Despite the global pandemic, 2021 looks set to be a lucrative year for the property industry. 

Demand for new homes is high. Boris Johnson remains firm in his commitment to increase housebuilding to 300,000 a year by the mid-2020s and recent changes to the UK’s archaic planning application process have made it easier to change the use of a building, meaning more opportunities for small, independent developers to create homes.

But if you’re just getting started as a property professional, how do you decide which role is right for you? Are you a developer or an investor? Do you know the difference between the two?

What is the Role of a Property Developer?

A developer buys property with potential for improvement, renovates it and either sells it for a profit or rents it out to tenants.

What Skills do You Need?

Property development requires a broad skillset and many people enter the profession when they have several years of work and life experience. 

To be a successful developer you will need:

• Excellent research skills — to identify development opportunities, find reliable suppliers and determine your target market.

• Flexibility — there will be unexpected challenges and development projects may vary considerably.

• Ability to handle pressure — property developers work to strict deadlines and often face pressure from partners, investors and clients.

• Financial acumen — you will need to assess the potential return on investment (ROI) of developments, create projections and keep within project budgets.

• Communication skills — developers rely on business relationships and partnerships with a wide range of backgrounds and specialisms.

• A strong work ethic — this is not a nine to five job; you’ll probably need to work evenings, weekends and manage crises as the need arises.

• Project management skills — keeping developments on track time and budget-wise is essential to ensure a profit and maintain a strong business reputation. 

How to Become a Property Developer

1. Write a Business Plan — if you feel confident that you have what it takes to be a successful property developer, the next step is to decide what type of developments you want to work on and create a business plan.

Will you renovate properties and sell them on? Or do you plan to develop rental properties? Will you focus on commercial or residential properties? Do you have a particular target market in mind — residential homes for the elderly, executive apartments or family homes? Having a clear plan from day one, including business objectives and revenue goals will set you on the road to success. 

2. Choose a Company Structure — one of the most important decisions you need to make is your company’s legal structure.

There are three main options to consider — being a sole trader, setting up a business partnership and establishing a limited company. Each has its pros and cons, and the right choice will depend on your circumstances and finances. Consulting a financial advisor or a legal representative is a good idea. A major difference between the three structures is how much personal financial liability you are prepared to take on.

3. Secure the Financing You Need — if you don’t have independent means to get started, there are several property development finance options to consider:

• Residential mortgages — suitable for a property you plan to live in or sell on; not for developing property that is currently uninhabitable or that you will rent out.

• Bridging loans — typically used by developers to “bridge” the gap between selling one development and starting the next.

• Commercial mortgages — if you’re developing a building for commercial purposes, for example, a shop or restaurant, this is the best option.

• Buy-to-let mortgages — this is the most common choice for developers who plan to rent out the property once it is refurbished.

• Unsecured loans — personal loans can help you cover unexpected costs; however, this can be an expensive and risky way to borrow. 

• Secured loans — another potentially expensive and high-risk way to borrow; secure a loan against your home to raise development funds.

What is the Role of a Property Investor?

An investor typically serves one purpose — to provide the funds necessary to purchase and develop a property. It is the developer’s role to find a suitable project, negotiate the purchase price of the land or property and oversee the development. 

Investors and developers often work together via a Joint Venture Agreement (JVA) whereby the parties pool their resources to complete a development project. 

What Skills do You Need?

Successful investors typically demonstrate several core skills:

• A head for numbers — unsurprisingly, investors need to quickly analyse and understand financial data, manage cash flow and calculate taxes accurately. 

• A solid grasp of the market — investors need to read the market and understand when is the optimum time to buy or sell. 

• Risk assessment — all investment carries an element of risk. A property investor needs to determine what is an acceptable level of risk to take on.

• Communication and networking — investors need developers and many other professionals to make their capital deliver a profit. Networking is essential for building relationships that help investors achieve their goals.

• Calm under pressure — investing can be stressful. For example, if the market dips, jeopardising the expected return on investment (ROI), an investor needs to remain calm and either wait for the market to improve or adjust their strategy. 

How to Become a Property Investor

Property investors need to play the long game; it’s not a get-rich-quick scheme. 

Many of the tips for getting started are similar to those for developers. You will need to decide what type of properties and development you want to focus on and have a firm grip on your finances.

Take the time to research the local area, build connections with developers and other property professionals, and consider finding a mentor who has the necessary investment experience to guide you in the right direction.

There are online platforms, such as Crowdlending, that allow new investors to start small by investing as little as a few hundred pounds in rental properties rather than purchasing an entire property. 

Are You a Property Developer or an Investor?

Although the terms “property developer” and “property investor” are often used interchangeably by people outside the property industry, the roles are very different. Most property developments require the input of both professionals —  and others — to be completed successfully, on time and within budget.

2021 is set to be an exciting year for both developers and investors. Do your research, create a robust business plan, get your finances in order and take the plunge! 

Chris Hodgkinson is the Managing Director of  HBB Solutions. Chris is passionate about the property sector, he loves making deals and he is focused on building the business in an ethical, fair and sustainable way.