How to become a property developer in West Wales

Across Wales, there was a 62.34% shortage of the required housing being completed in 2022, with West Wales seeing some of the smallest figures across the region. Could a new generation of developers be the answer to the shortfall?

New build construction alone is insufficient to address the supply and demand imbalance, but new tax legislation on second and empty homes could see many more properties available for ‘flipping’.

Across Wales, more than 14,000 new homes are needed every year for the next 15 years, but only 5,273 dwellings were completed in 2022, according to the Wales.Gov website.

In West Wales, which combines Ceredigion, Pembrokeshire and Carmarthenshire, only 714 were completed between 2021-2022. However, although more builds are happening across West Wales, with Ceredigion implementing a new housing scheme to build more affordable housing and several new proposals being outlined in Carmarthenshire and

Pembrokeshire, it’s still not enough to reach demand.

While new builds could help increase the number of properties in West Wales, another method could see quicker returns for property developers. A second and empty house scheme being implemented across Wales could see much-needed property recirculating back onto the market.

Carmarthenshire Council approved a 50% premium on second houses and a 50% premium on properties that had been empty for one to two years earlier this year, with some exceptions. The premium climbs to 100% – or a doubling of council tax – for properties that have been vacant for two to five years and 200% for those that have been abandoned for more than five years.

Ceredigion Council is now only raising 25% higher council tax on second houses, less than the 100% allowed by legislation in Wales since 2015.

According to the BBC, Pembrokeshire County Council, which has almost 3,000 second houses – the most in Wales – now charges a 100% council tax premium on those homes.

This new tax legislation could see new developers being able to invest in property across West Wales and earn a healthy return with ‘property flipping’.

Property price increases could see an influx of property flipping in West Wales.

A recent survey of more than 1000 property investors by Finbri, a UK bridging & development finance company, found whilst 45% were looking to invest in property in 2023, Wales was disproportionately underrepresented when it came to bridging old properties back into the market through ‘property flips’. Only 5.49% of properties in Wales were refurbished and resold, compared to 17.48% in the surrounding West Midlands.

First, capital appreciation: The value of your property holdings increases over time. You can eventually make a significant monetary gain by selling your properties individually or as a portfolio. But you don’t have to wait long for your capital to appreciate, especially if your property development strategy is to buy property to renovate or refurbish it and immediately sell for a profit. This is referred to as property flipping. According to Bridging Market’s 2022 poll, more than half of home flippers profited between £10K and £50K, with only 1% losing money.

Second, if you maintain and rent your property, you will earn a steady income from the tenants. In fact, according to another piece of Finbri data, rents are growing across the UK, with specific areas seeing 14.6% hikes in the year up to September 2022 – and no, it wasn’t London.

But how do you get started in property development?

Keeping it simple may be the best way to establish a good profit margin on your first property development project.

Taking up a simple property development project has numerous important advantages:

Most importantly, it is less risky.

It can still make a decent profit.

It has a lower learning curve.

It is less difficult to fund.

There are more opportunities available.

If you work in a trade, you can finish some components of the work yourself, lowering your expenditures.

Purchasing a property to refurbish for sale or rental is one of the most basic forms of property development.

First-time property investors are sometimes drawn to crumbling, outdated homes and apartments that require a simple fix and a cosmetic makeover.

If you’re new to property development, this type of residential property is an excellent place to start because it allows you to use your prior home-buying and renovation experience without requiring specialised knowledge of the commercial, storage, office, or student housing markets.

Aim for a profit margin of at least 20% on a repair and flip.

If the profit margin is insufficient, be prepared to walk away.

Your initial profit is determined by your buy price; you control how much you pay, and the market sets your sale price.

Expert advice for inexperienced developers:

Every item has a “ceiling value,” or the highest price it may possibly receive in an open market transaction. Even the most expensive fixtures and finishing touches will not raise it above the ceiling.

Instead of buying the worst house on the finest street, look for the next best street or growing district.

Listen to real estate agents: open-plan living rooms may add more value than an expansion.

Decide if you want to sell or rent out your investment right now, but consider other options in case plan A doesn’t work out.

Your investment property is being rented out.

If you don’t intend to keep the property, you’ll most likely look for a buy-to-let mortgage to cover the cost of the acquisition.

Your development selections will be influenced by the community in which you purchased the property and your projected rental income.

Does this house, for example, offer enough bedrooms to appeal to families, young professionals, or students?

Renting to a single tenant, a couple, or a family

A single lease with a single tenant, a couple, or a family is the most typical option for new investors.

Your monthly rental income covers your buy-to-let mortgage, as well as additional administration and maintenance costs, leaving you with a profit.

Low management costs, only one tenant relationship to maintain, and a high likelihood of long-term retention.

If there are void periods when the property is vacant and uninhabited and earns no money, your annual profitability is jeopardised.

HMOs are multi-occupancy houses.

An HMO – renting out specific rooms in a property where everyone uses a communal

kitchen, living area and toilet facilities – is an alternative to renting to a single renter and a popular option for renovations.

Leases are individually negotiated.

A much higher monthly rental revenue is possible, but at a higher expense for maintenance and care.

A large HMO that rents to five or more independent tenants (with additional management obligations) can be even more profitable, but organising the necessary improvements and maintenance can be more challenging.

If you have an HMO or Large HMO, you will continue receive rental income even if the home is not totally occupied.

There is also tougher planning for HMOs, so check with your local authorities before beginning a project!

You can also sell the property after it has been renovated.

Long-term mortgage funding isn’t the ideal option if you intend to sell the house after you’ve remodelled it. If you pay off your mortgage early, you may lose a significant amount of your profit due to early repayment costs (ERFs).

You’ll be looking for short-term money, often known as bridge finance or bridging loans, that you may repay whenever you want – as soon as your projects are completed.

Here are the three critical phases that will determine your success.

To become a successful developer, you must first master three important phases:

Sourcing, feasibility, and planning are all important considerations.

Financing and a plan for leaving.

Construction, project management, and scheduling.

Sourcing, feasibility, and planning are all important considerations.

Sourcing, feasibility and planning.

When looking for a house, try to locate the greatest price possible and think critically and honestly about its potential. Conduct extensive market research on local house price ceilings, rental rates, and up and coming locations – get to know the area you’re thinking about investing in. Better yet, stick to something you’re familiar with. Instead of buying the worst property on the nicest street, seek for a house on an adjacent street that is more affordable to you and your possible buyer or renter.

The next step is feasibility, which involves determining how financially and practically feasible your proposal is. It’s good to test the viability of a few hypothetical projects so that when an opportunity arises, you’ll have the funds to act promptly. Set budgets for each component of the development project and then figure out how to finance it. Answer things

like how much it is and how you intend to finance it:

Surveyors’ reports, architect fees, and planning fees

Deposits for the acquisition of real estate

Mortgage or bridge finance fees for the remainder of the buying price

Stamp duty and conveyancing charges

Costs of construction (trades, supplies, scaffolding, cranes, cherry pickers, and so on).

Whether you’re selling or renting your home, ‘dressing’ it with at least basic furnishings will certainly help you financially.

If you’re selling, throw in estate agent fees, another round of legal fees, and figure out how much personal tax you’ll wind up paying to avoid nasty HMRC surprises.

If you plan to depart the rental market, consider letting agent costs if you aren’t used to being a landlord.

A word of caution: there are tax advantages and disadvantages to purchasing a property as an individual or as a property development company. Getting it right from the start is wise, but the best option for you is entirely dependent on your unique circumstances. Seeking assistance from a financial specialist, such as a financial counsellor or accountant who is familiar with both the current tax and cost implications of each technique, will be time and money well spent.

Financing and exit plan:

High street banks are generally not set up to fund this type of project because their lending rules are not as flexible as those of private and specialty lenders, and you will almost certainly be charged much higher interest rates.

A skilled finance broker can look at all of your options, even private banks that are closed to direct borrower approaches, and find you the best loan solutions for your circumstances.

Depending on the complexity of the work necessary and the amount of deposit you have, you may need a combination of cash sources for your restoration project.

A buy-to-let mortgage, bridging loan, development finance, or second charges could all be used to raise funds.

If you need to raise funds, it’s critical to understand the various funding possibilities. Speaking with a respected broker will rapidly provide you with an overview of the type of finance you can acquire, the cost of that funding, and the general lending conditions you’ll need to meet. The directory of the Association of Bridging Loan Brokers & Lenders contains a fair selection of trustworthy bridge finance brokers and lenders.

Any financing will require an exit strategy. That is the procedure for recouping your investment and making a profit. Your exit strategy will be based on either selling the property or continuing to rent it out while repaying the original financing with a longer-term mortgage.

Construction, project management, and scheduling.

Finally, you must oversee the construction process and guarantee that it is completed on time. Keep in mind that any overrun will raise the cost of any borrowing you have accounted for. Will you hire a general contractor to oversee the trades? Will you hire a project manager or manage the task yourself? This question will most likely be answered by the scope of the project and your trade skills. To summarise, don’t bite off more than you can chew. To keep expenses under budget, all development projects require rigorous planning and project management.

You must plan every detail of your development project. Which trades will you need, and will the trades overlap at any time, causing scheduling issues on the job site? Can you upskill to cover any simple trades? Create a schedule to determine how long each sort of project will take.

Incorporating these challenges and building a complete strategy can assist you in successfully navigating the property development process. You can increase your investment opportunities by addressing housing needs.