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You don't have to be a financial expert to understand why developing property has seen a huge increase in popularity. Over the last decade, property values have gone through the roof, with the average house in the UK now topping the £200,000 mark. There's rarely a week that goes by without media reports on the property boom, so for many, investing in bricks and mortar is extremely appealing.
For those who are keen on DIY, or want to escape their day job, renovating a house can help provide an outlet for creative urges, pent up after sitting in an office all day. And it is not as if the sector requires any particular training or qualifications and neither is there a strict template for success.
Rather than having to struggle through any bureaucracy to obtain licences, or cram hard to try and pass an exam, you are officially a property developer from the day you sell your first house for profit.
By working evenings and weekends it is perfectly possible to find a house, renovate it, and then sell it on within a six month time frame. However, the quicker you want to turn in a profit, the more time you will need to dedicate to it.
Most people know someone who, during the current boom in house prices, has made a small fortune. But anyone thinking about going into property development should not expect to see such massive returns continue into the future. Whilst analysts are constantly arguing about what's in store for the housing market, it seems unlikely that prices will continue to increase at such a rate - unless the average salary goes up by a considerable amount. Although you shouldn't let this put you off, more careful thought is required before purchasing that first property than you might have needed even a couple of years ago.
You buy as low as you can in order to achieve a profit, but you also have to be aware of the prices in that area, and find out what other developers are doing nearby. Again it all comes down a good knowledge of the market, which can only be achieved by research. Find out as much as you can from the internet, newspapers and estate agents themselves - don't just rely on watching the plethora of property programmes that currently appear to have a monopoly on daytime TV scheduling.
Despite the old story that no investment is as safe as bricks and mortar, like any new business venture there is still and genuine level of risk involved. Perhaps in the past few years becoming a property developer would practically guarantee a great return, but now it is no longer such a sure thing.
And unlike other businesses, in property development when things take a turn for the worse, there are very few ways to cut costs or reduce overheads. When times are hard you could be left with a house you cannot shift, fast decreasing in value
Another major downfall with becoming a developer is that you need money, and lots of it. The fact that house prices are at record levels means you'll sell for more, but it will also cost you more to buy. So unless you plan on investing a lot of time renovating a really run down property, a source of finance is a must. And because of such high prices, until you make your first sale it's often impossible to grow or expand.
You also have to consider stamp duty into your calculations when buying property. Any residential property costing more than £125,000 is subject to the tax. You will be charged 1% of the total value of the property for values between £125,000-250,000, 3% for £250,000-500,000 and 4% for anything over £500,000.
It's clear that becoming a property developer has the potential to lead to significant rewards, and with the right research and some level-headed judgement you could have the right foundations to build a strong business venture. But remember, in property development timing plays a huge part, and you need to be able to judge whether now is the right time for you.
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