Small-scale property development has become one of the most popular property strategies for existing landlords looking to create greater profits and for new investors who may previously have only considered a buy-to-let model. The impressive returns and significant scope presented by the government’s recent changes to Permitted Development Rights have generated unprecedented interest and a wealth of opportunity. But how can those new to development enter the fray and make serious money without making serious mistakes?
For as long as many of us can remember, we’ve been told the country needs to build 300,000 new homes every year. And while it never quite seems to happen, the default view is that this must be an excellent opportunity for the likes of Messrs Barratt, Taylor Wimpey, Persimmon, and Co. After all, presumably they’re the only ones with enough scale to move the needle. But intriguingly, the government believes that small-scale developers will provide one of the biggest keys to unlocking the current housing crisis. And they’re prepared to change the planning system to make it as easy as possible for first-time developers to get started.
The landlords among you might well raise a sceptical eyebrow or two at this point. After all, the last five years haven’t exactly seen a great deal of encouragement from No.10 and its next-door neighbour regarding the property investment sector. So, why would property developers suddenly be on the government’s Christmas card list? The main reason is the ever-increasing number of vacant brownfield sites in the UK. According to the CPRE’s October 2020 report, there is now enough brownfield land to build almost 1.1m new homes. When we add to this the increasing number of retail, commercial, and industrial buildings that have become vacant in recent times, and the dire need to rejuvenate our town centres, we can get a sense of the significant scale and opportunity involved. Covid and the economic downturn have seen many business failures and a change in the way people work and use office space, leading to an increase in the number of available properties and the types of property required. Not surprisingly, the government is keen for brownfield sites to be prioritised ahead of building new homes on greenfield land. However, most of these sites are too small to be of interest to the larger players, who need scale to make their numbers work. Yet for the smaller developer, these relatively simple conversions can typically net profits of £100k to £500k. It’s small beer for Persimmon, but it can represent a very healthy return for small-scale, first-time developers.
Later in this series, I’ll be exploring the raft of both existing and new permitted development rights (PDRs) that allow developers to unlock the value in these smaller projects while minimising the planning risk. But for now, let’s start by looking at how you should go about getting into small-scale property development and exactly what’s involved. The first thing to appreciate is that property development is a business and not a ‘strategy’. Like all good business models, having an underlying system to follow will make a successful outcome far more likely. Over the past 40 or so years, I’ve built a system around eight key elements that comprise the cornerstones of successful development. These ‘8 Pillars’ are:
