• Fri. Dec 13th, 2024

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The key to making your small-scale property development a success

By Ritchie Clapson CEng MIStructE, propertyCEO

Anything from sticking an extension on your end-of-terrace to building a brand-new town or housing estate can constitute ‘developing property’ – and there’s quite a lot in between. On this development spectrum, there are some sweet spots as well as some step changes.

Buying a doer-upper and flipping it on for a profit is certainly a step up from improving your own home, as is refurbishing a property to rent it out or converting it into a house of multiple occupation. But perhaps the biggest and best step change comes one rung further up the ladder. This is when instead of buying a run-down flat or house to do it up, you take a commercial building and convert it into residential.

At face value, not much has changed. Putting some flats above a shop or converting an old office building into a handful of apartments still sits at the lower end of the development scale. You create more homes than with a flip, but the fundamental principles are the same. There are, however, some key differences, and they’re all linked.

The first is the scale of the profits involved. The average flip produces profits of just under £50k, whereas a small conversion project is likely to net you between £150k and £500k, depending on its size and location. Similarly, the budget for a flip might be several tens of thousands. However, a small conversion project is likely to run to a few hundred thousand pounds – a big step up. The good news for you as the developer is that you can get 100% funding for the development costs through the well-established commercial lending market.

Another critical difference facilitated by this increased budget is the ability to bring in more expertise to help you. You can afford to hire a main contractor to take care of the construction rather than a jobbing builder, usually a much better solution that involves fewer headaches all round. But perhaps the most significant impact on you as a developer is the affordability of a secret weapon that will totally transform your experience. Someone who will allow you to sit back and let them take much of the strain by overseeing your project for you: a Project Manager.

Many new developers consider managing their own projects, presumably to save money or perhaps because they think they will enjoy it. I would counsel against it. With a refurb or flip, you’ve little choice but to adopt a DIY approach since your budget won’t stretch to hiring a project manager. But with a conversion project, the budget is available, and having a good project manager on board will completely transform your experience as a developer.

The problem with the DIY approach is usually a lack of experience. Don’t make the mistake of thinking that because you’ve managed a project in another sector or discipline that overseeing a construction project will be the same – it won’t. As someone who teaches new property developers for a living, I’ve taught many construction project managers how to develop property for themselves. They look surprised when I tell them not to manage their own projects. After all, surely that’s their number one advantage? The penny starts to drop when I ask them whether they are learning development in order to do more project management work or to earn enough money not to be a project manager anymore? There’s only ever been one answer to that, and that’s because project management of a construction site is hard work, and you get paid a lot less than the developer does. And getting paid more for doing less is usually an easy decision for most people to make.

The advantage to you as the developer is that your Project Manager will be coordinating everything on site so that you won’t have to. Instead, you play more of an executive role. You’ll have a weekly phone call with your project manager, who will have been to the site, to meet with the key protagonists and check on progress. They’ll also deal with the numerous bumps in the road that can crop up in development while you’re sitting at home doing something far less taxing. Compare this to the newbie, first-time, have-a-go developer who tries to manage their own project, and the stress levels are incomparable. Why be worried about meeting your construction team on site and feeling like a fish out of water due to your inexperience? A Project Manager will have your back. It’s the same when it comes to contractors trying to pull the wool over your eyes, as project managers have seen and heard it all before.

So how do you go about finding this superhero? Here are my top five tips for bagging yourself a peachy Project Manager:

  1. Get some recommendations

Construction project management is a defined role in the construction industry, and there are many to be found working up and down the country. If you can, the best way of finding a good one is through word-of-mouth recommendations. Speak to other professionals such as architects and contractors to see if you hear any common names, and then go and interview them personally. Of course, you can always start with an online search to come up with a few names if you’re just starting out, but when you meet them, be sure to ask for references from their previous and existing developer clients.

  1. Make sure you get on with them

I’m not suggesting that your project manager will become your best friend, but you must be able to get along. They are your eyes and ears on the ground, and they will almost certainly pay for themselves through the tighter controls that they’ll bring to your scheme. They’ll raise any issues with you and will be able to guide you based on their experience. In short, they will be the most valuable member of your team, so it makes sense to appoint someone with whom you can get along. If you’re speaking to a larger practice with several Project Managers on their team, make sure you have met in person the individual that would be appointed to your project.

  1. Make sure they have experience of the type of project you’re doing

As development projects come in a wide range of shapes and sizes, from large new-build housing projects to small-scale conversion schemes, make sure that your project manager has experience doing the sort of project you’re looking to do. Ask them about similar projects they’ve done and see if you can speak to their clients to get some direct feedback, both good and bad. Conversion projects are different from new builds, so make sure they have the right track record.

  1. Go local if you can

You ideally want to find a project manager who lives within striking distance of your project. There are several benefits to this. The first is a practical one: they’ll need to go to the site several times a month, and so it will cost you more if they have to travel long distances to get there. Also, it can often pay dividends for the Project Manager to have local connections. There’s a fair chance they’ll have worked with some of the other professionals on your team before, plus they’ll know other local professionals and contacts that can be called on if needed.

  1. Avoid creating a clique

Recommendations can work both ways, and there’s no harm in asking your project manager for other professionals they recommend. After all, your interests are going to be aligned. You don’t want any lazy, inept, or unreliable people on board, and your Project Manager certainly won’t either. However, just be careful about creating a clique. If the Project Manager and the contractor are bosom buddies, you need to be confident that the former will call out the latter if they do something wrong. You won’t want any mistakes brushed under the carpet or, worse still, marked up as ‘sundry items’ and appearing on your bill.

So, there are a few tips to get you started. Working with a project manager on the team doesn’t mean you should never show your face on site. I would highly recommend you visit now and again to rally the troops and take the time to speak to the people who are working on the coalface. After all, they are the people who will be finding practical solutions to problems that could otherwise cost you money to fix, so it pays to be both visible and friendly. Aloofness won’t win you any friends, and it will almost certainly cost you money.

But with a good project manager on board, your life as a developer will become immeasurably easier. Many people assume that conversion projects would be more difficult and stressful than a refurb or flip. After all, they generate much bigger profits, so therefore surely, they must be more challenging. That’s not been my experience, and I’ve been in development for forty-odd years, so I have seen more than a few of each. For my money, conversions are much easier, and that’s mainly because you can afford to hire better people to do more of the work that you might otherwise have done yourself. It also makes it easier for landlords and other investors to take on conversion projects because it makes the journey far more passive. And the biggest factor in making that happen is the humble project manager, truly the property developer’s secret weapon.

ABOUT THE AUTHOR

Ritchie Clapson CEng MIStructE is a veteran property developer of almost 40 years and co-founder of propertyCEO, a nationwide property development and training company that helps people create a successful property development business in their spare time. It makes use of students’ existing life skills while teaching them the property, business, and mindset knowledge they need to undertake small scale developments successfully, with the emphasis on utilising existing permitted development rights to minimize risk and maximize returns.

https://propertyceo.co.uk/

https://www.facebook.com/propertyceotraining/

https://www.instagram.com/propertyceotraining/

https://twitter.com/Property_CEO

https://www.linkedin.com/company/propertyceo

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