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Business
A property developer makes improvements of some kind to property, builds on land and thereby increasing its value. The developer may be an individual, but is more often a partnership, a Limited Company or a Public Limited Company.
There are two major categories of property development activity: land development and building development (also known as project development) the later being the most popular with the smaller developer.
Land developers typically acquire raw land (i.e real property with no improvements or infratucture) and improve it with utility connections, roads, etc. Building developers acquire raw land, improved land, and/or redevelopable property in order to construct building projects. The buildings are then sold entirely or in part to others, usually for a significant profit.
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This is all well and good but how does the small property developer get started?
Small projects, terraced properties, shops, small offices, buying property in auction, these are all areas that the small property developer can consider. There is an old saying that goes, "you should start in the area that you know best." The reasoning behind this is obvious, as the area will be known, prices will be easier to determine and profits can be readily calculated.
Cashflow is king for the property developer as capital should be available for the initial purchase, as well as the cost of improvements, purchase costs and sale costs.
Based on the assumption that the property developer was borrowing 75% of the property value for a three month period would reduce the profit margin to a net profit of between £6566 - £11,566.
This hypothetical situation shows that ideally the property developer is better off financing the scheme from their own funds but as well as this profits can still be earned even though the majority of the money is borrowed.
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