A New Year's Resolution For SME Property Developers
A lot of people I meet think that being a property developer is a surefire way of achieving financial freedom. The Golden Key and the route to success. Social media gurus and self-proclaiming experts bombard us into believing this dream is only a “book your course” away.22 January 2020
A lot of people I meet think that being a property developer is a surefire way of achieving financial freedom. The Golden Key and the route to success. Social media gurus and self-proclaiming experts bombard us into believing this dream is only a “book your course” away. The dream can be hypnotic. And if you’re at a party and you tell someone you work in property they automatically associate it with making ‘big money’. Especially if you embellish your statement, identifying yourself more specifically as a ‘Property Developer’.
For many starting out, the temptation of beginning with a 100+ unit, £10million scheme is too great to turn down. The numbers look exhilarating. But chasing and nailing down a giant deal before grasping the intricacies of what it takes to be a fully-fledged property developer is a dangerous place to start. The truth is, more than a third of all developers go bankrupt at one time or another. Ninety per cent of the time it’s in the first year, and for eighty per cent of those that survive that first year, it comes within the following five years.
Expertise comes with the experience of time, effort and building a network of professionals. It cannot be emulated in one, two or even three property deals. Each deal is slightly different, and you learn something new every time. So start small and gradually build up to larger deals/projects that allow you to stay in business.
I never started out thinking I’d ever become a property developer, let alone providing real estate private equity. But, like much of what’s worthwhile in life, the best things just happen unexpectedly, often based on a fundamental need that requires satisfying. Thereafter, if you’re lucky, you build on those things step-by-step and grow. It’s those need-based journeys that evolve into lifetime passions because they’re not superficial desires driven by wannabe media hype. As a younger man I wanted a cool flat of my own. So I built one which ultimately I rented out…then another, and another. And over the next 18 years I’d developed a portfolio of commercial and retail space of well over 3.5m square feet. But the journey started with just one unit – because I wanted to live in my own place.
If you are passionate about building a career it’s usually advisable to start small and work your way up. Learn the fundamentals. Do the smaller, more (seemingly) menial tasks before you have to make the ‘big’ life-changing decisions.
Many successful property developers we have come across have backgrounds in associated fields. Estate Agents, Land Surveyors, Contractors, Architects, Property Lawyers, Finance Brokers…Such backgrounds can be part of a broader plan and a solid foundation from which to grow. Combining that with the relevant experience that comes from working with the right professional team can make a huge difference.
In the beginning, you may need to share more of the financial pie with your colleagues and partners – incentivising them to get the best result at each stage over the duration of the project. But at that stage it should about getting your machine to work, not about making money, that’s a bonus. Getting other people on-board is a very sensible approach when starting out. Even as you grow, there will be skill sets you don’t have, so it’s best to use the hard-earned experience of others rather than to chance-it yourself and gamble.
Heading into 2020 with a plan in hand, I would encourage any new property developers to start small and grow. For those who’ve already invested the time and effort and are doing smaller deals with GDVs closer to £1m-£2m, it’s time to start thinking slightly bigger. Build a better professional team, and perhaps look at taking on a £4m-£6m project. Once you have the foundations and experience, scaling up is the reasonable next step to take. If you’re good at finding sites or are lucky enough to have one fall into your lap but need someone to help you unlock its real value, finding trustworthy established property professionals is 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 as a property developer, a steady progression in most cases is the best way to grow. One step at a time.
This article appears in Qandor – the property professionals network focused on developments of over £1m. It also won “Best Blog’ category at the 2020 National Development Summit.