When it comes to property development, the importance of considering certain factors can’t be overstated. These considerations are critical in ensuring your project stays on track, on budget and delivers the results you expect.
We work with developers every day to help them navigate the complexities of property development and we’ve identified five key points that every developer must consider before kicking off a project. Here’s how to ensure your development is set up for success:
1. Project Overview: What's the plan?
Having a clear project overview is key for any successful property development. The type of project you're working on – whether it's co-living spaces, residential or a mixed-use development – and where it's located will have an impact on its success. It’s crucial to research the local market to make sure your development meets the needs of the area. This includes understanding the target audience, local property demand and potential challenges like planning regulations or infrastructure delays. By doing your homework early, you can avoid costly setbacks and set yourself up for a smoother, more profitable project.
Action: Regularly review similar projects in the area to ensure your pricing and design stay competitive, allowing you to adjust your plans if market conditions change.
2. Planning permission and ownership status
One of the most common challenges developers face is ensuring they have secured proper planning permission. If you don’t have this in place, your project could be delayed from the start. Also, make sure any pre-commencement conditions (like those related to environmental surveys) are dealt with early on, so you don’t hit unnecessary roadblocks before the project even begins.
Action: Engage with local planning authorities months in advance and create a realistic timeline that accounts for potential setbacks.
3. Financials: Purchase Price, Costs of works and GDV
The financials of your project, including the purchase price, cost of works and Gross Development Value (GDV), are vital. Underestimating costs or overestimating potential returns can sink a project. Be realistic about what you’re paying and how much work is involved. For instance, if you spend £200,000 on a property and £100,000 on refurbishments, but the GDV is only £350,000, you’re cutting it close once legal and selling fees are factored in. It’s critical that all financial calculations are grounded in the reality of the market.
Action: Build a detailed budget that includes all costs. Make sure your numbers are based on actual market data and keep reviewing them as the project moves forward to avoid any unexpected surprises.
4. Exit Strategy and Equity
A well-planned exit strategy is crucial for any successful property development, as it outlines how you’ll complete the project and release your original investment and profit. Without a clear exit plan, developers risk delays, increased costs and financial losses. Your exit strategy needs to fit within your project’s timeline and take into account current market conditions to ensure you meet loan repayments.
Action: Plan your exit strategy from the start, whether it’s selling, refinancing or renting and ensure it fits your timeline to avoid costly delays.
5. Communication is key
One of the most underestimated factors of a successful project is maintaining good communication with your lender. Keeping your lender informed throughout the project ensures everyone is aligned and you can receive the right support and guidance So, let them know about any hurdles you encounter, especially ones which are likely to cause delays.
Action: Schedule calls with your lender to keep an open line of communication from day one, providing regular updates on the project’s progress. This helps catch any potential issues early and ensures everyone stays on the same page, making it easier to address problems before they escalate.
Projects can run into serious problems or even fail due to inaccurate budgets, unrealistic timelines or unforeseen delays. When personal guarantees are involved, the risks are much higher as developers could face significant financial losses. That’s why it’s crucial to address these key details early on and ensure everything is carefully planned from the start.
At CrowdProperty, we are passionate about the projects we fund. We work closely with developers to help them navigate every opportunity and challenge and ensure a smooth, successful project. We provide realistic financial projections and are here to support you every step of the way.
Call us today on 020 3012 0166 to discuss any project you have in mind. We are happy to share our own experiences and expertise to help you evaluate and plan your project effectively.
Or apply for funding in just five minutes and get an instant Decision in Principle* today.
*Instant DIPs will not be issued for projects where the loan amount is greater than £3.5m (or £3m if bridging), the profit on cost is below 5%, the loan amount is less than £100k, the loan term is greater than 24 months, if any required data is omitted, or the loan type is portfolio acquisition, special situation, planning gain or project refinance.
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