Updated: Nov 23, 2021
Property development can seem so simple; you find a property, do it up and sell it. However, it can be a minefield for those who do not understand its dangers and/or are inexperienced in the field. Below are five common pitfalls of property development and how to avoid them, to find the best property investment deal for you.
Pitfall 1: Buying an overpriced property
This may come as an obvious mistake, but avoiding it may not be so simple. If you are not entirely up to scratch with the housing market fluctuations, knowing when a property is overpriced will not be easy. The risk of this means you will struggle to exit profitably no matter how well you execute the development.
Researching and speaking to the right people will give you a much clearer idea of whether the property you are thinking of buying is worth its asking price. And if you find out it is not, will you be able to negotiate its price to a more reasonable price or, even better, a below market value?
Pitfall 2: Not analysing comparables correctly
The second mistake is not using comparables accurately. For example, comparing a modernised flat with one that isn't, or comparing a flat with a short lease and one with a long lease. Instead of forcing the numbers to work, it is imperative to ensure accurate comparables.
Pitfall 3: Inaccurate estimation of the costs and time of refurbishment
Inaccurately estimating both, the costs and time it will take to complete a refurbishment properly, will lead to the project becoming unprofitable. Overdeveloping a property with finishes that are too expensive, will realistically mean the amount spent on the project is unlikely to be recovered. Furthermore, an underdeveloped property that has been finished up to a very cheap standard, will mean it will be unlikely to sell the property at a profitable price.
Pitfall 4: Ignoring your target buyers taste in design
The fourth mistake is developing your property to a taste that doesn't appeal to the buyer's market. It's essential to research and study what styles interest your property area's buyers, to appeal to their style. The refurbishment and interior design need to be sensitive to the demands of the buyer.
Pitfall 5: Not factoring in opportunity costs
Opportunity costs mean weighing up different property opportunities against each other. Although two property deals may give the same return on investment, knowing which to go for will mean taking in various factors, that may complicate a property development project. For example, one property requires a lease extension on top of the refurbishment works, whereas another will only require a refurbishment. Ensuring you consider factors such as lease extension will make a difference to the exit profit.
To avoid the pitfalls of property development, having an expert partner can mean saving money and time, whilst having the convenience and peace of mind knowing you have an experienced partner, that can grow your wealth. If you are interested in investing in Prime Central London, book a consultation with The Collaborative London, to learn more about how we can partner together. With our expertise and experience, we can make the property investment process simple, from purchase and refurbishment, to sale.