Boosting small-scale property development profits by thinking about sales first
By Ritchie Clapson CEng MIStructE, co-founder of propertyCEO
Property development comes in many flavours. For me, the tastiest is one step up from a flip or refurb: small-scale property development (perhaps converting a commercial building into residential flats). Profits can be significant, and to get the most out of such a project it is best to consider sales before you build anything.
Determining who is most likely to buy your units and what they’ll be looking for is crucial. Are they after one-bed or two-bed flats? Do they want gold taps and Miele appliances, or should you keep things cheap and cheerful? And exactly who are your customers? Will they be downsizers looking for parking and larger rooms to fit their furniture in, families who want outside space and amenities, or young professionals who want restaurants and bars on the doorstep? While a spot of internet research goes a long way, there’s no substitute for talking to different local residential estate agents to get their insights. If you make uninformed assumptions, you could find it a struggle to sell your units quickly.
Good design will always make units easier to sell. It also frequently adds value. Hiring an interior designer at the outset can seriously improve the layout/flow of your floorplans and the decor, which can significantly impact buyer appeal. Cost is involved, but you will learn, and that knowledge can be re-used with the benefits of your investment perhaps spanning numerous projects.
If you’re converting an existing building, then you may be able to open up the existing roof void. You’ve got a few options here; you might be able to create some valuable storage space or, if headroom is great enough, a small home office. The other option is to create vaulted ceilings. These can be particularly effective in a smaller flat since they greatly enhance the perception of space and add character that your competition may lack.
Another option when converting a commercial building is retaining some of its heritage features, which can add interest and value. The shape of the rooms and the building’s architectural features all add character and opting for a more ‘industrial’ theme with the internal décor can give your flats an added wow factor. Modern flats often have little character and come with modest ceiling heights, making your apartments stand out.
One of the first rules of developer school is to remember that you’re designing flats for your customer and not for yourself. You might quite fancy the marble splashbacks and gold downlighters, but if they don’t add to your bottom line, they’re a waste of money – remember, you won’t be living there.
The DNA of most flats and houses is identical. At least 95% of what customers see is simply a series of spaces enclosed by painted walls and ceilings. What sets them apart is the other 5%, and this is where you can afford to up the budget a notch or two and create a premium feel to your units. For example, avoiding cheap six-panel internal doors and opting for wooden doors with brushed steel fittings will have a significant visual impact. Similarly, metal switches and sockets ooze quality compared to their white plastic counterparts.
Another top tip is to buy entry-level products from premium manufacturers such as Bosch and Neff when choosing your kitchen appliances. You’ll get all the brand cachet without spending a fortune, and your buyers are unlikely to be too worried that the appliances lack all the bells and whistles of the top-end models. Another area to consider investing in is having deeper splashbacks in your kitchens. However, you should choose carefully when it comes to worktops as these can eat into your profits if you’re not careful. Luckily, plenty of good quality options are available at the lower end of the price spectrum if you can resist your granite inclinations.
Bathrooms are an area where premium accents can make a real difference. Make sure your tiled splashbacks go right down to the floor, and consider putting in some LED mirrors, chrome shaver sockets, and decent shower fittings. If you’ve got the space, think about putting in a big shower cubicle, even in a smaller flat. No one likes a tiny shower, and it will compare favourably with other apartments, even if yours has a smaller overall footprint.
There are a number of marketing ideas to consider that will make your agent’s job easier. Off-plan sales can work well for new-build schemes but are best avoided for conversion projects where the host building is currently an eyesore. People won’t be able to see past it, even if you invest in some CGI mock-ups. Show homes are another marketing option, but you need to plan these carefully with your contractor since they will need to finish one flat ahead of all the others, which wouldn’t be their usual approach. In a conversion project where the flat shapes and sizes are different, show flats are usually not the best strategy as they won’t be representative of every unit.
Dressing your units is another popular tactic, as it allows customers to visualise living there much more easily. Here you’ll install furniture and soft furnishings before you conduct viewings, which comes at a cost. Will you pay someone to dress the units for you, or will you dress them yourself? If the latter, will you be selling the flats fully furnished for a premium, or will you be ‘undressing’ them, in which case you’ll need somewhere to store your furniture until your next project? That said, be careful when dressing smaller flats, as you don’t want them to look cluttered. And if you’re after some design inspiration, simply visit any local housebuilder’s sales suite and see how they dress their own show flats. Do something similar, and you won’t go too far wrong, but, as ever, ask your estate agent’s advice before deciding.
Managing your agent
Keep on top of your agent, and don’t be afraid to switch if you’re not getting the results you were hoping for. You should also be demanding regular updates regarding the number of viewings and the feedback of the potential buyers they’ve shown around. Finding out why people didn’t buy can help you refine your sales strategy in the future, even if it’s with a new agent.
Give some thought to the agent’s fee structure, as you’ll want to ensure they’re incentivised to sell quickly without dropping the price every week. If an agent gets a 1% fee on your £100,000 new apartment (where you’re looking at £20,000 profit), they’ll receive £1,000 in commission. But, if the price drops to £90,000, their fee decreases a little, but your profit halves. So, consider including a ratchet in the agent’s fee mechanism that rewards them for quick sales at a premium price. And don’t try and screw agents down on fees; if selling your units gives them less commission than the other flats on their books, guess how much of a priority you’ll be. It’s far better to pay a premium and get their best performance.
ABOUT THE AUTHOR
Ritchie Clapson CEng MIStructE is an established developer, author, industry commentator, and co-founder of leading property development training company propertyCEO. To discover how you can get into property development, visit www.propertyceo.co.uk