Top 10 Questions to Ask Yourself Before Becoming a Property Developer
By David Master Rogers
Making the decision to become a professional property developer and invest in property is no easy step. Is it one that requires a lot of thought, consideration and time to ensure you are making the right decision.
If you too are struggling to decide if property development is the right route for you, then the following FAQ can help put all your concerns to rest:
1.What is property investment?
There are many misconceptions about property investment and what it exactly entails. The most common route you will encounter – and hear of – is renovation, where you buy a property with the purpose of doing it up and selling it.
However, whilst this niche was profitable during the property boom of 2007, this investment technique unfortunately is less effective during economic downturns. That is unless you have got the cash to turn the property around fast and quickly get it back on the market.
The other route however – and the one we recommend to you – is buy-to-let. With buy-to-let, you can invest in property based on the areas tenancy demand and ability to produce positive cash flows, and generate month on month incomes simply by leasing your property development to tenants. There is no need to sell…
2.What makes property investment different to stocks, bonds or shares?
The fact that it will never go into zero values! Although stocks, bonds and shares can help you to experience annual returns of up to 25%, they are also prone to dipping down to -8% leaving YOU out of pocket.
With property it is a much different story. Even in a recession, properties can still produce annual returns of up to 25% – if you invest correctly – making it a much safer, more stable investment route.
3.Do I need capital to invest?
No. Equip yourself with the right strategies, and it is possible to invest in property using little if any of your money and purchase properties without putting your own home at risk.
Investment strategies such as No Money Down or No Deposit Down are specifically designed to help you invest with minimal costs involved. All you will have to worry about is your legal fees and stamp duties; yet even then it is possible to negotiate such property discounts that your property will essentially pay for itself.
4.Do I need experience?
Despite what the media would like you to believe, you don’t have to have prior property investment experience to make a profit from property.
The key to achieving long term successful investments is to: equip your property portfolio with the right investment strategies; negotiate the right property price discounts, but more importantly ensure that you only invest in properties which can produce the positive cash flows and tenancy demand you need.
Attending a property development course can help to equip you with such investment strategies. Just make sure that you thoroughly research these property development courses first, check their history/case studies and only sign up to a course that can offer you at least 5 investment strategies.
REMEMBER: Not all investment strategies will work in all financial climates, which is why having plenty of choice can come in handy.
5.How do banks lend money for investment property?
Unlike applying for a mortgage where your lending amount is based on how much you earn, buy to let investment is assessed very differently.
Here, all lenders require is that your property is able to generate 125% of its mortgage repayments through buy to let. Meaning choose wisely and it is possible to invest in bigger and better properties, than you normally would be able to if it was based on your salary.
6.What are the best properties to invest in?
There is no fixed rule to this exactly, although residential properties do primarily win in the investment stakes against commercial property and land.
When you are researching potential property developments, the key points to take into consideration are the properties tenancy demand; the mortgages deals available and the positive cash the property can generate. As long as there is the demand and the property can produce at least �300 in positive cash flows, then it doesn’t matter if it is a terraced, semi-detached or detached.
This information aside, economic circumstances can make one property type more popular than the other. During the recession for example, studies found that tenants preferred living in terraced properties compared to all other property types because they were better designed and more energy efficient.
7.What is positive cash flow?
Positive cash essentially represents the income left over from a tenants rent after the properties mortgage repayments have been deducted. So, the larger the properties positive cash flow, the more profitable the property is.
8.Is it possible to invest in all financial climates?
Yes. If you are looking to enter specifically into the buy to let investment market, then with the right investment strategies, brokers and negotiating skills, it is possible to invest come property boom or economic crisis.
Take the recent recession. During the last 2 years we have been confronted with property price discounts of at least 20%; base rates of only 0.5% and a tenancy demand that has increased by 24% alone during the last quarter of 2009.
However, even with the property boom of 2007, property investment was still powerful asset as it encouraged rapid capital growth which in turn prompted rental increases and larger positive cash flows.
The financial climate does not have to play a factor in your decision to invest; only help you to determine which of your investment strategies will be most effective.
9.Is it possible to invest abroad?
Your property portfolio does not have to remain restricted within one city, region or country. UK, USA, Europe or Australia… with the right strategies all properties can be transformed into credible property lets.
The only thing you should be cautious about when investing abroad is familiarising yourself with their property laws and investment regulations. Every country is formatted using a different system, and will employ different methods for lending, organising repayments and structuring property leasing.
10.Do I have to give up my day job?
No, far from it. The great thing about property is that you can easily research, invest and build your property portfolio in your spare time – for as little as 1 hour property per week – and continue working your day job.
You can even employ a property manager to take care of your properties, and ensure that your rent; maintenance issues and tenant problems are quickly resolved without need for your assistance.