Property planning and development from an investor perspective can be overly complicated and, as a result of the confusion, common sense thinking can be lost in the mire. So, before parting with your money, what are some of the factors to consider around property planning and development that investors need to take into account? Find below a breakdown of some common sense property investment factors to consider:
Understanding the locality is essential with any property investment, especially when it comes to planning. To help understand what is driving the local market, a few questions to ask might be:
What is local demand?
One way to answer this question is to ask: are property values in the area rising, and what are the yields on rented property in the area? If property prices and yields appear to be growing, this is a good indicator that the market is healthy.
Are there any other developments in the area?
The success or failure of like-for-like developments in the area could give some interesting insights into whether the claimed ROI is achievable. The industry term for real data on similar properties is “comparables”. Be wary of areas where there are many developments. This might be an indicator of a “boom” – an overheated market that could lead to a “bust”.
What are the local planning regulations?
Planning permission in some areas, like national parks, can be harder to obtain; this can add exclusivity to a venture and might positively influence the ROI.
Who are the developers/builders? And do they have a track record of success?
Any good developer will have no problem with being able to provide evidence of past successful developments. Checking a developer or builder’s company history on Companies House can give you some insight and will provide you with some idea as to who the directors are.
It is also good to consider who the other backers are. If something goes wrong, do you have a legal charge on the assets associated, or do they? Having a legal charge is a good form of security for your investment.
Are the building plans realistic?
A degree of common sense and knowledge can be applied as to what is realistic and achievable. While some of the more complicated matters of planning law require expert knowledge, common sense can prevail when you consider this in relation towards a residential development: will the planned building works enhance and improve the area? If the answer is no, then it is unlikely that the site will get planning permission.
While it might feel time-consuming to read what can sometimes be quite lengthy terms and conditions, the saying “the devil is in the details” applies here. Ensuring that the marketing materials for the investment are FCA-compliant can also add some reassurance. Other factors to consider are:
What is the length of the investment and are you comfortable with your money being tied up for that long?
Consider that time frames mentioned are estimations, and, as with any building project, there can be delays. This means that your money could be tied up for longer than anticipated.
Are there return hurdles/targets attached to ROI, and what is the exit strategy?
It is essential to understand the conditions upon which you are paid and whether the exit of the investment is achievable. If your returns rely on the market moving, you must ask: how much value are the developers adding and are their fees justified for the amount of work they are doing?
This is by no means an exhaustive list. However, it does highlight some of the critical risks and how to mitigate them with a little common sense. As always, as with any investment, only invest an amount of money that you feel comfortable with and always seek independent financial advice before investing.
All investors should be aware that their capital will be at risk. The value of investments can go down as well as up. Forecasts are not a reliable indicator of future performance. Brickowner investments are not covered by the Financial Services Compensation Scheme. There is no recognised market to sell Brickowner investments. Brickowner investments are illiquid. Always seek the advice of a qualified independent investment advisor with any questions you may have regarding any of the above.