Why property development is such a great investment choice

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Advantages of property development. In this article we are going to talk about the reasons why property development is such an amazing investment choice.

However, before we begin, lets define property development.

We define property development as an economic activity which solves a problem or increases value to a fixed asset. Examples of property development include:

-purchasing a decaying house and refurbishing it and selling it to a young family
-buying some agricultural land and obtaining planning permission for something that is needed in the community e.g. a school, shop or houses
-investing in a piece of land or property and building something of greater value – for example buying an old house, demolishing the house and installing twenty new apartments

Property development is completely different to property investment. Property investment involves investing in purchasing a property asset to receive a consistent rate of return. In property investment no problem is solved or no value is added to property. Once you solve a problem or value to a property you are developing a property. Generally property development involves construction and property investment does not involve construction. Property investment will require some asset maintenance but it still does not make it property development.

We deal with property development here and property investment here.




So what are the advantages of property development?

There are several advantages of property development

1 – It is very profitable.

In property development you are solving a problem or adding value to a property. If the market wanted this problem solved then it will reward you.

For example you buy an old decrepit house in a lovely, upmarket neighbourhood which is very popular with families. You demolish the building and build three brand new modern houses in its place. The old eyesore is gone and now there are three new houses for families to enjoy. The market will reward you handsomely for your entrepreneurial skill i.e you will sell the three houses and make a great profit.

2. Time frames for profit generation are small (relative to other investment forms).

If you invest in property development you may receive a 30% return on investment within several weeks. There is no way you can do this by saving and if you did this by buying and selling stocks, currencies or any other business you would be very happy. Using the example of the house above: You buy a house, pay for it to be demolished and for three new houses to be built. This might take nearly a year but in one year you earn a huge profit. You can then repeat every year and even grow your developing into a full time business.




3 – You are improving your communities

This is something we at the property development course are very passionate about. Property development is good. Business and trade are good. Capitalism is good. We believe in entrepreneurship being rewarded.

But we also believe that capitalism and property development can be equally as good for the community as they are for the property developer.

In the example above the property developer makes a profit by building three houses. The community gets rid of an old ugly house that is falling down and is a safety hazard. The community gets three new houses that three lovely families can be reared in creating happy memories for everyone.

Sure, some property developers can give the industry a bad name by trying to build ten shoebox flats instead of the three houses but we don’t like those developers. We believe in good design, high quality construction and finish and a high profit margin.




So what are the disadvantages of property development?

At the property development course we pride ourselves on giving you every angle of the story. There are disadvantages of property development.

1 – Destruction of nature

Let’s say that a property developer wants to build two hundred houses just outside a very busy residential town. Now, the only reason the developer wants to build is because the town is over populated and needs more houses. The developer wants to answer that need (he wants to solve this housing shortage problem) and make a high profit. There is nothing wrong with that.

But what if the only land available was a local nature reserve. This gets town planners and politicians gulping into their coffees because building houses on a nature reserve will bring huge protests.

But what is the town to do? It is a victim of its own success. It needs more houses and the only suitable place to build is the nature reserve.

Now we at the property development course do not advocate clearing the reserve and building the houses. That would be silly because while we would be helping ease the housing shortage we would be killing a valuable part of our local ecosystem.

But the sensible property developer knows there are ways to build the houses and protect the reserve. For example:

  • Another area that is not suitable for building could be identified and the reserve could be moved there
  • The houses could be built in the reserve but could be built of the latest eco designs including green ‘living’ roofs and built around the most important parts of the reserve e.g. a small lake. The reserve could be become an important part of the selling point of the housing development
  • The development of houses could be abandoned and the council could allow high rise apartments be built in the city.
  • The town could give tax breaks and fast planning for people who want to knock down their existing houses with gardens and build two or three houses on the existing land

So, as you can see there are plenty of options if communities come together and try and solve problems looking at both sides. People need places to live but so does nature so it is about some form of compromise.




2 – Noise, dust, pollution

Property development by its definition involves construction.

Construction is dirty, noisy and a total nuisance.

But again, people need places to live so a price has to be paid

3 – Risk of financial loss

Property development has risks.

You are investing money to buy a piece of land or existing property.

Then you have to borrow money to fund the construction of a property and then wait for it to sell.

But we at the property development course point out that financial risk is necessary to make money and grow your wealth.

There is risk in starting a new business or buying stocks and shares.

Property developers accept risk but look to reduce and share risk as much as possible.

 




Charlie Standen
Charlie Standen
Charlie started out as a quantity surveyor and project manager before moving into property development and property investment. He also enjoys all aspects of writing, videography, and new media. He writes content for the property development course on property development, property investment, and property finance.