1. How small is ‘small-scale’ in a property development context?
There is no fixed definition of a ‘small-scale’ development, but this distinction usually applies where a project concerns between 5 and 20 units. These units could be, for example, residential apartments or flats, which together would generate profits of between £100k and £500k over a period of no more than two years. Anything larger than this would generally be regarded as a ‘large-scale’ development project.
2. How difficult is it to undertake a small-scale property development project?
It depends entirely on the nature of the project, the experience of the developer, and other mitigating factors. Even so, a small-scale property development project will always be more complex and costly than a conventional flip or refurb. You will usually be dealing with the development of multiple units within the same project, making it a more time-consuming and labor-intensive process.
3. How easy is it to get planning permission for small-scale property development?
It can actually be surprisingly straightforward, given how you are simply looking to renovate, repurpose or improve an existing building. Planning permission requirements become complex where new builds are concerned – particularly where projects are planned for green areas and non-urban spaces. By contrast, planning permission may not be required at all for a building conversion/renovation and can be comparatively simple to apply for when it is.
4. Are first-time developers at a disadvantage when sourcing finance?
To a degree, yes, this is because many development finance specialists restrict their products and services exclusively to experienced developers. They are unwilling to fund the projects of first-timers and will not consider applications from those who lack experience. Even so, this does not apply in all instances, and there are some development finance companies that are happy to support first-time developers. This is where joining forces with an experienced broker can help – essential for helping you target the right lenders with your applications.
5. How can I fund a small-scale property development without specialist development finance?
Bridging finance works in a similar way to development finance but is often more accessible where first-time developers are concerned. Bridging loans are strictly short-term facilities issued over a period of no more than 6 to 24 months. There are no limitations on how much can be borrowed – maximum loan values are tied to the value of the assets used as security for the loan. Bridging finance can be issued with a comparatively high LTV (often up to 85%), and interest accrues on a monthly basis (typically around 0.5% or less). The funds can then be used for any legal purpose, and the full loan balance, inclusive of all borrowing costs, is repaid in a single lump-sum payment upon completion of the project.
6. Is it necessary to enlist the support of a specialist broker?
The short answer is yes if you are looking to simplify the application process and stand the best possible chance of getting an unbeatable deal. Many development finance specialists offer their services exclusively by broker introductions and do not work directly with borrowers. Elsewhere, brokers have the kinds of established relationships with lenders that translate preferential deals and exclusive discounts. For first-time developers, in particular, applying for funding via a specialist broker is essential.
7. How do I know if small-scale property development is for me?
Before breaking ground on your first small-scale development project, you need to consider all the potential pros, cons, and risks of becoming a property developer. You also need to ensure that all your figures and calculations are correct, which is again where the help and support of an experienced broker could prove invaluable.
