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Join the developers! How to be a developer… without being a developer.

Posted on February 16, 2016 · Posted in Chris Mansfield - Blog

If, like me, you’ve watched with barely concealed envy, the vast amount of money that appears to be made by property developers, but thought that you’d NEVER have the capital needed to join in their game – then sit back and read this article.

I’m going to explain exactly how they do what they do. And even better: I’m going to tell you exactly how you can join them – at a fraction of the cost of what they have to commit.

Let’s start with how developers make their profits.

The principle is always the same: take land or property that is valued at one price, and develop or improve it, for sale at a higher price. That principle applied in practice might see a developer acquiring a property that is in need of repair or improvement (which could be a single property, or a street of properties, or a flat, or a block of flats), and investing capital in improvements that then attracts a greater price than everything that was spent when the property goes back to the market.

 

So far, so potentially expensive.

But potentially even more expensive is the second way that developers make their money. This way involves buying land, getting planning permission, designing the property, getting it built, and then taking it to market. The accepted proportional split on costs and profit is that the final price of the development is broken roughly into three equal parts: the cost of the land, the cost of the build, with the final third being the profit. You can see from that breakdown that, depending on the size, location and quality of the development, the developer is going to have to speculate many hundreds of thousands of Pounds in order to be in that marketplace.

 

So far, so prohibitively expensive.

Yet this is precisely where you, and many other investors, can join developers in making profits.

That’s because, before the developer can make ANY progress, they need to have the money, either in place, or available. This money traditionally comes from only four sources: the developer’s own liquidity; the developer’s ability to borrow from banks or institutions; the developer’s ability to borrow from large private funds; or the developer’s ability to attract money from a number of smaller investors – like you.

So effectively, you become the bank. You lend your money to the developer, at a rate far higher than the same money would get in your savings account, or bonds, or gilts, and the developer proceeds by pooling your money and all the other investor’s money into the land and build. You then either receive income or a share of the profits in return for “lending” the developer the money.

I’ve currently got a number of such developments available for investors. They are not complex, they are not costly, and above all – they are not crooked. I have checked them in scrupulous detail, and many of my clients have already invested, and are very pleased with their returns.

 

Let’s review the potential benefits of joining the developers:

  • You can benefit from significant returns despite not having a huge amount to invest.
  • You can invest with peace of mind despite having absolutely no skills as a developer.
  • You can often invest over a short term.
  • You can achieve yields of 10% + per annum.
  • Your investment is backed by the equity of solid property.
  • You can, in some cases, get first charge on the development, so securing your investment even more.
  • You can use these investment vehicles as the first step from being a saver to an investor.
  • Your investment can be deedable and willable.
  • You can use relatively small amounts (£10,000 would be typical), to achieve a more diversified portfolio if you’re an established investor.
  • You can efficiently use your capital if you’re a High Net Worth investor.

And that’s how you can join in the profits of the developers, without having to be one, or even understand the intricacies of what they do.

And, most importantly: without having to commit a fortune.

If you’d like to know more about how investing in property might help you, just get in touch with me, Chris Mansfield, at c.mansfield@davenport-wealth.com, or call me direct on 01273 763 900.