To get into property development is an aim for a lot of us who are in the construction industry. Many of us would like to go into it at some point in our careers. I know that this was my personal experience, as my business grew I wanted to diversify and branch out. Not only can it be an interesting challenge, but it also is a great way of creating a pension for ourselves, investing in the future and retaining property.
But it can be difficult to know where to start and what you need to be aware of. I recently had a chat about this with my friend Bryn Little. Bryn and his family have been in the property development industry for 3 generations and have a deep knowledge of the highs and lows, hints and tips and potential pitfalls. Bryn has personally worked with hundreds of landowners and built over 3000 residential homes. He started in construction and had a good grounding in general contracting, experiencing all levels of the construction phase. When I spoke to him he had some valuable insight that I know will help anyone looking at this goal.
What’s the most difficult thing to get started with development?
Project development involves a lot of stages and they can all be difficult at times so it’s useful to divide the development process into seven stages. They are:
- Appraising opportunities
Bryn made the point that the hardest part is always the stage you are facing next. So it’s good to have a long term vision of how all of the stages of your development affect each other. As you move through the phases, the delivery of a scheme is key. If you can improve your skills at identifying and securing projects and then delivering what you say you will, the rest will fall into place.
Is Finance a big barrier? Is it available?
When it comes to the money behind development it’s helpful to have some skin in the game yourself, and having some money in the pot is useful. A lot of businesses are sitting on a bit of capital, and that can give you leverage. Plus if you can demonstrate you can deliver, this can open doors for funding from peer to peer lending.
Joint ventures and deal structures do have some risks, as there are a lot of moving parts and opinions. It’s like a relationship, and as things progress cracks can start to appear, it’s not often that joint ventures work out with no problems. If you are not sure you want the stress, funding partners and delivery partners can give you the perks without committing to a full joint venture.
Whatever route you choose, Bryn recommended having clear roles and responsibilities from the beginning. It’s important as investors often want different levels of involvement, so understanding that will go a long way to working out what will give everyone as close as possible to what they want.
What are the big mistakes?
I found it interesting that what Bryn has seen in his experience as being the biggest mistake is scaling up too quickly. People that fail in the industry scale up too quickly, they want to move quickly onto doing big projects. Ultimately when this happens they become overexposed to market movements and cash flow problems. One project can change your life, both for the positive and negative, so it’s important to understand and include that in your planning.
If you are thinking seriously about moving into property development I would recommend Bryns book: The Housebuilding Handbook. It looks a bit closer at those 7 stages we mentioned earlier and can help you with a basic understanding of the process. I spoke to Bryn as part of season 2 of my Develop your Construction Business Podcast which you can find here. Check it out for more interviews with industry experts and advice on how to help your business grow.