Property developer and podcaster, Rob Bence, advises on what's needed for undertaking a successful building development project.
Exploring a new House Planning Help construction project
For the last 6 years we have been following House Planning Help founder Ben Adam-Smith on his self build journey. Having completed this in 2018 Ben is now beginning a new chapter, to deliver a small scale development of high performance, ecological homes.
As with his self build, we'll be sharing the highs and lows right here on the podcast. So in today's session, we look at whether it would be a good idea to target our development at property investors.
Interview with Rob Bence
The Property Hub, that Rob Bence started with Rob Dix, has come a long way from its beginnings producing the weekly Property Podcast. By engaging with their listeners they built a website and forum where they could interact and learn what the needs of the community were, and build their business accordingly.
Being self-confessed control freaks has helped their business develop!
The first stage of their business was about sourcing properties, where they often worked with developers.
The natural next step was setting up a letting agency, enabling them to be in control of the service levels.
Feedback from the community was that they couldn't get good tax advice, so a tax business came next, with a mortgage service also later being brought in-house to ensure they had control over the process.
The development side was almost inevitable:
“And I think because we’re control freaks, we thought, we’re doing all of the other stuff. If we can build the product and then have it exactly as we want it and build it as we would choose, then we can control the whole process and the whole service journey from start to end.“
No property will appeal to all investors
Rob doesn't believe that building sustainable homes would appeal to all property investors, but some are becoming increasingly interested about offering a better service and product to their clients, rather than just being focused on yield. So while it may not yet be mainstream for a tenant, there is likely to be a greater demand from investors in the future.
Investors want hassle-free properties
Ultimately, investors want their properties to be let quickly, and with as few issues as possible. A well-built home should make the latter more achievable.
They also want the home to be desirable, so the periods where it is standing empty are kept to a minimum. And being a long-term investment, they are looking at capital growth.
Rob thinks that unique, sustainable homes that are built to a higher standard will perform better from a capital growth point of view than cheaply built homes that will start to look tired after only a few years.
Ask letting agents what typifies their best performing properties
As they're dealing with investors and tenants on a daily basis, letting agents are best placed to understand what makes a property desirable in their local area.
Often it might come down to proximity to schools, transport links, and other amenities more typically found in the city centre, but actually there is plenty of opportunity to build investment properties in the suburbs.
“When you look at the rental market in suburban areas where people do want to rent, it’s often people’s homes that they’ve moved out of. They’re not professional landlords, it’s just they’ve moved on. And often those properties are tired and dated, and I think there’s an opportunity for high quality new builds to really stand out.”
Alternative financing options may be better than banks
If you already have construction experience then peer-to-peer lending might be an option to finance the development. They like to see a track record, so at the very least work with a team of people who do have experience in order to build your track record another way. If it's your first project then rates might be a little higher, but they can be flexible, willing to lend and able to allocate the money quickly.
Beyond that, Rob suggests working with a finance broker (as opposed to a mortgage broker), and always going with recommendations wherever possible.
Rob advises trying either of these two options to finance the project, rather than using banks. He says banks may lend to you but will want so much security against the development that you may as well fund it yourself.
There are pros and cons to selling a development upfront
Rob thought that agreeing a price and selling developments upfront would impress lenders, but he says actually this is not something they are that concerned with.
What has worked well for them is getting their ‘exit' out of the way early in the process so they know they have the money.
What it does mean however is that you're locked into a price and could fall foul of rising build costs, or miss out on capital growth from market changes.
“So, it’s great and it’s nice from a security point of view, but there are some downsides. And you make a choice. You can sell them at the end and not have that security but then possibly get more of an uplift, or you can just lock-in today and know what you’re dealing with.”
It hasn't all been plain sailing for them so far
Property Hub Homes made a loss on their first development but were lucky their other businesses were doing well and could absorb that loss.
They found it a painful experience but learned valuable lessons. Rob says that while they made lots of mistakes, not having the right team of people on the project was the biggest. He recommends paying for the right people, even if they cost a bit more, because they can make the difference between a profit or a loss.
Scrutinise your budget and plans
If you work with a development financier or peer-to-peer lender, they will probably have their own quantity surveyor who will check your plan and figures and decide whether the project is viable, or whether you're just being overly optimistic!
If you want further reassurance, Rob suggests paying for an independent surveyor. The cost of a mistake or something priced incorrectly, could be more than covered by their fee.
Rob's main advice is to have your numbers checked right at the beginning and invite criticism and challenges to your plans, ideas and timeframes. Even if their responses may be disheartening, you should encourage them and investigate their validity. It will be a lot cheaper to investigate it before you get started than doing it later on.
Build a quality team
For those just starting out in development, Rob recommends forming a team that has a good estimator, quantity surveyor and someone good at procurement.
Their own projects these days are significantly larger and their team is now made up of a construction director, senior quantity surveyor, procurement/estimator, site manager and a land buyer. He says the size of team they currently have is probably overkill for what they need, but reflects where they want to be going and prepares them for bigger projects. As he says, the cost of getting it wrong can be so big that he considers the investment to be totally worthwhile.
Be clear on your outcome
Understanding what you want your outcome to be will help you make better decisions at the outset. With so many decisions that will need to be made, knowing what you want from your development will help make that process a lot easier. It will also help you judge at the end whether the project has been a success or not.
Don't go too crazy with your first development!
Rob says that you will learn the most from your first development; what you like and dislike about being a developer, what projects you might be willing to undertake, whether you have the right team, the right business angle, the right model, whether you're going after the right markets, etc.
“All those things you can have the answers in theory, but by being a practitioner, by actually doing it on whatever scale will help inform you and then guide you to make better choices moving on from there.”
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