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Property Development: The New Buy-To-Let, Hands Free, Investment

by Nikki Dale -

The words “Property development” and “hands-free” generally don’t go together in the same sentence.  When I think of property development or becoming a property developer, I think of many plates spinning and multi-tasking.  However, like investors or entrepreneurs of any industry there’s always a number of approaches you can choose from.

There are many real estate sectors and property investments sectors, and within these are sub-sectors and even micro-sectors.

When Buy to Let became less desirable for many landlords and investors?

During 2016 and 2017 you didn’t need to be a savvy landlord to know and understand the wrath of regulations introduced by the government to “balance” the housing crisis.  It was one $h*!-sandwich for landlords after another.

So, what did property investors and landlords do to handle such changes?  They started to look at other ways & strategies of making money, such as property development or flipping.

Buy to let has not become non-viable for landlords and it is still very profitable for many.  It was just with the surge of new regulations and raised taxes, too much income was being consumed, meaning less profit and if that doesn’t fit into your business plan then you need to pivot.

The attraction and fundamental knowledge that property was the industry to make a great return and future growth, didn’t go anywhere.

View: One of the best hands-free, buy to let investments on the market 

Why Buy to Let became less desirable for many landlords and investors?

It became off-putting, and a deal-breaker for many, with the changes.

An extra 3% on stamp duty (SDLT) could throw up a barrier to entry on top of a 30% deposit – £60k – on a £200k property, and now £6k in SDLT + conveyance.

There was the slow withdrawal of tax relief, where landlords can no longer take finance costs into account when working taxable property profits.

And lastly, PRA Underwriting Buy to Let standards.  Far more in-depth affordability assessments were carried out on lending for 2nd homes, esp. if one had multiple buy to lets – business plans and portfolio schedules were being requested by some lenders.

One fact or factoid from this time was Mortgage approval (under this remit) dropped sharply by 27% back in 2017.

When you are a DIY landlord and you add into the mix the occasional void period while waiting for a new tenant, tenants paying late and maintenance call-outs – it can all start to feel more hassle than it’s worth.

Property Sub-sectors and Micro-sectors

These various difficulties over the years – with the no-mortgage-interest tax relief concluding in April 2020 – it has made investors look deeper and realise there is a broader picture to look at.

Property development has many sub and micro-sectors to explore, some are hassle free, and completely armchair investments, and like every investment, come with varying levels of risk to capital – but staying true to property, predict low volatility.

From one end of the scale to the other, what are investors “property development” options?

To make the shift, or even start off as a Property Developer / Property Entrepreneur, there are some tips and need-to-knows as you read on.

Firstly, here is a list of a few alternative buy to let options that are linked to property development, for the more hassle-free, hands-off investor or landlord looking to diversify.

  • Peer to Peer lending (P2P)
  • Crowdfunding
  • Property Loan Note 
  • Property Funds
  • Developer Finance
  • Debt Finance

READ ARTICLE: What are investors top 5 “property development” alternatives 

All these options that investors can also look into, offer great returns in some great projects, but the reason many of these products fall under the section 21 and need a registration for an individual to be a Restricted Investor at the very least, is because your money is not protected, and property loans, even when secured against assets, doesn’t provide full protection.

How would landlords/investors become property developers?

Property development started being ear-marked as the new buy-to-let back in 2017/2018, post the new regulations.  For some landlords turned property developer, it wasn’t such a huge jump to make.

Analysing the fundamentals of:

  • target market (research)
  • properties for your market,
  • funding options (self, bank, funds)
  • timescales (est.)
  • cost (refurb or construction)

Many landlords knew the market already, and the areas.  So, it was a case of being very clear on their own exit strategy: buy to sell (flip after a renovation) or buy to rent (not be contradictory, but depending the circumstances, it becomes a choice)

And beginners? Learn from a developer how to become a developer – proptech is here!  

There are a number of online courses for a beginner to become a property developer.  All these years where developers were thought to be quantity surveyors, contractors, builders by trade, with specific business and accounting skills.

Nope! These prop-tech /property developer courses advertised online, claim you don’t need to be clever (I’m not even kidding that’s what one of them said on their ad), you don’t need a degree or have your own money.

These courses will help and give you the know-how to become a successful developer and launch a project with however many million pound GDV, with a potentially eye-watering profit margin.

What you need to know about the property developer route

There is a key process to property development and quite a few acronyms to grasp.  The basic’s and what these courses will teach you are:

Sourcing and acquiring the site

  • Understanding what makes the project viable and whether it will get planning permission. What will it get planning permission for and what will that be worth?
  • There are different legal and buying structures to be explored and how the land ownership transfers to you from the landowner.

Financing the deal

  • Leveraging an increase in value of a parcel of land
  • Working with investors and joint venture partners
  • Understanding bridge or developer finance

Managing the property

  • Understanding whether to sell the land with planning permission for the increased value

OR

  • Build it out and sell the project or properties individually

Pro’s and Con’s of Property Development

Here’s the irony, landlords turned developers have the opposite effect on the housing crisis, where the government brought in deterrents for landlords, due to properties being snapped up every 6-months after releasing equity for the next deposit.  Landlords ethically help the cause by helping the housing deficit where there is a shortage, and at the same time it can supply local tradesman’s employment.

The con’s are more against your approach, if don’t have all your ducks in a row and a sound business plan after some very comprehensive research.  It’s a case of having a lot of patience to find the right project – new build or renovation – and a lot patience to see, what should be, a very rewarding return. Crunch the numbers, plan your budget well (allow +10%) and last but not least know your taxes.


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