How small scale developers can avoid making mistakes
Some of the best homes are built by small scale developers but there are pitfalls for those who want to enter this business. Here Ritchie Clapson CEng MIStructE and property CEO, has some good advice.
He says: “Currently, there are plenty of opportunities to make significant profits from small-scale property development and barriers to entry are few, but it is very easy to make a mess of things. Avoid these mistakes:
“1. No training. I train a broad range of people, some of whom have already developed property before. Why do they decide to be trained after they’ve already started developing? It’s nearly always because they’ve found out the hard way that crossing a minefield is easier if you know where all the mines are. And in development, there are quite a few mines to look out for. Education comes at a price, but a lack of it usually ends up costing more.
“2. No brand. Imagine a new developer asking you to invest tens of thousands of pounds in their first development project, promising you a healthy 8-10 per cent return. They may have a friendly smile and a firm handshake, but what if they had no business card or even a business name? What if there was no website you could look at? If someone hasn’t invested in their own business, why should you?
“Branding is the first thing we teach people to get right because you need to have it in place before doing anything else. You only get one chance to make a first impression.
“3. No connections. More than half of all property development deals never come to the open market. For estate agents, selling properties on the open market is more expensive and timeconsuming than selling them off-market. Here’s what they do when they receive a new instruction: they get out their black book and ring round a handful of ‘hot’ buyers they know will be interested in the property.
If one of them bites, the agent doesn’t need to measure up or take photos, there are no emails and zero advertising fees. Just half a dozen calls and a handful of viewings, and the deal is potentially done within 24 hours.
“The best deals are being sold through the black book, and if you’re not in it, you’ll only see the deals that the hot buyers don’t want. That’s why you need to have great relationships with agents to ensure you get that early call.
“4. No delegation. I never manage my own projects, and neither should you. You hire a main contractor and a project manager. On a small-scale project, I would expect to spend on average around four to eight hours per week working on it and significantly less once the project starts on site.
“Too many new developers think that it would be a good idea to manage their projects. Or perhaps they know no better, having previously project managed a few flips or refurbs. It’s a terrible idea for the same reason I don’t lay my own bricks or do my own dentistry. Paying someone a lot more experienced and better qualified to do the job is the only way to go, plus it frees up time and reduces stress. Become the CEO of the project, not its operations manager.
“5.No accurate numbers. Even a small-scale development generate significant profits but even a simple spreadsheet error, pricing oversight, or miscalculation can dent your margins.”
■ Ritchie Clapson is a veteran property developer and cofounder of propertyCEO, www. propertyceo.co.uk