An understating of construction can be vitally important in a career as a property developer as this is an area where costs and time can run away if not carefully monitored. Don't be caught in the trap however of becoming a builder – learn about different trades, timescales and costs but remember that a developer’s job is finding deals and not working on sites. All time kept away from deal finding and monitoring will mean huge gaps in income that will continually increase.
Residential property development can be very profitable, however equally costly if not approached with vigilance. In this blog series over the coming weeks, we reveal our 15 key lessons that are the result of experiences in the recent past. These lessons have been learned the hard way, sharing our experiences so you don’t have to make these same mistakes. Hard work, determination and the sqft.capital deal modelling tool coupled with these rules to live by will lead to that long and profitable property development career you dreamt of.
First things first - you will not make money by saving money.
Many an early developer will be seen in their lawn-mowing attire, recently adorned with plaster and paint scuffs representing the uniform of their new-found profession. This is a common occurrence with first developments as the concept that being on site will both save money and keep the builders honest - and the recently acquired accoutrements feel more refreshing and involved to the two-piece suit that has clothed them during all working hours since starting employment.
The more time spent on site, the more problems will become visible, keeping you sure to spend more time still on site to keep an eye on progress. As a developer, your full time job is finding deals - this takes hours and hours each week. Once a deal is found and into build - it’s not going to make any more money. It should come out near where you projected except for any overseen (and inevitable) overspends and possibly market movement. Generally, these things are out of our zone of control so your time spent on site is encouraging you to major in minor aspects.
Yes, builders will screw up, are late, don’t turn up etc., but this makes such a marginal difference to your whole development that your time is wasted trying to minimise loss - so spend it maximising gain. Once you have lost a few potential deals, it should become apparent just how much work you have to do to find another one and how long the lead time is from first seeing it, actually exchanging on it, getting it built and actually sold - as such, the moment work starts on site, get the hell out!
Pontification over; there is value in spending a certain amount of time each week (especially early on) visiting site. Its useful to know how trades work - spend time talking to them, it will help you understand what works will be done, feasibility and costs on your future projects. Spend one to two hours per week on site with the foreman checking progress - always take notes and confirm with him what is happening and when. Ideally, once work starts there are two areas of focus (perhaps 3 if you do a “design and build” as you will be needed to chase materials and setting out - get away from this as soon as possible by having full plans and specifications done before work starts). The two areas of focus are budget and schedule. Budget and schedule. Budget and Schedule.
Keep on top of costs, keep on top of the timescale - you will make money. Obsess about little problems (which are the builders, not yours) and you will waste your precious time, little by little until you’ve worn yourself out, everything is as near perfect as possible - and you don’t have another project to move onto meaning there is going to be a huge (1 year plus) gap between pay days.
That will hurt.
Getting works agreed before the first hammer is raised will save so much time down the line. Whilst full construction drawings are not always necessary for simpler refurbishments, always ensure your contractor is aware of all elements and is not expecting to add things onto your budget down the line. Setting out means you don’t have to be on site every time a new switch is fitted - it says on the plans where it should be, so put it there! At the risk of repetition, you will get this wrong. We all have but costly errors are the purchase of a life lesson.
Finally, snagging - a word that will come to haunt your nightmares.
When a job is 95% done, it is generally regarded as “practically complete”, in the eyes of an architect - always with some snagging to be done (that switch to be moved, door handles arrived etc.). Do not start snagging during works - it will slow the finish down and have a knock on effect that will become never ending. Have a big focus on practical completion date, get everyone off site, clear the site down - then, and only then, make a full list with the foreman of all snagging to be done - agree a timescale and let them go at it.
You will probably ignore the above paragraph on your first development; you might not on your second! A very successful property developer once told me that when he has works done, he doesn’t let anyone on site after practical completion for 3 months - only then will he have realised what actually needs doing, what is not so important and what has come up that was not noticed before. As a developer, you don’t have the extravagance of the 3 months but hopefully the concept will start to make sense.
Seamlessly underwrite your next property development deal using our online modelling tool at sqft.capital – Model Better, Fund Faster.