgage is a standard way to fund the acquisition unless major structural renovations are required. The location of the property and the estimated rental income are essential factors in influencing your development decisions. For example, consider whether the house has enough bedrooms for families, young professionals, or students.

Renting to a single tenant, a couple, or a family

A single lease arrangement with one renter, a couple, or a family is a common alternative for new investors. This method allows your monthly rental income to cover your buy-to-let mortgage payments and additional administrative and maintenance costs, resulting in a profit. Managing a property with only one tenant reduces management costs, and the tenant is more likely to stay for an extended period of time, giving stability to your property.

However, knowing the possible danger of vacancy periods is critical since they can substantially influence your annual profitability. At the same time, the property is vacant and not generating money.

HMOs are multi-occupancy houses

Consider transforming the property into a House in Multiple Occupation (HMO) instead of renting to a single tenant. This entails renting out individual rooms within the building while offering all renters communal cooking, living and toilet amenities. Individually negotiated leases have the potential to enhance monthly rental income significantly.

However, it is essential to note that operating an HMO may incur additional costs for upkeep and management. Larger HMOs with five or more tenants can be more profitable but require more administration responsibilities. It's vital to remember that arranging necessary improvements and repairs can be more difficult in such circumstances. It's also worth noting that even if your HMO or Large HMO isn't complete, you can still earn a rental income.

Before beginning any HMO project, it is critical to properly examine and comprehend the local authorities' special regulations for planning and developing HMOs.

Understanding these regulations will help you navigate the process more efficiently.

If you sell the property after it has been renovated

Selling the house once it has been renovated is a possible alternative. However, if you intend to sell the property, you must be aware of the potential ramifications of long-term mortgage funding. Early repayment costs (ERFs) can have a major impact on your overall earnings, so you should be aware of their possible impact before deciding to pay off your mortgage early.

If you need rapid project funding, consider short-term capital solutions such as bridge financing or bridging loans. These loans have flexible payback terms, allowing you to repay the money as soon as your tasks are finished.

Here are the three critical phases that will determine your success.

To be a successful property developer, you must grasp three key phases: sourcing, feasibility, and planning; financing and exit strategy; construction, scheduling, and project management.

Sourcing, feasibility, and planning are all important considerations.

During the sourcing process, it's a good idea to find a home at the greatest feasible price and closely evaluate its possibilities. To become acquainted with the place you're considering investing in, conduct significant market research on local home price ceilings, rental rates, and emerging locations. Rather than buying the poorest property on the nicest street, look for a more reasonable house on an adjacent road that might appeal to potential buyers or renters.

The feasibility of your plan entails analysing its financial and practical viability. It's a good idea to examine the feasibility of several potential initiatives so you're ready to respond quickly when an opportunity occurs. Establish budgets for each component of the development project and investigate ways to finance them. Consider the following factors:

Surveyors' reports, architect services, and planning fees are all extra costs.
Deposit costs when purchasing a home
Mortgage or bridging finance fees to cover the remainder of the buying price
Stamp duty and conveyancing costs
Costs of construction, including labour, supplies, scaffolding, cranes, and cherry pickers
Whether you intend to sell or rent the house, 'dressing' it with basic furnishings might help you financially.
To avoid surprises, consider estate agency expenses, additional legal fees if selling, and potential personal tax responsibilities.
If you're new to property management, consider letting agent costs before entering the rental market.

A word of caution: tax implications differ when buying a property as an individual vs a property development corporation. It is best to consult with a financial specialist, such as a financial advisor or accountant, who understands each technique's current tax and cost implications.

Financing and exit planSecuring funding and devising an exit strategy is critical for any property development project. Traditional banks may not be able to provide the flexibility and attractive rates required for such projects; thus, using the services of an experienced finance broker is advised. To raise the necessary funds, a broker can investigate alternative funding possibilities, such as buy-to-let mortgages, bridging finance, development finance, or second charges. Understanding financing choices, associated fees, and loan criteria might help prevent long-term troubles. The Association of Bridging Loan Brokers & Lenders can give a credible list of bridge finance brokers and lenders.

A well-defined exit strategy is required to recover your investment and make a return. This plan may include selling or renting out the home while repaying the initial loan with a long-term mortgage.

Effective management and strict adherence to the schedule are required during the building phase. Delays might result in higher financing expenses, so maintain cautious planning and rigorous project management. Depending on the scope of the project and your knowledge of relevant trades, you can decide whether to hire a general contractor, a project manager, or self-manage.

It is prudent to take on only what you can adequately handle. Thorough planning, considering the necessary trades, potential scheduling conflicts, and the possibility of obtaining more talents, will assist you in staying within the given budget.

By considering these aspects and following a thorough strategy, you may successfully navigate the property development process, contribute to alleviating housing demand, and maximise your investment potential.

Building, scheduling, and project management

Construction, scheduling, and project management are all key factors that must be addressed.

First, you must successfully oversee the building process to ensure it stays on track and is completed within the specified time limit. Any delays will directly impact the finance charges you have budgeted for. Consider whether engaging a general contractor to oversee the numerous crafts is the best option or whether a project manager would be a better fit.

You can also oversee the work yourself, depending on the size of the project and your skill in the respective trades. Whatever method you choose, careful planning and project management are required to keep expenses within the budget.

Thorough planning for every facet of your development project can mean the difference between success and failure. Determine which trades will be involved and the likelihood of schedule issues due to overlapping work on-site. Consider whether there are any easy trades that you can upskill yourself to do, lowering the requirement for outside contractors. You can estimate the time required for each project phase by breaking it down into a thorough timetable for each type of project.

By combining these elements into your property development project, you can create a practical approach to contribute to addressing London's urgent housing demand, closing the gap of the missing 24.13% of required dwellings.