With an increasing number of people now disillusioned with pensions, more people are investing in property or becoming property developers. Here is an overview of what it takes to become a property developer.

Developing an investment strategy

Investing in residential property can be a highly profitable venture, but there are risks! Investors need to develop an investment strategy before buying property. A property developer's plan would cover:

1. Where to invest
2. What property to buy
3. Short or long term investment plan
4. Clear financial objectives

1. Where to invest?

   Where property investors and developers choose to buy will be determined by their investment plan and indeed by how much they can afford to spend.

   Established property investors and developers often invest their money in primary locations such as fashionable Mayfair, Belgravia and Knightsbridge, underpinning much of London's top-end residential market.

   Prospective developers on the other hand will typically look to identify the next big opportunity, by speculatively investing in areas which have been identified as having the capacity for regeneration.

   There are a number of areas across London which are currently undergoing a series of marked improvements, including Stratford, Dalston, Ealing, Canary Wharf, Thames Gateway and much of the Docklands, while preparation for the 2012 Olympic Games is driving regeneration in the east of the Capital. Four of the top regeneration hotspots of recent times include King's Cross, Battersea, Greenwich and Wembley.

   The primary objective of any regeneration scheme is to attract fresh investment and enhance the image of an area. This can be through the integration of a range of significant improvements, including the implementation of new infrastructure, housing, amenities, new jobs and better transport links, all of which can boost the local economy. While some planned projects will contain more imaginative and radical proposals than others, local house prices should generally appreciate on the back of any unified vision to positively improve an area and potentially enjoy above average market growth.

   However, investors should allow time for an area to mature and come to fruition in order to fully realise their investment and benefit from long term capital gains.

2. What property to buy?

   In advance or 'off plan' - Sometimes investors will pick up some 25-75% of a development before the show flat has even been built. Such property investors aim to get in early to pick off the best units and it is not uncommon for this to happen around 18-24 months before completion of the development takes place. Find a new development.

   In bulk - Investors hope that the more they buy in one go, then the more they save. Some professional investors prefer to take small portfolios in one development, whereas others prefer to diversify the type of property they buy as well as where they buy. Find a new development.

   In areas they feel are due to grow - A classic example at the moment are areas affected by the 2012 Olympics which are receiving a lot of media attention due to the improvements in transport and regeneration of the area. However, this is not always the view held by every investor - many established institutions and rental investors chose to buy where they have good local knowledge or where they feel the area is established with a well developed rental market e.g. Kensington & Chelsea. Search for a property.

   Unmodernised properties - In the hope that they can replicate their 'ideal' rental formula and create the perfect lettings flat that will never suffer void periods. Property developers also perceive that as they are modernising the property themselves they therefore know their own portfolio inside out. Search for property with development potential.

   New build developments - Investors often enjoy the peace of mind that buying a unit with a NHBC or similar insurance can give them. It also enables them to start marketing their units prior to actually starting to pay their mortgage and incurring holding costs. This is often a focal point for overseas buyers. Search for New Home.

   Tenants in situ - Investors want to maximize their rent and minimize their void periods. The epitome of this is buying single units or portfolios with tenants already in situ. The advantages are that you know who your tenant is in advance as well as how much they are paying, when they plan to leave and ultimately the rental yield from day one. Search for a property or contact Foxtons Investments about investment portfolios.

3. Short or long term investment plan?

   Some investors prefer to buy property off-plan; many do so in the hope of benefiting from capital growth during the construction period. Some early-bird investors, who buy off-plan during the earliest phases of planning and construction, sometimes intend on securing a short term profit by re-selling or 'flipping' their investment prior to the completion of the development.

   More serious long term investors, however, will take a medium to long term investment view by holding onto their residential stock as part of a property portfolio.

4. Clear financial objectives

   Professional investors tend to concentrate more on capital growth rather than straight rental yield.

   It is not uncommon, therefore, that some buy-to-let investors are prepared to buy properties that will give back little or no monthly yield.

   

   Alexander Hall Mortgages can help if you want to know:

   • How much a property will cost you on a monthly basis
   • How much you can borrow to finance an investment purchase
   • How much you can borrow for a buy to let
   • How much rent to charge

   Alexander Hall offers simple, impartial financial advice as well as the latest buy to let mortgage deals.

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