Property development and real estate may have produced more wealth than any other industry, but most people are still sceptical about entering the market. Getting into the real estate industry has real appeal if you are willing to get a good return on your investment. That is because the demand from property investors, developers and homeowners continues to grow and supply isn’t sufficient.
Investing in property development has clearly two distinct advantages if you are willing to enter into the fray:
Income generation – If you rent out the property, you gain a steady flow of rental income from tenants.
Capital appreciation – The value of property rises over time. Hence, the longer you hold the property, the higher the price value you can expect to receive.
How Do I Get Started in the Real Estate Industry for the First Time?
The real estate industry offers lucrative opportunities, but in order to yield rewards, these projects require excessive funds, planning and risk assessment. One of the reasons most people cannot break into property development is a lack of sufficient funds.
While there are many financial instruments available, property development finance in London is one of the most suitable financial products to raise funds. However, property development finance lenders prefer to lend only to experienced developers with a history of delivering successful projects. They want assurance that the developer has the capability and experience to deliver profitable projects. A developer’s successful track record demonstrates their ability to meet deadlines, control costs and manage contracts, which is crucial for a lender’s confidence.
If you are eager to enter into the property development market, but don’t have any past projects to prove your proficiency, here are 5 proven ways you can build your portfolio and make a good profit with property development.
1 Purchase a property and let out to long-term residential tenants
One of the most common ways to make money in the UK property market is to indulge in buying and holding residential rentals. The UK’s population is brimming, and people are always looking for a space to live, and the most suitable option for them is to go with rental properties.
When you look out for a potential investment property, make sure you keep the location in mind because the location is everything in real estate. A great location will not only increase your property’s value over time, but it will also help you find tenants quickly. Even if you find a run-down property in a great location, don’t hesitate to buy it.
When your property is ready for letting out, try finding a single, couple or a group of family tenants. Monthly rental income will pay off maintenance and other costs while giving you some profit. A buy-to-let mortgage can be useful to fund the purchase, while you use your monthly rental income to pay the buy-to-let mortgage.
2 Purchase a run-down property, renovate and sell it
The tradition of home-renovation flips has exploded. While there can certainly be more profit to be made there, but going through the process, in the beginning, can be tricky. If you pick the wrong home, you could easily find yourself on the losing end.
A good rule of thumb should be going for the ugliest properties in the nicest neighbourhoods. If you are planning to sell the renovated property, then you must pay attention to the ‘ceiling value’ – the highest amount the property can be sold for. Your profit is decided right at the beginning based on the purchase price and the market will decide the sale price. Hence, make sure you do renovation work keeping the sale price in mind, and the renovation cost doesn’t go above the ceiling.
Since you will be selling the home after the renovation, you will require funds for the short term. In this situation, property development finance is the right choice to fund your project as it is the quickest way to raise funds for the short term. After you successfully renovate and sell the property, the development bridging finance London will be repaid and you will earn your reward.
3 Contract flipping
Another great way to make money from real estate without putting in a large amount of money or capital is to indulge in contract flipping. All you need to do is find a distressed seller and a keen buyer and bring them together. This may involve excessive efforts and risk, but you will be able to make a great profit without investing any or little money.
The idea is to find homes that are vacant or behind on their mortgages. Get in touch with the owners and get to know about their intentions with the property. Determine the value of the potential property and make sure the home you secure is below the market value. Write a contract that clearly mentions the rights and responsibilities of both the seller and buyer.
Now, start looking for buyers who are willing to purchase a property. To find cash buyers, try connecting with local real estate agents, list down the property on online real estate portals and call potential buyers directly from your existing list to see if they are interested. Once the seller and buyer have entered into a contract, the deed will be recorded and you will get paid.
4 Lease options
Leasing a property can be a great way to get involved in real estate without having to invest a significant amount of money or even without having a great credit history. When you lease with an option to buy later, you can complete the purchase at a lower price after the lease ends, even if the price rises. This tends to work well when the housing market is rising because you create a pre-defined price at which you can purchase the property later. If the property market mounts considerably, you can buy that property at a discounted price. You could also choose to sell rights for that purchase to someone else.
A lease option agreement can be of two parts – property lease and option clause. Property lease enables you to lease the property for a monthly fee, which in turn gives you the right to rent out the property and make a profit from the rental income. Option clause refers to a part of the contract where you and the owner agree upon the price you can buy the property in the future. However, you are not obligated to purchase the property as the agreement only gives you the ‘option’ to buy.
5 Buy a commercial property and rent it out
Commercial properties can be a great source of income that can help you make a substantial amount of money. Commercial property is any building that can be used for business purposes – anything from office space to warehouses. Business owners and enterprises are always looking for retail and office space to operate their businesses. These physical locations are their bread and butter.
You not only can involve in property flipping, but also in developing them and increasing their value through upgrades and renovation. As long as you keep adding value to the exchange, your commercial property can be one of the biggest income generators.
Find the right finance solution for your real estate venture
Finding the right finance solution is crucial for these proven strategies to work and make money in the real estate industry. The finance for real estate development industry calls for unique financial needs, and only an expert financial advisor can finesse your application and help find favourable terms. He will work with private lenders, banks and specialist institutions in order to help you secure the best available finance deal. However, the simplest way to make money in real estate is to buy a property and make a profit through capital appreciation.