Entrepreneurs see opportunities that are not necessarily apparent to others. Some take the Branson approach – looking at a mature market and coming up with ways to do things better and more profitability. Others identify demand for a product or service that is not yet being met by existing providers. And there are those who have the gift for seeing the value in a deal – say the prospective purchase of a struggling business – that others would pass. The common factor is the ability of the entrepreneur to see and act on an opportunity.
Entrepreneurship in the property sector is no different. Despite all the concerns about the impact of Brexit on both commercial and residential property, there is a broad spectrum of opportunities in the UK for those who understand their target market. In the residential sector alone, the buy to let, buy to sell, build to let and build to sell segments are all capable of delivering returns.
But those opportunities are not necessarily obvious, or indeed even on the radar screens of those with an interest in property investment.
Less Than Obvious
For instance, take a walk through a residential area of any British city, town or village and the chances are that before very long you’ll walk past a group of lock-up garages serving nearby houses. Often they are almost out of sight, but every town has thousands of them and very often they are owned by local authorities, housing trusts or private landlords and rented out to residents as places to park their cars or as workspaces. A single landlord might own hundreds of them and when a portfolio comes up for sale a buyer has an opportunity to secure a rental income from a multitude of properties. And yet, very few people walking past a parade of lock-ups would give that opportunity very much thought.
That’s just one type of opportunity. Low profile, unsung and potentially very lucrative if the portfolio is big enough. Skipping to the other end of the spectrum, demand for accommodation continues to drive development projects.
The fabric of our cities is changing. There are a number of factors at work – where previous generations might have rushed out of City and Town centres in search of leafy suburbs, today’s generation of young and relatively young professionals is gravitating back towards the shops, restaurants and places of entertainment that characterise urban life.
Buy to let landlords are, of course, capitalising on this demand, often through single properties or relatively small portfolios.
But for more ambitious, there is development potential. For instance, changes to the law made in 2013 mean that many offices can now be converted to homes without planning permission.The change has sparked a development boom. What’s more, changes in local economies mean that former office space is coming available, providing a relatively cost-effective development opportunity. Alternatively a developer may choose to refurbish Edwardian or Victorian houses and sell or rent at a premium.
That’s only part of the story. Elsewhere in urban areas, there of course old buildings that are earmarked to be torn town and their areas redeveloped either with commercial or residential property that is more suited to the requirements and demands of the earlier twentieth century. In town and city centres we are seeing old offices and housing being replaced by new apartment blocks.
The Business Plan
The art and science of the property entrepreneur is to not only see the development opportunity but also to assemble a viable business plan that takes into account all the costs associated with the development set against the achievable returns from either rental or sale. That in itself requires a thoroughgoing knowledge of the local property market in terms of potential buyers and/or renters and cash at their disposal.
So in business planning terms, there are a lot of moving parts that have to be taken into account and for the inexperienced – and even very experienced developers, there is ample scope for problems to arise – say if unexpected costs mount up or a misreading of the local market threatens to run a coach and horses through carefully worked out financial projections.
It’s perhaps for these reasons that property development can seem like a daunting undertaking, not only to entrepreneurs but also to potential backers – who will, for the most part, be lenders.
There is a range of property development finance available, but the biggest challenge for a would be entrepreneur lies in securing the confidence of lenders.
This is a field in which track record is important. An entrepreneur who has some experience of development projects will be more likely to secure backing – and thus take advantage of the opportunity – than one who hasn’t. Lenders will also tend to favour those with an ‘an industry’ history – for instance, people who have worked at a senior level for a property company. Clearly a well thought out business plan that is sense tested to include both best case and worst case scenarios is also essential. Security is also a key factor.
Let’s assume for a moment that the business plan stacks up. In today’s financial marketplace – where there is a high degree of economic uncertainty – no entrepreneur can take it for granted that he or she will secure the capital to fund a property deal. So it is important to consider all the options – including alternative finance platforms.
In the wider Peer2Peer lending marketplace, many investors arguably don’t have the expertise or appetite for risk to successfully back a project that is outside their own comfort zone. And given the diversity of property opportunities, many projects will take investors into unfamiliar territory. Some projects will be unique.
The Route – Finance, however, has a track records of backing entrepreneurs in special situations through its Private Debt Platform. The key to The Route’s approach is a community of sophisticated investors who pre-mandate cash to invest in projects that have the potential to deliver a higher than average return. The Route itself has a team of property experts who see the wealth of opportunities in the UK Market. Increasingly The Route is assisting property entrepreneurs to realise their ambitions across a diverse range of projects.
To find out more call: 020 3141 9040